J. Bradford DeLong's Blog, page 368

John Taylor is not just wrong, but wrong in a way that it...

John Taylor is not just wrong, but wrong in a way that it is impossible to be if you are attempting to argue in good faith from any coherent set of economic principles and models: Miles Kimball: Contra John Taylor: "[Taylor] is just wrong...

...The Fed is promising to shift the demand curve for assets in the future and thereby get to a particular equilibrium interest rate. This is not at all like rent control. The right analogy is... getting rents to come down by reducing making it easier to get a building permit, or by subsidizing the building of new apartments.... There is a world of difference between a market intervention in which the government contributes to supply and demand and a price floor or ceiling. By buying assets, and promising to buy them in the future, the Fed is lowering an equilibrium interest rate. The details of the pattern of buying assets and promising to buy them in the future tends to keep the equilibrium interest rate at a certain level. The fact that the Fed acts by changing the equilibrium interest rate matters, because John���s claim that lowering the interest rate will reduce the quantity of investment would hold only if what the Fed is doing really did act like an interest rate ceiling that makes asset demand lower than asset supply...

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This Was Extremely Bad Then. This Is Extremely Bad Now. Hoisted from the Archives

Why would it ever occur to John Taylor to claim that open market operations are like price controls? I cannot imagine the circumstances under which anyone would be tempted to do this: Paul Krugman: More Artificial Unintelligence: "David Beckworth pleads with fellow free-marketeers to stop claiming that low interest rates are 'artificial' and comparing them to price controls...

...He���s completely right about the economics. Monetary policy, in which the central bank buys and sells securities to change the monetary base, is nothing at all like price controls. Furthermore, we have a very clear model that tells us what interest rates would be in the absence of distortions and rigidities, the Wicksellian natural rate���the rate of interest consistent with an economy subject neither to inflationary overheating nor deflationary excess supply. And with inflation consistently below the generally accepted 2 percent target, this model says that the actual interest rate, at zero, is above the natural rate, not below. But the question Beckworth should be asking himself is why almost nobody on the right is willing to think clearly about this issue....

We���re not just talking about... ignoramuses like Rand Paul and George Will... [but] by none other than John Taylor.... monetary experts who have to know better fall meekly in line.... Beckworth is trying to take the monetarist, Milton Friedman position, which is basically one of trusting markets to get it right except when it comes to the business cycle, where it becomes necessary to have expansionary monetary policies in slumps. This is... slightly problematic.... You need some kind of market failure to give monetary policy large real effects, and in that case why imagine that this is the only important failure?... More important... this position turns out to be politically unsustainable. ���Government is always the problem, not the solution, except when it comes to monetary policy��� just doesn���t cut it for modern conservatives.... During the 1930s people like Hayek were liquidationists... denouncing expansionary monetary policy... as ���the creation of artificial demand.��� The era of Friedmanism, of free-market views paired with tolerance for monetary stimulus, was a temporary and unsustainable interlude, and no amount of sensible argumentation will bring it back.

#shouldread
#mondaysmackdown
#hoisted

Alex Bell et al.: Who becomes an inventor in America? The...

Alex Bell et al.: Who becomes an inventor in America? The importance of exposure to innovation: "Using deidentified data on 1.2 million inventors from patent records linked to tax records...

...Children from high-income (top 1%) families are ten times as likely to become inventors as those from below-median income families. There are similarly large gaps by race and gender. Data on test scores in early childhood suggest that differences in innate ability explain relatively little of these gaps.... Exposure to innovation during childhood has significant causal effects on children���s propensities to become inventors. Growing up in a neighborhood or family with a high innovation rate in a specific technology class leads to a higher probability of patenting in exactly the same technology class. These exposure effects are gender-specific: girls are more likely to become inventors in a particular technology class if they grow up in an area with more female inventors in that technology class....

The financial returns to inventions are extremely skewed and highly correlated with their scientific impact, as measured by citations. Consistent with the importance of exposure effects and contrary to standard models of career selection, women and disadvantaged youth are as under-represented among high-impact inventors as they are among inventors as a whole. We develop a simple model of inventors��� careers that matches these empirical results. The model implies that increasing exposure to innovation in childhood may have larger impacts on innovation than increasing the financial incentives to innovate, for instance by reducing tax rates. In particular, there are many ���lost Einsteins������individuals who would have had highly impactful inventions had they been exposed to innovation...

