J. Bradford DeLong's Blog, page 429

Comment of the Day: Charles Steindel: This Is Your Remind...

Comment of the Day: Charles Steindel: This Is Your Reminder...: "James Madison was appalled that the Constitutional Convention agreed to equal state representation in the Senate. He was dragged kicking and screaming into accepting that compromise (it's a bit odd to think nowadays that New Jersey���perhaps no longer a "large" state, but certainly, in population, considerably above the median���was then the leader of the small state bloc)."

Happy Thanksgiving Everybody!

Addams Family Values:

This Is Your Reminder...

Note to Self: This is your reminder:

178.4 million people are represented by the 48 senators who caucus with the Democrats.
144.1 million people are represented by the 52 senators who caucus with the Republicans.
65.9 million people voted for Hillary Rodham Clinton and Tim Kaine to be their president and vice president
63.0 million people voted for Donald Trump and Mike Pence to be their president and vice president.

Should-Read: I'm really not surprised that the only econo...

Should-Read: I'm really not surprised that the only economist out of 42 willing to believe this is from Robber-Baron Crony-Capitalism Stanford University. But I am embarrassed for my profession that there is even one:

Justin Wolfers: @justinwolfers on Twitter: "The University of Chicago surveyed 42 leading economists and found exactly one who believes the Republican claim that their tax bill will grow the economy. http://www.igmchicago.org/surveys/tax-reform-2"

His comment doesn't suggest he spent much time thinking about it:

A reduced corporate tax reduction is likely to grow GDP. Whether the overall tax plan is distributionally fair is another matter.

So does Darrell Duffie not believe in the government budget constraint? The right one-sentence is not Duffie's but rather: "An unfunded tax cut that increases the deficit in an economy near full employment is likely to slow the growth of GDP".

I would be interested in a further explanation from him: Why is it that we should think that the substitution effect should dominate the income effect here, and that consumption plus net exports is likely to fall rather than rise? But I don't suppose I am likely to get a coherent one.

Should-Read: Dave Drake: Statues of the Boys in Grey: "In...

Should-Read: Dave Drake: Statues of the Boys in Grey: "In Durham last month, a peaceful mob pulled down a Confederate monument on the grounds of the old courthouse. It wasn���t a statue of Lee or Jackson; it was dedicated To the Boys in Gray...

...This initially made me sad. Both Lee and Jackson were individually good men, but I figure generals can take care of themselves; goodness knows, the ones I���ve seen have certainly done so. But I was a grunt; my Civil War ancestor was a grunt; and the statue in Durham was dedicated to grunts.

Were the Boys in Gray fighting for a bad cause? I think so. But I was fighting for a bad cause also; I believed that at the time, and nothing I���ve learned since has caused me to change my mind.

I take citizenship seriously, and I entered the army as a citizen of a representative democracy. I���ve often disagreed with the choices my leaders made, but I believe in the system.

I loathe the mindset of a man like Henry Kissinger, who could dismiss as ���a sideshow��� the Cambodian invasion (of which I was a part) and the millions of deaths it caused, but I prefer elective government to anarchy. If the folks we elect choose to depend on people like Mr Kissinger for advice, that���s really unfortunate. (At least Mrs Clinton made her intentions clear up front.)

That covers how I feel about the folks to whom the statues were dedicated, but that���s only half the story. The other half is the folks who raised the statues in the early part of the 20th century, and in large measure those were the same people who were imposing Jim Crow restrictions all over the South. They were using men like Lee and Jackson���and the Boys in Gray���to drum up enthusiasm for brutal racism.

Lee County, NC, was formed at that time from parts of adjacent counties. I���ve spent time in the courts there (on a friend���s behalf, not my own; thank goodness) and have been horrified by the contemptuous repression which I observed. (I also noted that every single person wearing a uniform was white. Spend a while in your district court, pretty much anywhere in the country, and you���ll see why that struck me.)

Lynchings rightly got headlines, but that was at the low end. At the respectable end, the Raleigh News and Observer (then and now NC���s premier newspaper) campaigned to get a Duke professor fired for saying that an exceptional Negro like George Washington Carver was fit to sit at dinner with Robert E Lee.

Buck Duke was no liberal, but his father had been a Confederate grunt. He backed his college president in ignoring the demands of a racist elite.

