J. Bradford DeLong's Blog, page 428

November 25, 2017

Must-Read:

Paul Krugman is right...
If you think Paul K...

Must-Read:

Paul Krugman is right...
If you think Paul Krugman is wrong, see #1...

Paul Krugman (2009): The Obama Gaps: "The bottom line is that the Obama plan is unlikely to close more than half of the looming output gap, and could easily end up doing less than a third of the job...

...Why isn��t Mr. Obama trying to do more? Is the plan being limited by fear of debt? There are dangers associated with large-scale government borrowing.... But it would be even more dangerous to fall short in rescuing the economy. The president-elect spoke eloquently and accurately on Thursday about the consequences of failing to act��there��s a real risk that we��ll slide into a prolonged, Japanese-style deflationary trap��but the consequences of failing to act adequately aren��t much better.

Is the plan being limited by a lack of spending opportunities? There are only a limited number of ��shovel-ready�� public investment projects.... But there are other forms of public spending, especially on health care, that could do good while aiding the economy in its hour of need. Or is the plan being limited by political caution?... Keep the... price... below the politically sensitive trillion-dollar mark... inclusion of large business tax cuts, which add to its cost but will do little for the economy... [as] an attempt to win Republican votes in Congress.

Whatever the explanation, the Obama plan just doesn��t look adequate to the economy��s need. To be sure, a third of a loaf is better than none. But right now we seem to be facing two major economic gaps: the gap between the economy��s potential and its likely performance, and the gap between Mr. Obama��s stern economic rhetoric and his somewhat disappointing economic plan.

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Published on November 25, 2017 07:37

November 24, 2017

Should-Read: Yes, it's a grift. The only question is: who...

Should-Read: Yes, it's a grift. The only question is: who inside the Republican coalition is being grifted here?

Paul Krugman: Schroedinger's Tax Hike: "The Senate bill... tries to be long-run deficit-neutral... by offsetting huge corporate tax cuts with higher taxes on individuals...

By 2027 half the population, and most of the middle-class, would see taxes go up. But those tax hikes are initially offset by a variety of temporary tax breaks.... Republicans are arguing that those tax breaks won��t actually be temporary.... But they also need to assume that those tax breaks really will expire in order to meet their budget numbers.

So the temporary tax breaks need, for political purposes, to be both alive and dead.... For now, they want to hold it all in suspension. Once upon a time you wouldn��t have imagined they could get away with it. Now...

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Published on November 24, 2017 10:26

Should-Read: Alexander William Salter and Daniel J. Smith...

Should-Read: Alexander William Salter and Daniel J. Smith: Political Economists or Political Economists? The Role of Political Environments in the Formation of Fed Policy Under Burns, Greenspan, and Bernanke: "We analyze the writings and speeches of... Arthur Burns, Alan Greenspan, and Benjamin Bernanke...

...as they transitioned to becoming chairman of the Fed. The tension between their previously stated views and their subsequent policy stances as chairman of the Fed, suggest that operation within political institutions impelled them to alter their views. Our findings offer additional support for incorporating the concerns of political economy into monetary models and structures...

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Published on November 24, 2017 07:27

Should-Read: To my knowledge, the Tax Foundation has neve...

Should-Read: To my knowledge, the Tax Foundation has never provided an answer to Paul Krugman's critique that their "long run" takes not 10 years to arrive but 30:

Paul Krugman: The Transfer Problem and Tax Incidence: "These days, what passes for policymaking in America manages to be simultaneously farcical and sinister, and the evil-clown aspects extend into the oddest places...

...The actual economics of corporate tax incidence... [has] an intersection with international economics that... isn��t being [much] appreciated in the current discussion.... [In the] equaliz[ation of] after-tax rates of return in the long run... the long run is pretty darn long... return equalization should take decades....

