J. Bradford DeLong's Blog, page 418

Should-Read: I really, really resent people calling this ...

Should-Read: I really, really resent people calling this "populism". There were two populist moments���one in late nineteenth-century America, focused on policies to make the forgotten man of America better off via railroad regulation, unions, effective antitrust, and monetary expansion via the free coinage of silver at a ratio of 16-to-1. The second was post-World War II Latin America and its push for a rapid wage increase high-pressure economy stabilized via financial repression. You can argue as to whether the policies advocated would have made the economy better or worse off���I say "both" and "it depends". But the movement had nothing in common with the ethnic-animosity anti-rootless cosmopolite "Herrenvolk"-affirming plutocratic looting spree now going on in America, or, indeed, with analogous movements in Europe (where not even the plutocrats but rather a lumpenoverclass_ of politically well-connected grifters stand to benefit. Call it fascism. It was never populism. And Catherine Rampell has no excuse for supposing it ever was: Catherine Rampell: Populism died on Saturday: "In the end, only those on the populist right successfully took over a major political party, and later the country...

...But what did they win, really? Did they get the great economic de-rigging they demanded? A fair shake for good, wholesome folk like themselves? The draining, at last, of the swamp? No. Instead, a week ago, the Trump administration began dismantling the Consumer Financial Protection Bureau, a post-financial crisis creation designed specifically to protect the little guy from scam artists and swamp creatures. And then, in the wee hours of Saturday morning, the Senate passed the most plutocratic, regressive, system-rigging piece of tax legislation in decades. A bill that allows multimillionaires to pass on their estates tax-free. That offers one special break to owners of private jets and another to those who send their kids to private school.... Republicans know how unpopular it is, and they just don���t care. Instead, they expect the populist right to be satisfied with some race-baiting tweets. Some mean-spirited, occasionally unconstitutional immigration policies. The satisfaction of having a president who makes liberals angry. Instead of bread, the populists are told to be grateful for their circuses...

Should-Read: A veritable Samson armed with the jawbone of...

Should-Read: A veritable Samson armed with the jawbone of an ass���that is, the standard public finance model of capital-income taxation���Robert Waldmann wreaks havoc on the intellectual hosts of the Philistines by the mere expedient of taking the view that the most useful way to use the model is to ask what it tells us is optimal policy from a random initial starting position, rather than what optimal policy will be after a long period of optimal adjustment has passed. Very smart. But not of great interest because it brings with it unwelcome political conclusions to the overwhelming bulk of those who are etched up to follow the argument; Robert Waldmann (2008): Optimal Capital Income Taxation It Is: "The simplest... standard growth... aK model with optimizing consumers with logarithmic utility...

...or... Cass-Koopmans with Cobb-Douglas production and logarithmic utility.... The distribution of wealth is unequal at time 0. A utilitarian state would want to redistribute income... first best... with a lump sum transfer... rule that out by setting an upper limit on... tax [rates].... What is the best policy?... Tax capital income at the maximum... until perfect equality is achieved.... [Then] there is no more reason to tax and taxes are zero....

A simple-minded application of the model to policy would suggest that we should tax as much as we can until everybody is perfectly equal. Now the model is not the world, and this would be terrible policy. However, the argument for roughly the opposite policy is based on the same silly model plus totally turning its implications upside down by pretending that time has already gone to infinity.

The assumption of logarithmic utility... makes a huge difference.... Constant elasticity of substitution.... If the state can't precommit, the implications are just like those for logarithmic utility.... With recommitment, if the intertemporal elasticity of substitution is less than one... tax as much as possible until the initially rich are as poor as the initially poor, and then tax them so more.

These conclusions follow from analysis using standard techniques of the simplest case of the standard model. I think that they are not noted in the literature. In conclude... that... mathematical analysis of stylized models is taken seriously so long as the conclusions fit... prejudices...

Should-Read: Back in 2015, I thought "cognitive dictators...

Should-Read: Back in 2015, I thought "cognitive dictatorship" was simply ludicrous. I should have been paying more attention to Breitbart, Drudge, and Fox News. I should have been paying more attention to the Brexiteers. I should have remembered more of the history of the Late Stuart dynasty���the Popish Plot, the warming-pan, and so forth: Charlie Stross (2015): The Present in Deep History: "I'm more worried about what I used as a throw-away in 'Glasshouse' as 'cognitive dictatorships'...