So. The statues were, for the most part, raised as instruments of repression. If folks who feel repressed want to complain about it, they���ve got a right. It doesn���t touch me personally: I���m a WASP (and proud of it), and my ancestor fought on the right side.

And as for the Boys in Gray���well, I���m still kinda sorry. They were, in their time, the best light infantry in the world. But they were also used to being shat upon, starting with their own political leaders, so it won���t be a new experience for them.

Heaven knows it���s a familiar one for Nam vets.

Hang in, people.

Should-Read: Stan Collender: GOP Tax Bill Is The End Of A...

Should-Read: Stan Collender: GOP Tax Bill Is The End Of All Economic Sanity In Washington: "The GOP tax bill will increase the federal deficit by $2 trillion or more over the next decade (the official estimates of $1.5 trillion hide the real amount with a witches' brew of gimmicks and outright lies)...

...The GOP's insanity is compounded by its moving ahead without having any idea of what this policy will actually do to the economy. The debates... took place before the Congressional Budget Office's analysis and, if it really exists, the constantly-promised-but-never-seen report from the Treasury on the economics of this tax bill.... The GOP tax bill may be enacted without anyone who votes for it having any understanding of the damage it could do.... On top of everything else, there is no reason to rush this debate....

If the GOP tax bill is enacted, Congress and the president this year will give up almost all ability to deal with the U.S. economy for at least a decade even when, as almost certainly will happen, there's a downturn. No one else will be able to fulfill this role. That's almost a textbook definition of economic insanity...

Should-Read: It is now almost forty years since Tennessee...

Should-Read: It is now almost forty years since Tennessee Senator Howard Baker characterized Republican fiscal policy as a "riverboat gamble"���where if you lose, you don't pay up but instead abandon ship, jump overboard, and swim to shore. It is more than 35 years ago since Reagan OMB Director David Stockman said, of the Republican members of congress's understanding of fiscal policy: "nobody understands these numbers". I say it reminds me of fratboys who haven't done the reading winging it in a budget simulation course.

And I do find myself resenting former Bush CEA Chairs Eddie Lazear's and Glenn Hubbard's endorsements of this "unworkable mess", in the words of their colleague Greg Mankiw. They owe the country better:

Paul Krugman: Tax Cuts, Growth, and Leprechauns: "The Tax Policy Center released its macroeconomic analysis of the House tax cut bill...

...TPC is not impressed: their model says that GDP would be only 0.3 percent higher than baseline in 2027, and that revenue effects of this growth would make only a tiny dent in the deficit. But... focusing on GDP is itself misleading, because we���re a financially open economy with a lot of foreign ownership already, and a large part of the alleged benefit of corporate tax cuts is that they will supposedly draw in lots of foreign investment.... I���ve been trying a back-of-the-envelope estimate of the difference leprechaun economics (so named because Ireland is the ultimate example of a country where national income is much less than GDP, because of foreign corporations) makes to the analysis.... For 2027 I get $60 billion in reduced GNI relative to GDP... 0.2% of GDP.

Remember, TPC estimates the extra growth in GDP at 0.3%. So according to the back of my envelope, leprechaun economics���extra payments to foreigners���basically wipe out all of that growth. And let me say that I am not entirely clear, given this result, why there should be any dynamic revenue gains. Given how scrupulous TPC normally is, they probably have an answer. But as far as I can see there���s no obvious reason to believe that dynamic scoring helps the tax cut case at all, not even a little bit. I���m sure that people can improve on my back-of-the-envelope here. But for now, it looks to me as if, properly counted, these tax cuts would do nothing for growth.

Must-Read: I remember when Martin Wolf was the very smart...

Must-Read: I remember when Martin Wolf was the very smart, very reality based, but very sincere and committed Tory. (He would probably say that he still is such.) Yet now his shrillness is up to 11 on the 10-point Krugman scale...

And the owl was once the baker's daughter:

Martin Wolf: A Republican tax plan built for plutocrats: "How does a political party dedicated to the material interests of the top 0.1 per cent of the income distribution win and hold power in a universal suffrage democracy?...

...That is the challenge confronting the Republican party. The answer it has found is ���pluto-populism���. This is a politically successful, but dangerous, strategy... [that has] brought Donald Trump to the presidency. His failure might bring someone more dangerous, more determined, to power. This matters to the US and, given its power, to the wider world.... About 45 per cent of the tax reductions in 2027 would go to households with incomes above $500,000.... This simply is reform for plutocrats.... The bill might also increase the cumulative fiscal deficit by about $1.5tn over the coming decade.... In all, then, this is a determined effort to shift resources from the bottom, middle and even upper middle of the US income distribution towards the very top, combined with big increases in economic insecurity for the great majority.