Harberger... a closed economy with a fixed stock of capital... a tax on profits would fall on capital, basically because the supply of capital is inelastic. The modern counterargument is that we now live in a world of internationally mobile capital.... For a small economy facing perfect capital markets, the elasticity of capital supply is infinite... so any changes in corporate tax rates must fall on other factors, i.e. labor. Most analysis of tax incidence nonetheless allocates only a small fraction of the corporate tax to labor, for three reasons. First, a lot of corporate profits are... rents on monopoly power, brand value, technological advantages.... Third... rates of return probably aren��t equalized even in the long run.... I��m fine with all that....

I think it��s also important to ask exactly how inflows of capital that equalize rates of return are supposed to happen.... Suppose the US were to cut corporate tax rates.... How would the capital stock be increased? One does not simply walk into Mordor unbolt machines in other countries from the floor and roll them into America the next week. What we��re talking about is a process in which U.S. investment exceeds U.S. savings��that is, we run current account deficits��which increases our capital stock over time.... Exporters and importers don��t know or care about S-I; they respond to signals from prices and costs. A capital inflow creates a trade deficit by driving up the real exchange rate, making your goods and services less competitive. And because markets for goods and services are still very imperfectly integrated��most of GDP isn��t tradable at all��it takes large signals, big moves in the real exchange rate, to cause significant changes in the current account balance....

How much stronger does the dollar get?... The knowledge that we��re looking at a one-time adjustment limits how high the dollar can go, which limits the size of the current account deficit, which limits the rate at which the U.S. capital stock can expand, which slows the process of return equalization. So the long run in which returns are equalized can be quite long indeed.... I assume Cobb-Douglas production, with a capital share of 0.3. The capital-output ratio is about 3, implying an initial rate of return of 0.1. And the modelers at the Fed tell us... a 10 percent rise in the dollar widens the trade deficit by about 1.5 percent of GDP.... Assuming I��ve done the algebra right, I get a rate of convergence of... percent of the deviation from the long run eliminated each year... a dozen years to achieve even half the adjustment.... Openness to world capital markets makes a lot less difference to tax incidence than people seem to think in the short run, and even in the medium run...

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Published on November 24, 2017 07:18

Comment of the Day: Robert Waldmann: Yglesias on Republic...

Comment of the Day: Robert Waldmann: Yglesias on Republicans as Cultural Grievance-Mongers: ""Good point. Of course they are doing it [the policies] for their donors and don't imagine it will please their voters (who will vote on the really important issue of high income black guys standing when told to stand)...

...Also excellent link (more a must read than a should read I would say). Yglesias is brilliant. You once described a very young Yglesias as like a young Michael Kinsley who actually cared about policy.

I'm sure he understands perfectly well that Republicans understand the so called base which demands tax reform is the pinnacle of the wealth pyramid. Many are slipping and saying it out loud (confessing to soliciting and offering bribes). But he also enjoys tormenting the rest of them with the fact that they understand they can't admit this out loud.

If it weren't for the $1.5 trillion going to people who don't need it, I'd enjoy the spectacle.

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Published on November 24, 2017 07:17

Comment of the Day: Jorgenson: Monday Smackdown: Larry Su...

Comment of the Day: Jorgenson: Monday Smackdown: Larry Summers on Kevin Hassett and Company: "Two points...

(1) "As a device for motivating students to learn how to manipulate oversimplified academic models, Mankiw��s blog is terrific" I think you need to re-read that sentence. :-)

(2) If you want a healthy garden, you need to pull out and discard the weeds. Otherwise, the weeds will choke out productive growth. Same with public discourse.

(1) is interesting: it really depends on whether you think there is negative or positive value in teaching college students to manipulate oversimplified academic models. I'm pretty sure Larry thinks that there is positive value. But not completely sure...

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Published on November 24, 2017 06:46

Should-Read: Howard Blum: Exclusive: What Trump Really To...

Should-Read: Howard Blum: Exclusive: What Trump Really Told Kislyak After Comey Was Canned: "An Israeli source told Vanity Fair... a small group of Mossad officers and other Israeli intelligence officials took their seats in a Langley conference room on a January morning just weeks before the inauguration of Donald Trump...