...systems which impose dictated limits on the thinkable thoughts by control of information streams or actual direct brain interfaces. People inside a cognitive dictatorship wouldn't see it as bad; quite possibly they wouldn't even notice the limits on their freedom of cognition, it's just that some ideas would be repugnant or difficult to express semantically in a manner that could be transmitted to other people. Doesn't sound too bad? Consider if the suppressed ideas included abstractions like freedom, emotions reinforcing undesirable primate behavior patterns like love, or the idea that one shouldn't have to work at whatever one's employer deems appropriate in order to live...

Sultan Mahmud of Ghazni: "I'ma let you finish, but Ernest Gellner had this nailed in Plough, Sword, and Book twenty years ago..."

However This Ends, That This Is This Close Is Just So Awful, Awful, Awful!

May I, for one, say that I am overwhelmingly embarrassed at the older white men from the South I have as fellow citizens in this country: Such easily-grifted morons!

Must-Read: John Maynard Keynes: The General Theory of Emp...

Must-Read: John Maynard Keynes: The General Theory of Employment, Interest, and Money: "The austere view, which would employ a high rate of interest to check at once any tendency in the level of employment to rise appreciably above the average of; say, the previous decade...

...is, however, more usually supported by arguments which have no foundation at all apart from confusion of mind.

It flows, in some cases, from the belief that in a boom investment tends to outrun saving, and that a higher rate of interest will restore equilibrium by checking investment on the one hand and stimulating savings on the other. This implies that saving and investment can be unequal, and has, therefore, no meaning until these terms have been defined in some special sense.

Or it is sometimes suggested that the increased saving which accompanies increased investment is undesirable and unjust because it is, as a rule, also associated with rising prices. But if this were so, any upward change in the existing level of output and employment is to be deprecated. For the rise in prices is not essentially due to the increase in investment: it is due to the fact that in the short period supply price usually increases with increasing output, on account either of the physical fact of diminishing return or of the tendency of the cost-unit to rise in terms of money when output increases. If the conditions were those of constant supply-price, there would, of course, be no rise of prices; yet, all the same, increased saving would accompany increased investment. It is the increased output which produces the increased saving; and the rise of prices is merely a by-product of the increased output, which will occur equally if there is no increased saving but, instead, an increased propensity to consume. No one has a legitimate vested interest in being able to buy at prices which are only low because output is low.

Or, again, the evil is supposed to creep in if the increased investment has been promoted by a fall in the rate of interest engineered by an increase in the quantity of money. Yet there is no special virtue in the pre-existing rate of interest, and the new money is not 'forced' on anyone: it is created in order to satisfy the increased liquidity-preference which corresponds to the lower rate of interest or the increased volume of transactions, and it is held by those individuals who prefer to hold money rather than to lend it at the lower rate of interest.

Or, once more, it is suggested that a boom is characterised by 'capital consumption', which presumably means negative net investment, i.e. by an excessive propensity to consume. Unless the phenomena of the trade cycle have been confused with those of a flight from the currency such as occurred during the post-war European currency collapses, the evidence is wholly to the contrary. Moreover, even if it were so, a reduction in the rate of interest would be a more plausible remedy than a rise in the rate of interest for conditions of under-investment.

I can make no sense at all of these schools of thought; except, perhaps, by supplying a tacit assumption that aggregate output is incapable of change. But a theory which assumes constant output is obviously not very serviceable for explaining the trade cycle...

Hoisted from the Archives: Night Thoughts on Dynamic Scoring

Should-Read: I say it is time to promote this guy to Admiral: AdmiralPAYGO!: Ed Lorenzen: @CaptainPAYGO on Twitter: "The Treasury Department dynamic 'analysis' of tax reform makes a mockery of dynamic analysis and does a disservice to those who advocate for serious dynamic estimates https://t.co/PudiRrQzu1..."

Brad DeLong: @de1ong on Twitter: This is a surprise? Static analysis was always about making a bias-variance tradeoff: A static analysis would be biased, but have lower mean-squared error because the "dynamic" terms would inevitably be overwhelmingly large-magnitude political-partisan-lobbyist-ideologue noise:

Hoisted from the Archives from 2015: Night Thoughts on Dynamic Scoring: Live from DuPont Circle: Last Thursday two of the smartest participants at the Brookings Panel on Economic Activity conference���Martin Feldstein and Glenn Hubbard���claimed marvelous things from the enactment of JEB!'s proposed tax cuts and his regulatory reform program. They claimed:

that it would boost economic growth over the next ten years by 0.5%/year (for the tax cuts) plus an additional 0.3%/year (for the regulatory reforms).

that it would leave the U.S. economy in ten years producing $840 billion more in annual GDP than in their baseline.

that over the next ten years faster growth would produce an average of 210 billion dollars a year of additional revenue to offset more than half of the 340 billion dollars a year 'static' revenue lost from the tax cuts

that the net cost to the Treasury would thus be not 340 but 130 billion dollars a year.

that in the tenth year���fiscal 2027���the 400 billion dollar ���static��� cost of the tax cuts would be outweighed by a 420 billion dollar faster-growth revenue gain.

