J. Bradford DeLong's Blog, page 393

Should-Read: Very sharp from Robert Waldmann on many thin...

Should-Read: Very sharp from Robert Waldmann on many things, one of them the difference between "credible" in a game-theoretic sense and "credited" in an economic-actor sense���and on the smoking ruin left of macroeconomics for a generation by economists who devoted their careers to fuzzing the distinction. And Ima gonna start using "it is a relephant" for "it is irrelevant" all the time. Just saying: Robert Waldmann: A Comment on the Return of ���It���s Baaaack���: "Twenty years ago, Paul Krugman warned that the liquidity trap was not just an issue in the economic history of the 30s...

... Extremely excellent and very much worth reading.... [A] claim was that if the price level fell enough, the real value of money holdings (real balances) would be a significant part of wealth and this would cause high consumption (this is called the Pigou effect).... Krugman notes that formal math says if real balances are huge because of a liquidity trap, people know that their apparent wealth will be consumed by inflation tax (or by taxes needed to retire money if the monetary authority doesn���t accept inflation)....

My first point... is actually Larry Summers���s point. In 1998, Krugman assumed that Japan would, sooner or later, exit the liquidity trap.... 20 years later, it seems that the trap might be permanent. This would invalidate Krugman���s argument that... a credible (that is credited ��� believed) promise to cause high inflation when the economy is out of the liquidity trap will be effective. What if this is a promise about policy on the 8th of never?...

...I claim a second problem is the abuse of ���credible��� which is used to mean ���sincerely and honestly asserted��� and ���believed by others, that is credited���. The rational expectations assumption sneaks in and asserts that if people should believe, then they will believe. It makes private agents beliefs seem to be part of the policy.... Non-standard monetary policy works by changing expectations, and it is assumed policy makers can do that (or rather the implications of the assumption are studied by people who regularly warn that they don���t know if this will happen & say therefore fiscal stimulus should be used). There is also an equivocation in ���regime shift��� which is used to refer to a major permanent change in policy and the belief that a change in policy is major and permanent. With the equivocal definitions, unconventional monetary policy can���t fail, it can only be failed.

And (finally) I get to the bit of Krugman���s post with which I disagree. He assesses the effects of unconventional policy (as proposed by Krugman) and says the evidence is mixed. I actually became almost known as a skeptic of unconventional monetary policy and I think the evidence strongly suggests it doesn���t work.... The regime shift (if any) was Kuroda���s promise to do whatever it took to get to 2%. From November 2916 to November 2017 (the most recent 12 month period on FRED) Japanese consumer prices increased 0.5%. I conclude that it can���t be done (I don���t think anyone could use the communications channel much more vigorously that Kuroda)....

The evidence of monetary regime shifts (as the phrase is used which includes the assumption that people believe the policy has changed and that this matters a lot) is, I think, reduced to countries going off the gold standard in the 1930s. I���m going to focus on 1933 and not just FDR (YOU KNOW WHO else went off the gold standard in 1933?). Here in two big cases there were other ���regime shifts���: either a major partisan realignment or, uh, you know, a literal regime shift.

I now have returned to thinking that ���credibly promising to be irresponsible��� that is ���achieving a monetery policy regime shift��� can���t be done (which doesn���t mean it isn���t worth trying if the economy is in a liquidity trap and fiscal policy makers are austerian)...

Should-Read: Ah. I remember the days when the extremely s...

Should-Read: Ah. I remember the days when the extremely sharp and mostly honorable Dan Drezner would write things like: "Kevin Drum has posted a must-read interview with Paul Krugman on his blog. As someone who's tangled with Krugman in the past, I was entranced by the interview's mix of defensible economic critiques and wild-eyed political paranoia..." Yet today Dan stands alongside the Black Pharaoh Nyar-Lat-Hotep in the most elite ranks of the Order of the Shrill Daniel Drezner: Saving Speaker Ryan?: "Now is normally the time when the hard-working staff here at Spoiler Alerts would bolster a counterintuitive defense of Ryan���s speakership...

