J. Bradford DeLong's Blog, page 383

Should-Read: "Incomplete" is, I think, the wrong word her...

Should-Read: "Incomplete" is, I think, the wrong word here: too many holdup points (and no easy way to disclaim rights to real property) is the problem: Craig Palsson: Small Farms, Large Transaction Costs: Incomplete Property Rights and Structural Change in Haiti: "Developing countries have too many small farms and could grow more if they reorganized their agricultural structure...

...But altering the agricultural structure in developing economies is difficult because incomplete property rights and diffuse ownership lead to high transaction costs. This point is seen in Haiti, where transaction costs were high because of historical property rights institutions and prevented Haiti from adapting to changes in the world economy at the beginning of the 20th century. A simple trade model with migration and transaction costs in the land market can explain much of Haiti's history. Using new data on land adoption in Haiti from 1928 to 1950, I test the model's implications of how transaction costs and eliminating migration opportunities affect land adoption. The results are consistent with large transaction costs to acquiring plantation land and imply that good development policy might require violating property rights to achieve the optimal agricultural distribution...

Should-Read: In which Martin Wolf begs for China to act l...

Should-Read: In which Martin Wolf begs for China to act like the adult in the house: Martin Wolf: How China can avoid a trade war with the US: "The objectives of these US actions are unclear... to halt alleged misbehaviour... or, as the labelling of China as a ���strategic competitor��� suggests, is it to halt China���s technological progress altogether���an aim that is unachievable and certainly non-negotiable...

Mr Trump also emphasised the need for China to slash its US bilateral trade surplus by $100bn. Indeed, his rhetoric implies that trade should balance with each partner. This aim is, once again, neither achievable nor negotiable.

The optimistic view is that these are opening moves in a negotiation that will end in a deal. A more pessimistic perspective is that this is a stage in an endless process of fraught negotiations between the two superpowers far into the future. A still more pessimistic view is that trade discussions will break down in a cycle of retaliation, perhaps as part of broader hostilities....

China���s rise has made the US fear the loss of its primacy. China���s communist autocracy is ideologically at odds with US democracy. What economists call ���the China shock��� has been real and significant, although trade with China has not been the main reason for the adverse changes experienced by US industrial workers. The US has also failed to provide the safety net or active support needed by affected workers and communities. Experience shows that the complaints will never end. A decade or so ago, complaints were about China���s current account surpluses, undervalued exchange rate and huge accumulations of reserves. All these have now been transformed: the current account surplus itself has fallen to just 1.4 per cent of gross domestic product. Now complaints have shifted towards bilateral imbalances, forced transfers of technology, excess capacity and China���s foreign direct investment. China is successful, big and different. Complaints change, but not the complaining.

How might China manage these frictions, exacerbated by the character of Mr Trump, yet rooted in deep anxieties? First, retaliate with targeted, precise and limited countermeasures. Like all bullies, Mr Trump respects strength. Indeed, he respects China���s Xi Jinping. Second, defuse legitimate complaints or ones whose redress is in China���s interests.... Third, make some concessions. China could import liquefied natural gas from the US. This would reduce the bilateral surplus, while merely reallocating gas supplies across the world.... Fourth, multilateralise these discussions....

We are in a new era of strategic competition. The question is whether this will be managed or lead to a breakdown in relations. Mr Trump���s trade policy is a highly destabilising part of this story. China should take the longer view of it, for its own sake and that of the world...

Should-Read: I know I thought Saddam Hussein probably had...

Should-Read: I know I thought Saddam Hussein probably had an active nuclear weapons program because otherwise George W. Bush administration policy was just insane. Was Max Boot back in 2003 caught in the same trap?: Max Boot: Why I changed my mind about John Bolton: "To accommodate... Trump, the Republican Party has betrayed its principles on issues including Russia, immigration, free trade and fiscal austerity...