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Noah Smith: Supply and Demand Does a Poor Job of Explaini...

Noah Smith: Supply and Demand Does a Poor Job of Explaining Depressed Wages: "The standard framework that economists traditionally used to understand job markets is just supply and demand...

...But... even very large, sudden waves of low-skilled immigration didn���t hurt the wages of native-born Americans, as the theory suggested should happen when there���s a positive shock to labor supply. Adjusting the model to match this reality wasn���t too hard. Economists just had to assume that immigration produces a positive shock to labor demand as well as supply���immigrants buy things locally, creating jobs for the native-born. But the minimum-wage effect posed more of a problem to the theory���no matter how you slice it, price controls should lower employment in a competitive market. The likeliest reason that this doesn���t happen is that employers have market power���that it���s so costly and difficult for workers to find new jobs that they simply accept lower wages than they would demand in a well-functioning market. If employers have market power, modest minimum-wage rise will tend not to increase unemployment, because they force companies to move back toward the wage levels that would prevail if competition were working the way it should. In that model, a small increase in minimum wage could even increase the number of jobs.

New evidence is showing that employers have more market power than economists had ever suspected.... Jos�� Azar, Ioana Marinescu, and Marshall Steinbaum... Efraim Benmelech, Nittai Bergman, and Hyunseob Kim.... Together with the evidence on minimum wage, this new evidence suggests that the competitive supply-and-demand model of labor markets is fundamentally broken.... Textbook writers and instructors should respond by changing the baseline model of labor markets that gets taught in class. Students ought to start with a model of market power, in which a few companies set wages below levels found in a competitive market unless prevented from doing so. That model is about as easy to work with as the traditional supply-and-demand setup, but matches the data much better.

In any scientific discipline, theories should evolve as new evidence comes in. That���s true both of what gets used in research and what gets taught in class. The evidence on labor markets has evolved, and the dominant theories need to change with the times...

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National Taxpayers Union: More Than 1,100 Economists Join...

National Taxpayers Union: More Than 1,100 Economists Join NTU to Voice Opposition to Tariffs, Protectionism: "The lowering of trade barriers between nations has been one of the great achievements of the global economic system in the postwar era...

...Trade agreements have enriched economies around the world and allowed people access to goods that would have been unimaginable in a harsh climate of economic protectionism. The current political moment has seen new trade barriers erected as well as additional threats to rescind trade agreements and play politics with trade conventions that have benefited everyone. National Taxpayers Union is joined by more than 1,100 economists urging opposition to this new economic protectionism in the following letter...

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Josh Bernoff: How we really should teach writing: "Here��...

Josh Bernoff: How we really should teach writing: "Here���s a radical idea.... Teach... students to write stuff that they���ll actually need to write in life or in an��office:��emails, blog posts, social media posts, marketing copy, research reports, and presentations...

...Take time from��analyzing Plato,��Great Expectations��and��Catcher in the Rye and spend it instead��analyzing great non-fiction writers.... Assign them to write their own��practical, how-to blog posts.... Tweet for a week. Practice short, grammatically correct, practical tweets with links to promote a cause.... Assign students��to write emails that accomplish something.... Require students not just to��research, but to edit Wikipedia based on the results.

For longer pieces, students must prepare��with��fleshed-out ���fat outlines��� or�����treatments,��� not sterile outlines that prepare you for nothing. Train on clever Google research tricks. Write final documents with embedded links along with citations. Turn in all assignments electronically. Grade them with redlines in MS Word or Google Docs, the way it really works in an office. When I was hiring, I would have��paid a lot more for students trained��this way. Why aren���t we teaching this way? (If anybody reading this is actually teaching this way, please tell us about it.) In case you think this is impossible: I���ve already taught this class once. My teen students ate this stuff up....

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Narrative...

History, biography, and fiction are the queens of the humanities because we think via narrative. I give a lecture on this stuff occasionally, and I am anxious to improve it and keep it up to date...