How, one must ask, has a party with such objectives successfully gained power?... Find intellectuals who argue that everybody will benefit from policies ostensibly benefiting so few.... Second... abuse the law... give wealth the overriding role in politics... suppress the votes of people likely to vote against plutocratic interests, or even disenfranchise them.... Third... foment cultural and ethnic splits... the ���Southern strategy���.... Yet this is too limited a view of the strategy.

More interesting is the echo of the antebellum South itself. The pre-civil war South was extremely unequal, not just in the population as a whole, which included the slaves, but even among free whites.... Peter Lindert and Jeffrey Williamson note, ���Any historian looking for the rise of a poor white underclass in the Old South will find it in this evidence.��� The 1860 census also shows that the median wealth of the richest 1 per cent of Southerners was more than three times that of the richest 1 per cent of Northerners. Yet the South was also far less dynamic. The South was a plutocracy. In the civil war, whose stated aim was defence of slavery, close to 300,000 Confederate soldiers died. A majority of these men had no slaves. Yet their racial and cultural fears justified the sacrifice. Ultimately, this mobilisation brought death or defeat upon them all. Nothing better reveals the political potency of identity.

A not dissimilar threat arises for today���s plutocrats. The economics and politics of pluto-populism have stoked cultural, ethnic and nationalist anger in the party���s base.... If the current tax bills get through, the tensions within the US are almost certain to get worse. Latin American inequality leads to Latin American politics. The US the world once knew is drowning in a tide of unconscionable and apparently unlimited greed. We are all now doomed to live with the unhappy consequences.

As I said yesterday: Eddie Lazear, Glenn Hubbard, what do you imagine that you are doing?

You Just Cannot Be an Honest Neoclassical Economist and Make the Trumpublican Tax "Reform" a Winner for U.S. National Income Growth...

...or, especially, after-tax real median growth. Or even 2%-ile income growth. Let alone well-being after cuts in public services.

You just can't. It doesn't add up at any level. As a matter of arithmetic...

Just too much of existing capital income flows to foreigners. Too much of extra production generated by a capital inflow would be credited to foreigners. And domestic savings supply is relatively inelastic. Even if you put both hands on the scale and lean hard, it just doesn't work, even without noting how much of payments to capital are monopoly rents and payments to other forms of capital that are not interest sensitive...

And Paul Krugman has been on fire this fall:

(Plus the salmon (on my machine) rectangle, minus the... what color is that? (on my machine) brownish-gold rectangle���that's the long-run change in U.S. national income from a budget neutral tax "reform" like that Trumpublicans are proposing. The effects of a deficit-increasing one are... less favorable.)

Krugman this fall:

(2017-10-05) Paul Krugman: The Transfer Problem and Tax Incidence: "Assuming I���ve done the algebra right, I get a rate of convergence of .059���that is, about 6 percent of the deviation from the long run eliminated each year. That���s pretty slow: it will take a dozen years to achieve even half the adjustment to the long run. What this says to me is that 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..."

(2017-10-21) Paul Krugman: Some Misleading Geometry on Corporate Taxes: "What���s wrong with this picture?... Four reasons I can think of.... A lot of what we tax with the corporate profits tax is... monopoly profits and other kinds of rents.... Capital mobility is far from perfect.... The US isn���t a small open economy.... Finally... capital inflows... have to be created by a temporarily overvalued real exchange rate... meaning very big trade deficits, meaning a strongly overvalued dollar..."

(2017-10-24) Paul Krugman: The Simple and Misleading Analytics of a Corporate Tax Cut: "The claim here is that the wage gains from a corporate tax cut exceed the revenue loss by a ratio that depends only on the initial tax rate, not at all on the degree to which capital can be substituted for labor, which in turn should (in this model) determine how much additional capital is drawn in by the tax cut. This feels wrong���and it is..."

(2017-10-25) Paul Krugan: Trump's $700 Billion Foreign Aid Program: "A simple point, but one everyone���myself included���somehow missed: the Trump tax plan is a huge giveaway to foreigners. Among other things, this means that the tax plan almost certainly reduces U.S. welfare even if you ignore distributional issues..."