...Yet to listen to the president���s fans, the real hypocrites are Trump���s conservative critics.... My Post column critiquing newly appointed national security adviser John Bolton for ideological extremism and poor managerial skills. Trump���s fans predictably dredged up a 2005 Los Angeles Times op-ed I had written supporting Bolton���s nomination for United Nations ambassador. Ben Boychuk, managing editor of the website American Greatness, tweeted: ���Gee, I wonder what changed.��� James Taranto, the Wall Street Journal op-ed editor, wrote: ���I mean, c���mon dude.��� With its trademark subtlety, the pro-Trump FrontPage magazine hyperventilated: ���Max Boot���s slimy smear of Bolton shows his hypocrisy.���...

I would say that a lack of change in one���s views over so many years is evidence of a terminally closed mind.... Quite a few facts have changed since 2005.... Even then, I noted that ���I don���t see eye to eye with Bolton on everything. His animus toward the International Criminal Court���which led him to antagonize valuable allies because of his insistence that they sign treaties pledging never to refer U.S. soldiers for prosecutions���seems excessive to me. And he has never been known as a fan of nation-building or humanitarian interventions, which I believe are necessary in the post-9/11 world.���...

Today Bolton isn���t being sent to Turtle Bay. He is going to the West Wing, where he will be one of the most important influences on a president who is so ignorant that he makes Bush seem like an international relations PhD by comparison���and whose protectionist, isolationist, authoritarian instincts are at odds with more than 70 years of U.S. foreign policy. Like Bolton, I was a proponent of the Iraq War, but unlike him, I have concluded it was a bad idea.... As I wrote in 2013, ���I would not have backed the invasion if I had known what we now know���that Saddam Hussein did not have weapons of mass destruction.��� The failure of the Iraq intervention has soured me on preventative wars in general. Not so Bolton....

Bolton is not, as David French wrote in National Review, ���squarely in the mainstream of conservative foreign-policy thought������unless conservative foreign policy has been redefined to mean Trumpism. Nor is he, as countless reporters have written, a ���neocon,��� insofar as he is hostile to democracy promotion.... Among those who have soured on him is George W. Bush. ���I don���t consider Bolton credible,��� Bush told a group of conservative writers, including me, in the Oval Office in 2008. If the president who sent him to the United Nations can change his view of Bolton, so can I.

What Do I Know About "The tech boom and the fate of democracy"?

I will be very interested in finding out!

Annalee Newitz: The tech boom and the fate of democracy: Wed, Apr 11, 2018 at 7:00 PM | Eli's Mile High Club, 3629 Martin Luther King Junior Way, Oakland, CA 94609: "Right now the U.S. tech economy is booming, but what will be the long-term effects of automation and AI?...

...Are robots about to steal our jobs? Will Facebook throw the next election? Is social democracy doomed to be a casualty of the tech revolution? To answer these questions and more, we're turning to UC Berkeley economics professor Bradford DeLong.... Join Ars Technica editor Annalee Newitz in conversation with Brad at the next Ars Technica Live on April 11 at Eli's Mile High Club in Oakland. There will be plenty of time for audience questions, too. Doors are at 7 PM and the event starts at 7:30. Tickets are free...

Should-Read: I think Emily Eisner gets this right: Emily ...

Should-Read: I think Emily Eisner gets this right: Emily Eisner: Women in Economics at Berkeley: "However in order to turn bold ideas into a reality, the AEA needs to establish institutions and systems that will incentivize the behavior they endorse...

...and address issues as they come up (and evolve over time). Professions such as sociology and law have modeled the type of robust code of conduct that a profession such as economics could adopt. These other professions have established more specific guidelines for conduct with other professionals, clients, research subjects, audience members, and the general public. While the current draft put out by the AEA does allude to social media and spaces where comments can be made anonymously as venues that need to maintain a high standard of conduct, they do not explicitly address the specific forms of misconduct that would violate the Code. This leaves ample room for ambiguity and inaction in the case of misconduct. Further, the Code does not offer a system of recourse for those who have witnessed or fallen victim to violations of conduct. Without a formal process of reporting and addressing violations, it is not clear that this Code will exist as anything other than wishful thinking...