...His margin is narrow and leadership requires followership and yada yada yada, Ryan is a wonk���s wonk and a decent human being. I can���t do it. Sometimes there are battles worth fighting and losing, because otherwise you lose yourself. Sure, Ryan finally got a budget-busting tax cut that he���s been dreaming about for years.

Honestly, however, there are too many instances��during the Trump presidency in which Ryan has done nothing.... The degree to which Ryan has prostrated himself to the cause of��� what, exactly? A unified GOP caucus? A president who articulates positions on immigration, trade, foreign policy, that are at variance with Ryan? A president whose rhetoric debased the national discourse on a daily basis? Why, exactly, is Paul D. Ryan being so quiet? What does he hope to accomplish at this point? I don���t know. I would love to hear from someone who does.

At this point, I do not blame Donald Trump for thinking that he can bully all of Washington. Paul Ryan is every bully���s dream. Some might call it pragmatic politics. I call it cowardice...

Should-Read: David E. Broockman et al.: The Political Beh...

Should-Read: David E. Broockman et al.: The Political Behavior of Wealthy Americans: Evidence from Technology Entrepreneurs: "American politics overrepresents the wealthy. But what policies do the wealthy support?...

...Many accounts implicitly assume the wealthy are monolithically conservative and that increases in their political power will increase inequality. Instead, we argue there is substantial heterogeneity by industry, wherein the wealthy from an industry can share a distinctive set of political preferences. Consequently, how increases in the wealthy���s influence affect inequality depends on which industries��� rich are gaining influence and which issues are at stake. We demonstrate our argument with three original surveys, including the two largest surveys of wealthy Americans to date: one of technology entrepreneurs���a burgeoning wealthy demographic��� and another of political campaign donors. We show that technology entrepreneurs support liberal redistributive, social, and globalistic policies but conservative regulatory policies���a bundle of preferences rare among other wealthy individuals. Consistent with our theoretical argument, we also present evidence that suggests these differences arise from their distinctive predispositions...

Should-Read: Thomas Piketty (2015): Putting Distribution ...

Should-Read: Thomas Piketty (2015): Putting Distribution Back at the Center of Economics: Reflections on Capital in the Twenty-First Century: "until 1914, the French elite often justified its strong opposition to the creation of a progressive income tax by referring to the principles of the French Revolution...

...France had become equal after 1789 thanks to the end of aristocratic privileges and the development of well-protected property rights for the entire population. Because everybody had been made equal in their ability to hold property, there was no need for progressive taxation (which would be suitable for aristocratic Britain, the story went, but not for republican France). What I find particularly striking in this pre-1914 debate is the combination of strong beliefs in property-rights-centered institutions and an equally strong denial of high inequality. In my book, I try to understand what we can learn from the fact that wealth inequality was as large in France in 1914 as in 1789, and also from the fact that much of the elite was trying to deny this. I believe there are important implications for the current rise in wealth and income inequality and the current attempts to minimize or deny that they are occurring..."

Should-Read: Cory Doctorow: Let���s Get Better at Demandi...

Should-Read: Cory Doctorow: Let���s Get Better at Demanding Better from Tech: "In 2018, companies from John Deere to GM to Johnson & Johnson use digital locks and abusive license agreements to force you to submit to surveillance and control how you use their products...

...It���s true that if you don���t pay for the product, you���re the product���but if you���re a farmer who���s just shelled out $500,000 for a new tractor, you���re still the product. The ���original sin of advertising��� story says that if only microtransactions had been technologically viable and commercially attractive, we could have had an attention-respecting, artist-compensating online world, but in a world of mass inequality, financializing culture and discourse means excluding huge swaths of the population from the modern public sphere. If the Supreme Court���s Citizens United decision has you convinced that money has had a corrupting influence on who gets to speak, imagine how corrupting the situation would be if you also had to pay to listen.... I���ve argued before that the reason we���re still talking about decades-old SF movies like The Matrix and The Terminator���the reason smart people keep issuing foolish warnings about our primitive AIs making great leaps and becoming our overlords���is that these AI-apocalypses resonate with our current corporate situation. Corporations���artificial persons under the law���are colony life-forms that use us like gut-flora, maneuvering us to help them thrive and reproduce, jettisoning us or crushing us if we cease to serve their needs.