(2017-10-29) Pul Krugman: Tax Cut Fraudulence: The Usual Suspects: "A revival of some more traditional, Bush-era fraudulence.... In particular: First, the claim that the rich pay practically all the taxes, so that of course they have to get the bulk of the tax cut. Second, claims of vast growth, because Reagan..."

(2017-11-01) Paul Krugman: The Gravelle Geardown: "Why does Gravelle-type analysis 'gear down' the wage effects of lower corporate taxes so much?.... Four reasons, three of which are conceptually easy.... First, a lot of the profits we tax are rents.... Second, corporate capital is only part of the U.S. capital stock; half of fixed assets are residential, and a lot of the rest isn���t corporate.... Third, America isn���t small.... Finally, and this is the one that I find takes some work, we���re very far from having perfectly integrated markets for goods and services.... So how great an idea is cutting corporate taxes? About as great as Dow 36,000..."

(2017-11-08) Paul Krugman: Leprechaun Economics and Neo-Lafferism: "Not incidentally, Kevin Hassett appears to be confused about the economics here, imagining that a paper reduction in the US trade deficit due to changes in transfer pricing would bring in real jobs. It wouldn���t. There are really two bottom lines.... The true growth impacts of Cut Cut Cut would be even more pathetic than the numbers you���ve been hearing. The other is that if you���re going to make international capital flows central to your arguments, you really need to think about the implications for future investment income..."

(2017-11-09) Paul Krugman: Leprechaun Economics, With Numbers: "The TF model... I don���t believe for a minute.... Tax Foundation asserts that capital inflows will be enough to raise GDP more than 3%, which is wildly implausible. But let���s go with it.... The true gain to the US is 1.05%, not 3.45%. That���s a big difference, and not in a good way.... Even if you believe the whole 'we���re a small open economy so capital will come flooding in' argument, it buys you a lot less economic optimism than its proponents imagine..."

(2017-11-11) Paul Krugman: The Tax Foundation Has Some Explaining To Do: "I���m hearing from various sources that the Tax Foundation���s assessment of the Senate plan... is actually having an impact on debate in Washington. So we need to talk about TF���s model.... During... large-scale capital inflow, you must have correspondingly large trade deficits.... Second... foreigners aren���t investing in America for their health.... Most of any gain in GDP accrues to foreigners, not U.S. national income. So how does the TF model deal with these issues? They have never provided full documentation (which is in itself a bad sign), but the answer appears to be���it doesn���t..."

(2017-11-14) Paul Krugman: Tax Cuts And The Trade Deficit: "If you believe the TF analysis, you also have to believe that the Senate bill would lead to enormous trade deficits���and massive loss of manufacturing jobs. What would adding $600 billion per year to the trade deficit do?... The U.S. manufacturing sector would be around 20% smaller than it would have been otherwise. How would this happen? Huge capital inflows would drive up the dollar, making U.S. manufacturing much less competitive..."

Must-Read: Martin Sandbu: Who should govern the euro?: "I...

Must-Read: Martin Sandbu: Who should govern the euro?: "I have long argued against further centralisation of fiscal and structural policies, and proposed that some autonomy should instead be returned to the national level...

...First, policies must respond to the real differences in policy preferences and economic conditions between countries.... Second, we can learn from diversity.... Think of how influential Germany���s Hartz reforms or Denmark���s ���flexicurity��� model have been.... Third, even where there is a case for centralised decision making, it is politically dangerous to introduce it without broad popular support.... That some economic policy power should be re-devolved does not mean every country should do its own thing. There are often good reasons to harmonise policy, but this can usefully be done by pioneering ���coalitions of the willing��� that leave the door open for others to join later. We should add that there are some areas where it does make sense to pool sovereignty further���defining the corporate tax base jointly to avoid tax avoidance is the prime example....

This leaves the governance of ���the euro��� itself.... The ECB has much less control over the currency even in the most basic sense than it should. Most of the money supply... is not created by the central bank but by the (largely private) banking system as it lends.... The central bank has little grip on the growth���and, in a crisis, contraction���of the amount of money in the economy.... The money-creation process is particularly chaotic when banking regulation differs between countries.... It is necessary to shift powers to supervise, regulate and, in the last instance, resolve and restructure banks to the central level....

In fiscal and structural policy, governance should return autonomy to national governments. In monetary matters, centralisation should go much further and take over more powers not just from states, but from banks.