Comment of the Day: I have never understood this belief i...

Comment of the Day: I have never understood this belief in "snapback". Previous "snapbacks" had all taken place in the context of the Federal Reserve driving the real interest rate far below the Wicksellian neutral rate and a supportive fiscal policy. Neither of those were present. Where was snapback supposed to come from after 2009?: Charles Steindel: : "It was a belief that the recession was primarily the result of the collapse of the financial system...

...With the system restored (presumably by the stress test reviving confidence that the remaining institutions were viable), then, the argument was that the economy would snap back to normal, or at least there would be period of clear above trend growth. The removal of the fiscal stimulus, the continued stress on state and local governments, and the catatonic state of housing were not sufficiently taken into account...

Should-Read: "Hysteresis" in response to 2007-2009 is, I ...

Should-Read: "Hysteresis" in response to 2007-2009 is, I have to admit, much less than I feared it would be six years ago. But it is also much much bigger than zero. The points about the calculation and measurement of potential output are especially important: Valerie Cerra and Sweta C. Saxena: The Economic Scars of Crises and Recessions: "According to the traditional business cycle view... our new��study casts doubt on this traditional view and shows that all types of recessions...

...including those arising from external shocks and small domestic macroeconomic policy mistakes���lead to permanent losses in output and welfare.... Some researchers have explained the sluggish post-crisis growth as driven by demographic trends or other factors specific to the United States. But such explanation ignores the fact that output dynamics after the crisis followed a similar pattern seen in other countries.... Using updated data from 1974 to 2012, we confirm our earlier findings that the irreparable damage to output is not limited to financial and political crises. All types of recessions, on average, lead to permanent output losses. Contrary to conventional wisdom, we also show that countries do not typically have growth booms before crises and recessions....

What does this... mean for economic policy?... The concept and measurement of the output gap may need to be revisited.... Estimating potential output by smoothing the path of actual output creates false cycles and constant revisions in potential output estimates. For instance, there has been a constant downward revision in the estimated path of potential output for the United States and a closing of the output gap in recent years. But potential GDP estimates were revised down to actual GDP, not the other way around. Such revisions and closures of output gaps are partly just a result of measurement issues. When including years of lower output after the crisis, potential GDP (the measured trend) is mechanically reduced, with a corresponding dramatic change in our view of history. We now measure a very positive output gap (when actual output is above potential) for most advanced countries on the brink of the crisis in 2007, even though there were no signs of overheating at the time...

Should-Read: Paul Krugman: Immaculate Inflation Strikes A...

Should-Read: Paul Krugman: Immaculate Inflation Strikes Again: "Oh, dear. We���ve been here before.... Economics is about what people... do...

...Your story... has to include an explanation of how peoples��� incentives change. That���s why the doctrine of immaculate transfer, which asserts that saving-investment balances translate into trade balances without any adjustment of the exchange rate, is silly.... Similarly, 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....

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. Consider, for example, the case of Spain. Inflation in Spain is definitely not driven by monetary factors, since Spain hasn���t even had its own money since it joined the euro. Nonetheless, there have been big moves in both Spanish inflation and Spanish unemployment.... Low unemployment... the result of huge inflows of capital, fueling a real estate bubble. Then came the sudden stop after the Greek crisis, which sent unemployment soaring.... The pre-crisis era was marked by relatively high inflation, well above the euro-area average; the post-crisis era by near-zero inflation, below the rest of the euro area, allowing Spain to achieve (at immense cost) an ���internal devaluation��� that has driven an export-led recovery. So, do you really want to claim that the swings in inflation had nothing to do with the swings in unemployment? Really, really? But if you concede that unemployment had a lot to do with Spanish inflation and disinflation, you���ve already conceded the basic logic of the Phillips curve....

