J. Bradford DeLong's Blog, page 327
August 2, 2018
The "optimal tax" literature in economics has always been...
The "optimal tax" literature in economics has always been greatly distorted by the fact that models simple enough to solve bring with them lots of baggage that leads to misleading���and usually anti-egalitarian and anti-equitable growth���conclusions that would not follow if we had better control over our theories. Here Saez and Stantcheva make significant progress in resolving this problem: Emmanuel Saez and Stefanie Stantcheva: A simpler theory of optimal capital taxation: "We first consider a simple model with utility functions linear in consumption and featuring heterogeneous utility for wealth...
...This allows for a tractable optimal tax analysis with formulas expressed in terms of empirical elasticities and social preferences that can address many important policy questions. These formulas can easily be taken to the data to simulate optimal taxes, which we do using U.S. tax return data on labor and capital incomes. Second, we show how these results can be extended to the case with concave utility for consumption. The same types of formulas carry over by appropriately defining elasticities. We show that one can recover all the results from the simpler model using a new and non standard steady state approach that respects individual preferences even with a fully general utility function...
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Henry Bodkin: Europe braced for hottest day in history as...
Henry Bodkin: Europe braced for hottest day in history as farmers granted emergency access to river water: "Europe is bracing for the hottest day ever recorded...
...The Met Office yesterday predicted that all-time records of 47.3C for Spain and 47.4C for Portugal are likely to be broken over the next few days, prompting the Foreign Office to issue an official warning to tourists about the risks of forest fires. It comes as experts confirmed that the British summer of 2018 is officially hotter than that of 1976, with last month the third warmest July on record. Temperatures in southern England are expected to return to near record levels above 30C from Friday as hot air originating over the Sahara blows north, forecasters said...
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Aspen: Multilateral Institutions and International Coll...
Aspen: Multilateral Institutions and International Collaboration: Back when I was in the Clinton administration, I remember pressing the Treasury International people on how better funding and more substantive independence for multilateral institutions ought to be a much higher priority���and their response was: "We want to keep them on their leashes so we can run the show. We are the US. We are the boss".
And then, lo and behold, Bob Dole unleashes Al D'Amato to make trouble about the Mexican financial crisis and the fallout from that leaves the US hobbled with 1997-8 comes around, and there was a general current of: "yeah, it would have been better if a much more well-funded and truly independent IMF had been able to handle both on its own."
US politics now are obviously so fraught and dysfunctional that it seems to me we should be ceding power over multilateral institutions as fast as possible, while also beefing up their financial resources. What roads are available to accomplish that?...
Aspen: Approaches to Fragility: One of the great myster...
Aspen: Approaches to Fragility: One of the great mysteries puzzling me in my Visualization of the Cosmic All is the extraordinary disjunction between the two acts of Chiang Kai-Shek's career. The first act���Chiang Kai-Shek and his Guomindang as rulers of China between the Northern Expedition and the Japanese invasion���produced a highly-corrupt government that did not seem to be nurturing economic convergence and rapid industrialization. The second act���Chiang Kai-Shek and his Guomindang as rulers of Taiwan after 1949���is one of the most glorious episodes of economic development produced by any democracy-minded or not-so-democracy-minded strongman.
What should I read to understand this?...
Aspen: Approaches to Fragility: This started as a joke-...
Aspen: Approaches to Fragility: This started as a joke-of-the-moment, in response to talking about "fragile states" in which farmers fight with herders. But it is more. This is Colorado. However, this is the American West. And of the American West we remember that, at least in Broadway's version of Oklahoma, the farmer and the cowman can be friends. But the farmer and the cowman can be friends only when there is a matriarch with a shotgun in the picture.
One reading of world history is that a huge amount of the civilizing process is accomplished when people's mothers and aunts gain social power. The academe that we have has not thought very hard about how it is mothers and aunts gaining social power, or about what we can do to assist this process in the states me regard as fragile...