There is a key difference between the actual gut-flora that���s filling your non-metaphorical intestine right now and the metaphorical gut-flora that we humans constitute in the bowels of the Fortune 100: gut flora can���t be persuaded by moral argument, and people can. The long-delayed techlash.... Early ���techno-utopians��� were keenly aware of these risks. They founded organizations like the Electronic Frontier Foundation, and the Free Software Foundation, not because they were convinced that everything was going to be great���but because they were worried that everything could be terrible, and also because they saw the potential for things to be better. The motto of these pioneers wasn���t, ���This is going to be so great.��� It was, ���This could be great���if we don���t screw it up.���...

Our technology can make our lives better, can give us more control, can give us more privacy���but only if we force it to live up to its promise. Any path to that better future will involve technologists, because no group of people on earth is better equipped to understand how important it is to get there...

Should-Read: Elise Gould: Strong employment growth and pr...

Should-Read: Elise Gould: Strong employment growth and promising participation, but wage growth continues to fall short: The economy added a strong 313,000 jobs in February...

...The unemployment rate held steady at 4.1 percent, while the labor force participation rate (LFPR) and the employment-to-population ratio (EPOP) saw sizeable gains, 0.3 percentage points each, restoring them to levels last seen in September 2017. At 79.3 percent, prime-age EPOP, meanwhile, is the highest it���s been since June 2008.... Despite these impressive gains in employment and participation... nominal hourly wage growth remains relatively disappointing at 2.6 percent year-over-year, so we clearly have a ways to go before reaching the 3.5 percent wage growth���at a minimum���that would be consistent with the Fed���s inflation target and estimates of potential productivity growth...

Should-Read: The truly remarkable thing is that Kevin Has...

Should-Read: The truly remarkable thing is that Kevin Hassett's explanation for why he passed off Susan Dynarski and Judith Scott-Clayton's ideas as his own was that he thought he was just appropriating the good ideas of his American Enterprise Institute RA. Worse than you can imagine, even when you already know that it is worse than you can imagine: Noah Smith: "Everyone in the econ world (or the politics world, really) should read this thread about Kevin Hassett: "@dynarski 'Is now a good time to talk about how Kevin Hassett stole the intellectual property of an untenured Harvard professor & her grad student?'...

...@delong was right and I was wrong.

@delong was right and I was wrong.

@delong was right and I was wrong.

@delong was right and I was wrong.

@delong was right and I was wrong.

@delong was right and I was wrong.

@delong was right and I was wrong.

@delong was right and I was wrong.

Susan Dynarski: Prof Dynarski on Twitter: "In related news, Kevin Hassett has lost claim to being a serious economist...

...Is now a good time to talk about how Kevin Hassett stole the intellectual property of an untenured Harvard professor & her grad student?

In Feb 2007 Kevin Hassett published this WSJ column about his terrific, evidence-based idea to streamline the student aid system. The ideas and evidence in this column are commonplace now. But they were new in 2007.

I released this paper, co-authored with a grad student, 9 months earlier. And in February 2007 we released a policy proposal through the Hamilton Project. I contacted Hassett at the time and he said "Oops, RA failed to note your authorship of these ideas." A few months later he did write a small piece in National Review praising our work. With attribution.

That's it. No big deal to him to steal our work but it was a big deal for me as a young scholar.

Hassett's National Review article about our work, published two months after the plagiarized Wall Street Journal piece, was effusively nice. But a correction in the Wall Street Journal was clearly in order. He didn't do the right thing.