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.

Remember What George W. Bush Was Like Back When He Listened to Those Like John Bolton

Hoisted from Others' Archives: Let us all remember what George W. Bush was really like: John Rogers (2005): Lunch Discussions #145: The Crazification Factor: "John: ... I mean, what will it take? That last speech literally made no sense. It was crazy drunken bar talk!...

...Islamic radicals are like COMMUNISM?! (gets speech on laptop) If we don't fight terrorists in Iraq they'll build a fundamentalist terrorist state stretching from Spain to Indonesia? What the fuck? Even assuming Spain, which last time I checked is 95% Roman Catholic, goes down, you gotta assume France, Italy, Greece, Bulgaria, all eight hundred million Hindus in India, Burma, Laos, Thailand, Vietnam and Singapore would be somewhat of an obstacle.

Tyrone: To be fair, you're going west-to-east. Maybe he meant a fundamentalist terrorist state stretching from Spain to Indonesia going east-to-west. Going that way, there's only the U.S. The President could be warning us that if we don't prevail in Iraq, the United States will become a fundamentalist Islamic terrorist state.

John: ... a little oblique, isn't it?

Tyrone: The man is nothing if not subtle.

John: (calling up map on laptop) You know, I guess if you start in Spain, swing hard south through northern Africa, you got Algeria, Libya there, Egypt, cross the Red Sea and you're in the Middle East ...

Tyrone: From there, if you spot him the Indian Ocean and India, you're in Indonesia.

John: I am not spotting him eight hundred million Hindus. I call shenanigans.

Tyrone: And again, I must point out Bush said "the militants believe that controlling one country will rally the Muslim masses, allowing them to overthrow all moderate governments in the region." That's what the militants believe. They may just be delusional. He says that himself: "Some might be tempted to dismiss these goals as fanatical or extreme. Well, they are fanatical and extreme���and they should not be dismissed. Our enemy is utterly committed."

John: But he's citing that desire as a basis for our strategy. You can't cite your enemy's delusional hopes as a basis for a rational strategy. Goals don't exist in a vacuum, they're linked to capability. David Koresh was utterly committed to being Jesus Christ. See how far that got him.

Either Bush is making strategy based on a delusional goal of his opponent, which is idiotic; or he's saying he believes his opponent has the capability of achieving this delusional goal, which is idiotic. Neither bodes well for the republic.

Tyrone: Reading here, the speech boiled down to two points���

John: Who cares? The Spain-to-Indonesia thing should automatically invalidate the whole speech. I don't care how good your investment advisor is, he can spend three hours reviewing mutual funds, as soon as he says "And of course, we can put your money into the Easter Bunny's Egg Upgrades", he is out of���

Tyrone: ���two points. First, Iraq is the keystone in the struggle between the West and Islamic Fundamentalism.

John: Which, if we accept the Administration's own argument, means that invading and destabilizing Iraq with insufficent post-war planning (and all that entails), not enough personnel, and shitty equipment for that personnel was the biggest screw-up in the War on Terror.

Tyrone: He's the President: if he says it, it must be true. Second, Bush says we have made a lot of progress in stopping al-Qaeda plots. Look: "Overall, the United States and our partners have disrupted at least ten serious al-Qaeda terrorist plots since September the 11th, including three al Qaeda plots to attack inside the United States. We've stopped at least five more al-Qaeda efforts to case targets in the United States, or infiltrate operatives into our country."

John: What are they counting for those wins? Are they counting guys like Padilla?[1] This is all very gooey, like how we've killed like, nine of Osama Bin Laden's #3 guys.

Tyrone: Being #3 in Al-Qaeda is like being a "creative vice president" at a Hollywood studio. There are dozens of them ... and they are expendable. Listen, don't do this, you're just getting worked up. Have another mozzarella stick.