The Rise of the Robots: Some Fairly-Recent Must- and Should-Reads
Very wise words from close to where the rubber meets the road about how the Rise of the Robots is likely to work out for the labor market over the next generation or so: Shane Greenstein: Adjusting to Autonomous Trucking: "Let���s come into contact with a grounded sense of the future.... Humans have invented tools for repetitive tasks, and some of those tools are becoming less expensive and more reliable...
The answer is: probably in the late 1960s: Joe McMahon: When was the last time all the computing power in the world equaled one iPhone?: "When was the last time all the computing power in the world equaled one iPhone?...
IMHO, the "long run" problems Martin discusses need to be postponed: we don't know enough about the future to even begin to think intelligently about them. The "medium run" problems, by contrast, deserve a lot of attention right now: Martin Wolf: Work in the age of intelligent machines: "How do you organise a society in which few people do anything economically productive?...
Wikipedia: FLOPS
Kevin is, I think, wrong here. Radiologists are not (yet) in trouble. Radiologists as image-reading 'bots are in trouble: Kevin Drum: Puny Humans Crushed By Machines Yet Again: "Radiologists are already in trouble, and if a robot can pass a medical licensing exam summa cum laude then how much longer can it be before robots are making house calls? Everybody thinks of truck drivers and retail clerks as the first victims of the coming robot revolution, but that isn���t necessarily the case. Jobs that require no tricky physical proficiency but very deep analytical skills are going to be some of the first to put people permanently out of work. In a sense, though, this is a good thing, since it means the challenge ahead will finally get some serious attention...."
Ben Thompson: Intel and the Danger of Integration: "Intel... has spent the last several years propping up its earnings by focusing more and more on the high-end, selling Xeon processors to cloud providers...
Neither Adam Smith���s nor Henry Ford's picture of the economy is relevant for us today. What thumbnail picture is relevant? We do not know, but Bill Janeway thinks harder and more successfully about this question than anybody else I have seen... William H. Janeway: Doing Capitalism in the Innovation Economy, 2nd Edition
Seth Godin: Failsafe tip: "The last thing to add to an important email is the email address...
Necessities become things that are beneath our notice. Conveniences become necessities. Luxuries become conveniences. And then we invent new luxuries���like feeling put upon yesterday because a new 2 terabyte backup disk cost $70 and took 8 hours to get delivered to my door so I couldn't get all of my backups done last night: Jeff Bezos: Divine Discontent: Disruption���s Antidote: "One thing I love about customers is that they are divinely discontent...
Paul Krugman says that the public sphere���even the good part of the public sphere���has gone wrong because of the threat and the menace that is twitter: Paul Krugman: Monopsony, Rigidity, and the Wage Puzzle: "This discussion is taking place marks a kind of new frontier in the mechanics of scientific communication���and, I think, an unfortunate one...
Note to Self: I am pretty good at making sure Twitter does not seize my attention and hack my brain. But many other people are not. Platforms so that you can control aggregators. How was it that Tim Berners-Lee's Open Web crushed the Walled Gardeners in the 1990s? And how have the Walled Gardeners made their comeback? And what can be done?: Manton Reece (2014): Microblog Links: "Brent Simmons points to my post on microblogs and asks...
An interesting and complex argument: Ben Thompson: The Moat Map: "Aggregators and Platforms.... Apple and Microsoft, the two ���bicycle of the mind��� companies... platforms.... Google and Facebook... products of the Internet... not to platforms but to aggregators.... Platforms need 3rd parties....Aggregators attract end users by virtue of their inherent usefulness and, over time, leave suppliers no choice but to follow the aggregators��� dictates.... [But] what of companies like Amazon, or Netflix?... Clearly both have very different businesses ��� and supplier relationships ��� than either Google and Facebook on one side or Apple and Microsoft on the other, even as they both derive their power from owning the customer relationship.... Owning the customer relationship remains critical: that is the critical insight of Aggregation Theory. How that ownership of the customer translates into an enduring moat, though, depends on the interaction of two distinct attributes: supplier differentiation and network effects..."