Narrative https://www.icloud.com/keynote/0vo61T4rToRXKzWceow8gi0-g
A Story of American Economic History

http://www.bradford-delong.com/2017/01/the-story-of-american-economic-history.html
https://www.icloud.com/pages/0d5I-zcl-0Y3NC6EKy9VkAWAg

html http://www.bradford-delong.com/2018/05/narrative.html




David Robson: Culture-Our fiction addiction: Why humans need stories
William Flesch: Comeuppance: Costly Signaling, Altruistic Punishment, and Other Biological Components of Fiction
Joseph Carroll, Jona Than Gottschall, John Johnson, and Daniel Kruger: Paleolithic Politics in British Novels of the Longer Nineteenth Century
Brian Boyd: On the Origin of Stories

David Robson: Culture-Our fiction addiction: Why humans need stories: "The perfect summer blockbuster. A handsome king... superhuman strength... insufferable arrogance... wreak[s] havoc...

...Enter a down-to-earth wayfarer who challenges him to fight. The king ends the battle chastened, and the two heroes become fast friends and embark on a series of dangerous quests across the kingdom.... It is the Epic of Gilgamesh, engraved on ancient Babylonian tablets 4,000 years ago... read and enjoyed today, and that so many of its basic elements���including its heart-warming ���bromance������can be found in so many of the popular stories that have come since. Such common features are now a primary interest of scholars specialising in ���literary Darwinism���....

The cave paintings in sites like Chauvet and Lascaux in France from 30,000 years ago appear to depict dramatic scenes that were probably accompanied by oral storytelling. ���If you look across the cave, there will be a swathe of different images and there often seems to be a narration relating to a hunting expedition,��� says Daniel Kruger at the University of Michigan.... The average adult is still thought to spend at least 6% of the waking day engrossed in fictional stories.... Storytelling is a form of cognitive play that hones our minds, allowing us to simulate the world around us and imagine different strategies, particularly in social situations. ���It teaches us about other people and it���s a practice in empathy and theory of mind,��� says Joseph Carroll.... Providing some evidence for this theory, brain scans have shown that reading or hearing stories activates various areas of the cortex that are known to be involved in social and emotional processing, and the more people read fiction, the easier they find it to empathise with other people...

#shouldread
#lecture

Ashley Feinberg: Leak: The Atlantic Had A Meeting About K...

Ashley Feinberg: Leak: The Atlantic Had A Meeting About Kevin Williamson. It Was A Liberal Self-Reckoning: "In a staff meeting, Jeffrey Goldberg and Ta-Nehisi Coates discussed the hiring and firing of a conservative writer. But it wound up being about a lot more than that...

...On Friday, April 6, The Atlantic���s editor-in-chief, Jeffrey Goldberg, sat down with the magazine���s star national correspondent, Ta-Nehisi Coates, for a live question-and-answer session in front of the company���s staff. This was a scheduled event, part of the media company���s in-house ���Atlantic University��� series, but the off-the-record conversation took on a new urgency because of what had happened the previous day. On Thursday, April 5, the magazine had announced that it was cutting ties with Kevin Williamson.... What the centrist magazine might���ve once considered nothing worse than a cheeky heterodoxy from its right flank was now, Goldberg had discovered, suddenly and unacceptably outside the mainstream....

In his Atlantic University appearance with Coates, he tried to explain his thinking to his staff.... HuffPost viewed a video of the session; a full transcript can be found below. It���s a remarkable exchange. Coates, who has��spoken admiringly��of Williamson���s prose style if not his politics, is frank and searching and self-critical where Goldberg is glib and simpering, apparently unaware of just how much and why the ground had shifted beneath his magazine���s feet. The conversation centers on Williamson and the decision not to keep him around. But it winds up being about more than that. Coates talks about having learned, as a young journalist, from writers who thought of black men like him as less than human. What choice did he have? These were the journalists who got bylines in prominent magazines, and��even at liberal publications,��the genetic inferiority of black people was a proposition considered worthy of debate.�����I didn���t really have the luxury of having teachers who I necessarily felt, you know, saw me completely as a human being,�����Coates says...

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Am I wrong to be appalled at how there are too many econo...