Kansas Under Brownback: The Meth Lab of Democracy

Kansas Under Brownback: The Meth Lab of Democracy: Not quite what I think Louis Brandeis had in mind, somehow:

Document: Teddy Roosevelt (1907): The Malefactors of Great Wealth

Document: Teddy Roosevelt (1907): Address of President Roosevelt on the occasion of the laying of the corner stone of the Pilgrim memorial monument https://www.icloud.com/keynote/0Ygwj9sjmrS-tI0aypbStC40A: "We can not as a nation be too profoundly grateful for the fact that the Puritan has stamped his influence so deeply on our national life. We need have but scant patience with the men who now rail at the Puritan's faults. They were evident, of course, for it is a quality of strong natures that their failings, like their virtues, should stand out in bold relief; but there is nothing easier than to belittle the great men of the past by dwelling only on the points where they come short of the universally recognized standards of the present...

...Men must be judged with reference to the age in which they dwell, and the work they have to do. The Puritan's task was to conquer a continent��� to build upon it a high industrial and social life; and��� to lay deep the immovable foundations of our whole American system of civil, political, and religious liberty achieved through the orderly process of law���.

We have traveled far since his day. That liberty of conscience which he demanded for himself, we now realize must be as freely accorded to others as it is resolutely insisted upon for ourselves. The splendid qualities which he left to his children, we other Americans who are not of Puritan blood also claim as our heritage. You, sons of the Puritans, and we, who are descended from races whom the Puritans would have deemed alien���we are all Americans together. We all feel the same pride in the genesis, in the history, of our people; and therefore this shrine of Puritanism is one at which we all gather to pay homage, no matter from what country our ancestors sprang.

We have gained some things that the Puritan had not���we of this generation, we of the twentieth century, here in this great Republic; but we are also in danger of losing certain things which the Puritan had and which we can by no manner of means afford to lose. We have gained a joy of living which he had not, and which it is a good thing for every people to have and to develop.

Let us see to it that we do not lose what is more important still ; that we do not lose the Puritan's iron sense of duty, his unbending, unflinching will to do the right as it was given him to see the right. It is a good thing that life should gain in sweetness, but only provided that it does not lose in strength���.

Ease and rest and pleasure are good things, but only if they come as the reward of work well done, of a good fight well won, of strong effort resolutely made and crowned by high achievement. The life of mere pleasure, of mere effortless ease, is as ignoble for a nation as for an individual���.

Almost every big business concern is engaged in interstate commerce, and such a concern must not be all��� through their representatives in Congress��� tried two remedies��� the antitrust law��� the interstate-commerce law���. Ultimately, and I hope with reasonable speed, the National Government must pass laws which, while increasing the supervisory and regulatory power of the Government, also permits such useful combinations as are made with absolute openness and as the representatives of the Government may previously approve.

In dealing with those who offend against the antitrust and interstate commerce laws the Department of Justice has to encounter many and great difficulties���.

In a criminal action the law is strictly construed in favor of the defendant, and in our country, at least, both judge and jury are far more inclined to consider his rights than they are the interests of the general public; while in addition it is always true that a man's general practices may be so bad that a civil action will lie when it may not be possible to convict him of any one criminal act. There is unfortunately a certain number of our fellow-countrymen who seem to accept the view that unless a man can be proved guilty of some particular crime he shall be counted a good citizen, no matter how infamous the life he has led, no matter how pernicious his doctrines or his practices.

In a recent case against the Licorice Trust we indicted and tried the two corporations and their respective presidents. The contracts and other transactions establishing the guilt of the corporations were made through, and so far as they were in writing were signed by, the two presidents. Yet the jury convicted the two corporations and acquitted the two men.

Both verdicts could not possibly have been correct; but apparently the average juryman wishes to see trusts broken up, and is quite ready to fine the corporation itself; but is very reluctant to find the facts ���proven beyond a reasonable doubt��� when it comes to sending to jail a reputable member of the business community for doing what the business community has unhappily grown to recognize as well-nigh normal in business���.