John: Hey, Bush is now at 37% approval. I feel much less like Kevin McCarthy screaming in traffic. But I wonder what his base is���

Tyrone: 27%.

John: ... you said that immmediately, and with some authority.

Tyrone: Obama vs. Alan Keyes. Keyes was from out of state, so you can eliminate any established political base; both candidates were black, so you can factor out racism; and Keyes was plainly, obviously, completely crazy. Batshit crazy. Head-trauma crazy. But 27% of the population of Illinois voted for him. They put party identification, personal prejudice, whatever ahead of rational judgement. Hell, even like 5% of Democrats voted for him. That's crazy behaviour. I think you have to assume a 27% Crazification Factor in any population.

John: Objectively crazy or crazy vis-a-vis my own inertial reference frame for rational behaviour? I mean, are you creating the Theory of Special Crazification or General Crazification?

Tyrone: Hadn't thought about it. Let's split the difference. Half just have worldviews which lead them to disagree with what you consider rationality even though they arrive at their positions through rational means, and the other half are the core of the Crazification -- either genuinely crazy; or so woefully misinformed about how the world works, the bases for their decision making is so flawed they may as well be crazy.

John: You realize this leads to there being over 30 million crazy people in the US?

Tyrone: Does that seem wrong?

John: ... a bit low, actually.

Tyrone: (shrugs) Probably right, then. Speaking of Obama, I need to get t-shirts printed up to sell.

John: I can do that on the web. What do they say?

Tyrone: Don't You Dare Kill Obama

John: How about Don't You Dare Kill Obama (... and we know you're thinking about it)

Tyrone: Niiiiice.

John: Or You Kill Obama and WE WILL BURN SHIT DOWN

Tyrone: Even better. Nobody wants their shit burned down.

John: Glad to help.

Tyrone: I'm having you taken off the list for when the revolution comes.

John: ... there's really a list���

Tyrone: Oh yeah. Hell yeah.

Should-Read: Ezra Klein: Sam Harris, Charles Murray, and ...

Should-Read: Ezra Klein: Sam Harris, Charles Murray, and the allure of race science : "This is not 'forbidden knowledge'. It is America���s most ancient justification for bigotry and racial inequality...

...On Monday morning, I woke up to a tweet from Sam Harris, the bestselling author and popular podcast host, referencing a debate we never quite had over race and IQ.... The background to Harris���s shot at me is that last year, Harris had Charles Murray on his podcast.... Harris���s conversation with Murray was titled, tantalizingly, ���Forbidden Knowledge,��� and in it, Harris sought to rehabilitate the conversation over race and IQ as well as open a larger debate about what can and cannot be said in today���s America....

Subsequently, Eric Turkheimer, Kathryn Paige Harden, and Richard E. Nisbett���three academic psychologists who specialize in studying intelligence���wrote a piece for Vox arguing that Murray was peddling pseudoscience and Harris had been irresponsible in representing it as the scientific consensus.... Harris responded furiously to their article and publicly challenged me, as Vox���s editor-in-chief at the time, to come on his show and debate the issue. Over email, after failing to persuade Harris to have Turkheimer, Harden, or Nisbett on instead, I accepted.... [But] he ultimately refused to have me on his podcast on the grounds that a conversation between the two of us would be ���unproductive,��� pivoting to a demand that I instead publish an op-ed supporting his views....

Here is my view: Research shows measurable consequences on IQ and a host of other outcomes from the kind of violence and discrimination America inflicted for centuries against African Americans. In a vicious cycle, the consequences of that violence have pushed forward the underlying attitudes that allow discriminatory policies to flourish and justify the racially unequal world we���ve built.... You cannot discuss this topic without discussing its toxic past and the way that shapes our present. The conversation between Murray and Harris, one not unique to them, is particularly important right now because it shows how longstanding, deeply harmful tropes are being rehabilitated across the right as a brave stand against political correctness, and as a justification for cutting social programs and giving up on efforts to foster racial equality.