The problem is that if I were doing the numbers I would reverse the sign...

I would say that:

On net, deregulatory programs have been very costly to the U.S. economy in unpredictable ways
witness the subprime boom and the financial crisis.
The incentive effects would tend to push up growth by only 0.1%/year
That would be more than offset by a drag on the economy that would vary depending on how the tax cuts were financed:

If they were financed by issuing debt, I would ballpark the drag at -0.2%/year.
If they were financed by cutting public investment, I would ballpark the drag at -0.4%/year.
If they were financed by cutting government programs, there might be a small boost to growth--0.1%/year--but any societal welfare benefit-cost calculation would conclude that the growth gain was not worth the cost.

And there is substantial evidence that I am right:

You cannot find a boost to potential output growth flowing from either the Reagan or the Bush tax cuts.
You cannot find a drag on growth from the Obama tax increases.
You can find an effect of the Clinton tax increases���but it is that, thereafter, growth was faster, because the reduction in the deficit powered an investment-led recovery.
Over the past thirty years, the agencies that do the government's accounting have tried to reduce their vulnerability to the imposition of a rosy scenario by their political masters by claiming as a matter of principle that they do not calculate positive growth impacts of policies. This is clearly the wrong thing to do���policies do affect growth rates. But is overestimating growth effects in a way that pleases one's political masters a less-wrong thing? There is a bias-variance tradeoff here.

[Name Redacted] suggested at the conference that the right thing to do is probably to apply a substantial haircut to the growth-boost claims of political appointees.

The problem is that when I look at the example of 'dynamic scoring' that was on the table at Brookings���the 0.8%/year growth boost that I really think should be a -0.1%/year growth drag���the haircut I come up with, for Republican policy proposals at least, is 112.5%.

Yet the near-consensus of the meeting was that dynamic scoring���done properly���was a thing that estimating agencies like JCT and CBO (and Treasury OTA) should do. If there were to be a day on which the news flow was less favorable to such a consensus conclusion, I do not know what that day would have looked like.
Twenty-two years and one month ago, after an OEOB meeting I spent carrying spears for David Cutler in one of his hopeless attempts to warn certain Assistant to the President for Health Policy precisely what reception his policy proposals would get from a CBO where Doug Elmendorf piloted the health-care desk, I returned to my office at the Treasury, and one of our career economists lectured me thus about dynamic scoring:

Brad, you people come in with your exaggerated belief in the productivity benefits of public investment. And so you command us to score your policies as having a very favorable impact on the deficit. They come in with their exaggerated belief in the benefits of tax cuts. They command us to score their policies as having a very favorable impact. We cannot say we disagree with our bosses' analytic judgments. But by holding the line and stating that we do not consider any macroeconomic effects of policies, we can at least prevent being whipsawed by this partisan rosy-scenario ratchet.

Thus I find myself worrying about this:

I find myself thinking of CBO Directors past and future.
I think of June O'Neill, talking over and over again about how her model showed substantial disemployment effects of universal health coverage, without ever letting past her lips any acknowledgement that the people whose jobs her model showed as 'destroyed' had in fact voted with their feet and moved to a higher utility level by quitting.
I find myself thinking of the persistent rumors that after Doug Elmendorf and company had wreaked their analytic wrath on Ira Magaziner, Majority Leader Mitchell had said to Bob Reischauer: 'You are gone on January 4, 1995'.

One unintended side effect of the budget process introduced in the 1970s and the 1980s has been to give CBO and JCT great power���has given their analytic decisions the importance of the unanimous coordinated votes of twenty senators over and above the impact of their estimates on members' minds. They have by and large shouldered that great power with great responsibility. But with great power also comes great pressure. And it is not at all clear to me that, given the magnitude of this pressure, we want extra degrees of freedom in which these organizations can respond to the pressures they are under.