...As the meeting was about to break up... an American spymaster solemnly announced there was one more thing: American intelligence agencies had come to believe that Russian president Vladimir Putin had ��leverages of pressure�� over Trump.... Israel, the American officials continued, should ��be careful�� after January 20��the date of Trump��s inauguration. It was possible that sensitive information shared with the White House and the National Security Council could be leaked to the Russians. A moment later the officials added what many of the Israelis had already deduced: it was reasonable to presume that the Kremlin would share some of what they learned with their ally Iran, Israel��s most dangerous adversary.

Currents of alarm and anger raced through those present at the meeting, says the Israeli source, but their superiors in Israel remained unconvinced��no supporting evidence, after all, had been provided��and chose to ignore the prognostication...

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Published on November 24, 2017 06:42

The Devil and Daniel Webster��Full

Daniel Webster

For the Weekend: Stephen Vincent Benet: The Devil and Daniel Webster http://gutenberg.net.au/ebooks06/0602901h.html:

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Published on November 24, 2017 06:33

For the Weekend: Stephen Vincent Benet: The Devil and Daniel Webster XIII

Daniel Webster

For the Weekend: Stephen Vincent Benet: The Devil and Daniel Webster XIII http://gutenberg.net.au/ebooks06/0602901h.html: "'Yes, all that's true, and it happened', said Dan'l Webster...

..."But what's to come in the future?"

The stranger grinned, kind of happily, and shook his head. "The future's not as you think it," he said. "It's dark. You have a great ambition, Mr. Webster."

"I have," said Dan'l firmly, for everybody knew he wanted to be President.

"It seems almost within your grasp," said the stranger, "but you will not attain it. Lesser men will be made President and you will be passed over."

"And, if I am, I'll still be Daniel Webster," said Dan'l. "Say on."

"You have two strong sons," said the stranger, shaking his head. "You look to found a line. But each will die in war and neither reach greatness."

"Live or die, they are still my sons," said Dan'l Webster. "Say on."

"You have made great speeches," said the stranger. "You will make more."

"Ah," said Dan'l Webster.

"But the last great speech you make will turn many of your own against you," said the stranger. "They will call you Ichabod; they will call you by other names. Even in New England some will say you have turned your coat and sold your country, and their voices will be loud against you till you die."

"So it is an honest speech, it does not matter what men say," said Dan'l Webster. Then he looked at the stranger and their glances locked. "One question," he said. "I have fought for the Union all my life. Will I see that fight won against those who would tear it apart?"

"Not while you live," said the stranger, grimly, "but it will be won. And after you are dead, there are thousands who will fight for your cause, because of words that you spoke."

"Why, then, you long-barreled, slab-sided, lantern-jawed, fortune-telling note shaver!" said Dan'l Webster, with a great roar of laughter, "be off with you to your own place before I put my mark on you! For, by the thirteen original colonies, I'd go to the Pit itself to save the Union!"

And with that he drew back his foot for a kick that would have stunned a horse. It was only the tip of his shoe that caught the stranger, but he went flying out of the door with his collecting box under his arm.

"And now," said Dan'l Webster, seeing Jabez Stone beginning to rouse from his swoon, "let's see what's left in the jug, for it's dry work talking all night. I hope there's pie for breakfast, Neighbour Stone."

But they say that whenever the devil comes near Marshfield, even now, he gives it a wide berth. And he hasn't been seen in the state of New Hampshire from that day to this. I'm not talking about Massachusetts or Vermont.

THE END

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Published on November 24, 2017 06:25

Should-Read: Ned Phelps: Nothing Natural About the Natura...

Should-Read: Ned Phelps: Nothing Natural About the Natural Rate of Unemployment: "A compelling hypothesis is that workers, shaken by the 2008 financial crisis and the deep recession that resulted...

...have grown afraid to demand promotions or to search for better-paying employers��despite the ease of finding work in the recently tight labor market. A corollary hypothesis is that employers, disturbed by the extremely slow growth of productivity, especially in the past ten years, have grown leery of granting pay raises��despite the return of demand to pre-crisis proportions.... This does not mean there is no natural unemployment rate, only that there is nothing natural about it. There never was.

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Published on November 24, 2017 06:21

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