In the last six years we have shown that there is no individual and no corporation so powerful that he or it stands above the possibility of punishment under the law. Our aim is to try to do something effective; our purpose is to stamp out the evil; we shall seek to find the most effective device for this purpose; and we shall then use it, whether the device can be found in existing law or must be supplied by legislation. Moreover, when we thus take action against the wealth which works iniquity, we are acting in the interest of every man of property who acts decently and fairly by his fellows���.

There is a world-wide financial disturbance���. Most of it I believe to be due to matters not peculiar to the United States, and most of the remainder to matters wholly unconnected with any governmental action; but it may well be that the determination of the Government (in which, gentlemen, it will not waver), to punish certain malefactors of great wealth, has been responsible for something of the trouble; at least to the extent of having caused these men to combine to bring about as much financial stress as possible, in order to discredit the policy of the Government and thereby secure a reversal of that policy, so that they may enjoy unmolested the fruits of their own evil-doing.

That they have misled many good people into believing that there should be such reversal of policy is possible. If so I am sorry; but it will not alter my attitude. Once for all let me say that so far as I am concerned, and for the eighteen months of my Presidency that remain, there will be no change in the policy we have steadily pursued, no let up in the effort to secure the honest observance of the law ; for I regard this contest as one to determine who shall rule this free country���the people through their governmental agents or a few ruthless and domineering men, whose wealth makes them peculiarly formidable, because they hide behind the breastworks of corporate organization.

I wish there to be no mistake on this point���. Our purpose is to act with the minimum of harshness compatible with attaining our ends. In the man of great wealth who has earned his wealth honestly and uses it wisely we recognize a good citizen of the best type, worthy of all praise and respect. Business can only be done under modern conditions through corporations, and our purpose is heartily to favor the corporations that do well���

Comment of the Day: Robert Waldmann: Paul Krugman Looks B...

Comment of the Day: Robert Waldmann: Paul Krugman Looks Back at the Last Twenty Years of the Macroeconomic Policy Debate: "2a) I think Paul Krugman was wrong. b) I had conceded that he was right as always. c) now I'm back. It has to do with the expected inflation imp...

...Krugman discussed a central bank which could credibly promise to be irresponsible in the future when the economy is out of the liquidity trap. I don't like the use of "credibly". The question is what promises are credited by economic agents. The identification of "credible" and "credited" is part of the damage done by the rational expectations assumption. Agents' beliefs about policy are described as an aspect of the policy. It is insinuated that a central banker with resolve, character, integrity determination and a pre-commitment facility, can make people believe anything.

Krugman has never asserted that his proposed monetary definitely would work if tried. He always argues that it might work and fiscal stimulus is clearly politically impossible. But he does try to claim it would work if only central bankers followed his advice.

His problem is Kuroda, who did everything as Krugman advised and was determined to do whatever it takes to get to 2% inflation. From 2015 through 2017 Japanese consumer price inflation fluctuated rought from 0.5% to -0.5%���the only way they got CPI inflation was raising the value added tax (VAT) rate (and causing a recession). I now think the data which convinced me Krugman was right were due to Japanese realizing that Abe was really really going to raise the VAT.

Agents' expectations are not an instrument of policy. Central bankers try to use the "expectations channel" but it usually doesn't work. More here: https://angrybearblog.com/2018/03/a-comment-on-the-return-of-its-baaaack.html

Also, as noted by our Advisor, Krugman assumes that everything will return to normal in the long run. He analyses 2 periods, the present and the long run, and the long run is assumed to include full employment. He has trouble modellings secular stagnation. We must walk through the valley without the long run as our shepherd http://rjwaldmann.blogspot.it/2015/06/delong-praises-long-run.html

Also dreadful plumbing in a pdf here http://bit.ly/1cBYU0x