Yesterday, after all, I saw estimates of the dynamic revenue impact of Jeb!'s tax proposals that varied from negative���that the reduction in national savings would outweigh any positive incentive effects���to recouping 2/3 of the static revenue loss. And I imminently expect to see an 'estimate' today that it will produce 4%/year real growth and thus raise revenue--perhaps from someone at Heritage, perhaps from someone at Cato, perhaps from John Cochrane. It's opening a can of worms. Doug and Peter may think the worms are dead. I fear they are not...

Doug Elmendorf wrote:

Based on my experience as the director of CBO from January 2009 through March 2015, the principal concerns expressed about estimated macroeconomic effects of proposals apply with equal force to other aspects of budget estimates or can be addressed by CBO and JCT. In my view, including macroeconomic effects in budget estimates for certain legislative proposals would improve the accuracy of those estimates and would provide important information about the economic effects of those proposals. Moreover, if certain key conditions were satisfied, those estimates would meet the general goals of the estimating process that estimates be understandable and resistant to misinterpretation, based on a consistent and credible methodology, produced quickly enough to serve the legislative process, and prepared using the resources available to CBO and JCT.

Doug has it wrong: they do not apply "with equal force". As we have seen today, Monday, December 11, 2017, with the Treasury tax "reform" "study".

Should-Read: I say it is time to promote this guy to Admi...

Should-Read: I say it is time to promote this guy to Admiral: AdmiralPAYGO!: Ed Lorenzen: @CaptainPAYGO on Twitter: "The Treasury Department dynamic 'analysis' of tax reform makes a mockery...

...of dynamic analysis and does a disservice to those who advocate for serious dynamic estimates https://t.co/PudiRrQzu1...

This is a surprise? Static analysis was always about making a bias-variance tradeoff: A static analysis would be biased, but have lower mean-squared error because the "dynamic" terms would inevitably be overwhelmingly large-magnitude political-partisan-lobbyist-ideologue noise: Night Thoughts on Dynamic Scoring

Live from the Gehenna That is the Right-Wing Legal Commun...

Live from the Gehenna That is the Right-Wing Legal Community: Combine Alex Kozinski with Ed Crane and company, and one is reminded of John Stuart Mill's "not that conservatives are stupid, but the stupid tend to be conservative". Not that libertarians are predators and sociopathic bullies, but that predators and sociopathic bullies tend to be libertarians: Paul Campos: Judge Alex Kozinski: "All of this has been known, at least in its broad details, for a long time in the elite legal academic circles that send vulnerable young people off to clerk for sadistic bullies like Kozinski...

...Women law students were warned routinely to steer clear of Kozinski, even though he is one of a handful of so-called ���feeder��� judges, who send large numbers of their clerks on to clerk for the Supreme Court. (ETA: As Bianca Steele points out in comments, ���routinely��� doesn���t mean ���consistently��� or ���universally������Bond herself was, by her own account, told nothing). Clerking for the Supreme Court is a huge boost for all kinds of high status academic careers, so avoiding Kozinski because they didn���t want to be sexually harassed (and perhaps worse���we���ll see) was bad for women as a class....

Three days after this story broke, none of the more prominent legal academic blogs (with the exception of Balkinization) have even noted it, let alone commented on it. I will be particularly curious to see what the gang at the Volokh Conspiracy, who blog at the newspaper that broke the story, have to say, if anything.

Monday Smackdown: Treasury Document Translation: Steve Mnuchin Is Not a Professional Treasury Secretary. He and His Personal Staff Are Grifters

The U.S. Treasury's Office of Tax Policy (OTP) and Office of Tax Analysis (OTA) agree with the Congress's Joint Committee on Taxation (JCT) that the Republican Senate tax "reform" bill as written will raise the debt by 1.5 trillion dollars over the next decade, and boost growth by 0.08% per year

OTP does not believe that growth will be 2.9% per year over the next decade.

If growth were to be boosted from the baseline 2.2% per year over the next decade to 2.9% as a result of the tax "reform", it would pay for itself. But it won't.

No office in the Treasury Department is willing to go on record as having written this one-page document.

No official in the Treasury Department is willing to go on record as having written this one-page document.

Not even Steven Mnuchin has put his name on this one-page document.

Shame on all Republican economists who have enabled or are currently enabling this farce...

Must-Read: Naomi Janowitz: Office Hour Podcast: "NAFTA wi...

Must-Read: Naomi Janowitz: Office Hour Podcast: "NAFTA with Special Guest Brad DeLong...

...https://officehourucdpodcast.files.wordpress.com/2017/11/delong-redo.mp3?_=4