So let���s dive in. This isn���t ���forbidden knowledge.��� It���s ancient prejudice.... For two white men to spend a few hours discussing why black Americans are, as a group, less intelligent than whites isn���t a courageous stand in the context of American history; it���s a common one.... This pattern has played out across American history, and these ideas have persisted well into the modern age. William F. Buckley, the venerated founder of National Review, wrote this in a 1957 in a column titled ���Why the South Must Prevail���:

The central question that emerges... is whether the White community in the South is entitled to take such measures as are necessary to prevail, politically and culturally, in areas in which it does not predominate numerically? The sobering answer is Yes���the White community is so entitled because, for the time being, it is the advanced race. It is not easy, and it is unpleasant, to adduce statistics evidencing the median cultural superiority of White over negro, but it is a fact that obtrudes, one that cannot be hidden by ever-so-busy egalitarians and anthropologists...

That was just 60 years ago. It was within my mother���s lifetime. Are we so sure our generation���s version of this argument will look so much better 60 years from now? Whatever the future holds, the idea that America���s racial inequalities are driven by genetic differences between the races and not by anything we did, or have to undo, is not ���forbidden knowledge������it is perhaps the most common and influential perspective in American history.... If you���re going to discuss this topic, that���s a history you need to reckon with....

I will state the obvious. White people enslaved black people on this land before the United States was even a country. Our founding document counted African Americans as three-fifths of a person. If I drive a few minutes into Virginia, I will ride over a highway named for US senator and Confederate leader Jefferson Davis, who said, ���We recognize the fact of the inferiority stamped upon that race of men by the Creator, and from the cradle to the grave, our Government, as a civil institution, marks that inferiority.��� The current president of the United States has made defending the monuments of Davis and his compatriots a signature issue. The Civil War was followed by the domestic terror of the South���s backlash to Reconstruction. Segregation was enforced by violence. Plunder, lynching, and humiliation were constant. And these are just the headline abuses. Less bloody and brutal forms of discrimination were, and are, ubiquitous.

This is not our past. It is our present.... Today, white and black children do drugs at similar rates, but black children are arrested far more often. Today, our schools are more segregated than at any point in half a century, with all the attendant damage that does to black children. Today, among children born into the top fifth of the income distribution, white children have a 41 percent chance of holding their station, while black children have only an 18 percent chance. International evidence suggests oppression, discrimination, and societal resentment lowers group IQs....

If... Harris���s conversation with Murray... had simply observed the existence of a racial IQ gap (that has already closed substantially over time), hypothesized that advances in genetics might one day reveal group differences, and then cautioned that no one knows anything yet���there would be no controversy. That was not the conversation they had....

This brings us to Charles Murray and the strange apportionment of sympathy that underlies this whole conversation ��� and many conversations about ���PC��� culture today.... If Murray is a cautious scholar who does everything possible to avoid racial controversy and nevertheless has had his career destroyed by social justice warriors, it is understandable why his example would strike fear into the hearts of similarly oriented commentators: There but for the grace of God go I, and all that. But I do not buy this interpretation of Murray���s career.... Murray pretends a strange innocence over why the racial arguments in his book attracted so much attention.... Murray has repeatedly courted racial controversy over the years, and even so, he holds a top position at a respected think tank, gets his books reviewed by the most important outlets, is invited to write op-eds in national newspapers, and remains an important commentator on current events. His career is proof not of how little racial controversy you can provoke before being sanctioned, but of how much....

In this country, given our history, discussions about race and IQ need more care and context than they get. As a starting point, rather than being framed around the bravery of the (white) participants for having a conversation that has done so much damage, they should grapple seriously with the costs of America���s most ancient justification for bigotry, and take seriously why so many are so skeptical that this time, finally, the racial pessimists are right when they have been so horribly wrong before...