Am I wrong to be appalled at how there are too many economists whose knowledge of models carries with it negative knowledge about the economy? I always thought that technique was to be in the service of understanding, not a substitute for it. Yet whenever I look at a David Andolfatto claiming that there is no relationship between unemployment and inflation or a Robert Lucas claiming that private decisions fueled by increasing money balances to spend affect production and prices but public decisions do not... or Eugene Fama and John Cochrane trying to resurrect Say's Law 190 years after it had been abandoned by Jean-Baptiste Say... I am, to say the least, not impressed at all: Paul Krugman: Immaculate Inflation Strikes Again: "We���re currently well above historical estimates of full employment, and inflation remains subdued. Could unemployment fall to 3.5% without accelerating inflation? Honestly, we don���t know...

...I would also argue that the Fed is making a mistake by tightening now.... We really don���t know how low U can go.... The costs of getting it wrong are asymmetric.... Finally, there are very good reasons to believe that the Fed���s 2 percent inflation target is too low; certainly the belief that it was high enough to make the zero lower bound irrelevant has been massively falsified by experience.

But should we drop the whole notion that unemployment has anything to do with inflation? Via FTAlphaville, I see that David Andolfatto is at it again.... Even if you think that inflation is fundamentally a monetary phenomenon (which you shouldn���t, as I���ll explain in a minute), wage- and price-setters don���t care about money demand; they care about their own ability or lack thereof to charge more, which has to���has to���involve the amount of slack in the economy. As Karl Smith pointed out a decade ago, the doctrine of immaculate inflation, in which money translates directly into inflation���a doctrine that was invoked to predict inflationary consequences from Fed easing despite a depressed economy���makes no sense. And the claim that there���s weak or no evidence of a link between unemployment and inflation is sustainable only if you insist on restricting yourself to recent U.S. data. Take a longer and broader view, and the evidence is obvious....

Economics is about what people do, and stories about macrobehavior should always include an explanation of the micromotives that make people change what they do. This isn���t the same thing as saying that we must have ���microfoundations��� in the sense that everyone is maximizing; often people don���t, and a lot of sensible economics involves just accepting some limits to maximization. But incentives and motives are still key. And it���s ironic that macroeconomists who are deeply committed to the microfoundations project���or, as Trump might say, the ���failing microfoundations project������also seem to be especially likely, perhaps due to their addiction to mathiness, to forget this essential rule...

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The question of whether the U.S. national debt is too hig...

The question of whether the U.S. national debt is too high���and of what it should be���is a very knotty one. Interest rates are telling us that the debt is too low: that there are too few safe assets in the world, and that more U.S. Treasury debt would be very valuable in this world in which nobody trusts private sector organizations to create AAA assets, for which the demand is high. But asset quantities relative to historical norms and policy projections are telling another story. Is this one of those times when we should listen to financial markets' judgments? Or is this one of those times when we should disregard them? Alan J. Auerbach, William G. Gale, and Aaron Krupkin: THE FEDERAL BUDGET OUTLOOK: EVEN CRAZIER AFTER ALL THESE YEARS: "New Congressional Budget Office (CBO) projections... prospect of routine trillion-dollar deficits... underlying problem is even more serious...

...First, the projections assume that the economy is at full employment, on average, over the next decade. If (when?) we face a recession, the medium-term fiscal outlook may look significantly worse. Second, under a ���current policy��� scenario similar to CBO���s alternative fiscal scenario���in which policy makers routinely extend temporary provisions���we project a debt-GDP ratio of 106.5 percent in 2028, which would be the highest ratio in U.S. history. This compares to CBO���s current-law debt-GDP projection of 96 percent in that year. Third, the situation only gets worse after the first decade. Under current policy, we find that to ensure the debt-GDP ratio 30 years from now does not exceed the current ratio would require a combination of immediate and permanent spending cuts and/or tax increases totaling 4.0 percent of GDP. This represents about a 21 percent cut in non-interest spending or a 24 percent increase in tax revenues relative to current levels. To put this in perspective, the 2017 tax cuts and 2018 spending deals will raise the deficit by slightly more than 2 percent of GDP in 2019. The required adjustments to keep long-term debt at its current ratio to GDP are about twice as big and in the opposite direction...

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