With respect to U.S. technological leadership, it may be time to start quoting John Donne: "Ask not for whom the bell tolls..." And remember England, starting a centurty and a half ago Dan Wang: How smartphones made Shenzhen China's innovation capital: "Companies have invested millions of dollars in figuring out how to make them small, cheap, and light enough to include in smartphones. And most of these chips have proven useful well beyond the smartphone market. As a result, we're in the midst of a hardware renaissance, in which it's easier than ever to develop and market new gadgets. The center of this renaissance is Shenzhen..."
Is this right? Is this robust? If it is, this is amazing:...
Is this right? Is this robust? If it is, this is amazing: Kevin Drum: College-Educated Republican Women are Extinct: "College-educated white women? They support Democrats by a net of nearly 50 points. And it shows no signs of bouncing back and forth...
...The more they see and hear of Trump, the more they hate him. Maybe this is the reason. I don���t know. But thanks to Trump, college-educated white women would apparently be pretty happy to see the Republican Party annihilated and replaced with something else.
Trump has had the same effect, but a bit smaller, on every other demographic group too, wiping out most of the Republican Party���s gains made during the Obama era. The only exception is white-working-class men, which was never really a Trump effect in the first place. They���ve been leaving the Democratic Party steadily ever since the Democrats nominated a black guy for president. But even their support for Republicans has taken a dip lately.
But even for all those angry white guys, I wonder if they���re starting to see Trump as an empty suit. Sure, he talks big, but there���s still no wall; NAFTA remains in place; North Korea still has nukes; he caved to Europe on trade; Putin seems to have him by the balls; Mueller seems to keep finding a lot of smoke, rich people keep getting tax cuts; and their own paychecks don���t seem any bigger than usual. Trump better start delivering soon if he wants to keep all those working-class white guys in his camp...
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Kevin Drum: "I���ve been blogging for 15 years, and there...
Kevin Drum: "I���ve been blogging for 15 years, and there���s never been a day when I wanted to stop...
...Atrios likes to remind us that George Bush was a worse president than Trump. Technically, that���s true: he launched a stupid war that killed thousands of people and probably prevented us from winning the war in Afghanistan that we really needed to win. Trump hasn���t done that yet���though he might, given time. But there���s more to a president than that. There���s also the content of his character. I will never let Bush off the hook for approving the torture of enemy combatants, but at least he had the excuse of doing it right after 9/11 and the decency to be sort of embarrassed about it (thus the euphemisms). Trump, by contrast, considers it ���strong��� to loudly and proudly support torture���and the worse the better. Bush also wasn���t racist...
This makes Trump far worse to take on a daily basis. It���s one thing to understand that writing an analytic blog doesn���t really have much chance of changing things, but it���s another to live with a president who has simply made facts irrelevant. What���s the point of refuting lies that everyone knows are lies and no one even bothers defending in the first place? This is why I���m actually pretty excited by the idea of a disinformation team. My style of blogging isn���t well suited to the Trump era, and it���s obvious that the mainstream media is almost completely hamstrung in dealing with it. We need something new, and I hope this team comes up with it. Not snark, not PolitiFact, and not reams of charts. Something better. But we can only do this if we get the money to get this team going. And there���s nothing that would make me happier than for my audience to pitch in bigly for this effort...
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August 1, 2018
I am swinging toward thinking that disequilibrium foundat...
I am swinging toward thinking that disequilibrium foundations of equilibrium economics is the only useful macro theory standing: Seppo Honkapohja and Kaushik Mitra: Price Level Targeting with Evolving Credibility: "We examine global dynamics under learning in a nonlinear New Keynesian model when monetary policy uses price-level targeting and compare it to inflation targeting...
...Domain of attraction of the targeted steady state gives a robustness criterion for policy regimes. Robustness of price-level targeting depends on whether a known target path is incorporated into learning. Credibility is measured by accuracy of this forecasting method relative to simple statistical forecasts. Credibility evolves through reinforcement learning. Initial credibility and initial level of target price are key factors influencing performance. Results match the Swedish experience of price level stabilization in 1920s and 30s...
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