J. Bradford DeLong's Blog, page 63

Time to Bang My Head Against the Wall Some More (Pre-Elementary Monetary Economics Department): Hoisted from the Archives from 2009

Hoisted from the Archives: Time to Bang My Head Against the Wall Some More (Pre-Elementary Monetary Economics Department) https://delong.typepad.com/sdj/2009/01/time-to-bang-my-head-against-the-wall-some-more-pre-elementary-monetary-economics-department.html: Oh boy. John Cochrane does not know something that David Hume did--that the velocity of monetary circulation is an economic variable rather than a technological constant. Cochrane:

Fiscal Fallacies: First, if money is not going to be printed, it has to come from somewhere. If the government borrows a dollar from you, that is a dollar that you do not spend, or that you do not lend to a company to spend on new investment. Every dollar of increased government spending must correspond to one less dollar of private spending.�� Jobs created by stimulus spending are offset by jobs lost from the decline in private spending. We can build roads instead of factories, but fiscal stimulus can���t help us to build more of both. This is just accounting, and does not need a complex argument about ���crowding out���...

Let us take this slowly.

Suppose that we have four agents: Alice, Beverly, Carol, and Deborah.

Suppose that Beverly has $500 in cash that she owes Carol, due in two months. Suppose that Alice and Carol are both unemployed and idle.

In one scenario in two months Beverly goes to Carol and pays her the $500. End of story.

In a second scenario Beverly says to Alice: "I have a house. Why don't you build a deck--I will pay you $500 after the work is done. Here is the contract." Alice takes the contract and goes to Carol. She shows the contract to Carol and says: "See. I will be good for the debt. Cook me meals so I will have the strength to build the deck--here's another contract in which I promise to pay you $500 within 90 days if you cook for me." Carol agrees.

Two months pass. Carol cooks and feeds Alice. Alice goes and builds the deck.

Alice then asks Beverly for payment. Beverly says: "Wait a minute." She goes to Carol and says: "Here is the the $500 cash I owe you." Beverly pays the money to Carol. Beverly then says: "But now could I borrow the cash back by offering you a long-term mortgage at an attractive interest rate secured with an interest in my newly more-valuable house?" Carol says: "Sure." Beverly files an amended deed showing Carol's mortgage lien with the town office. Carol gives Beverly back the $500. Beverly then goes to Alice and pays her the $500. Alice then goes to Carol and pays her the $500.

The net result? (a) Alice who would otherwise have been idle has been employed--has traded her labor for meals. (b) Carol who would otherwise have been idle has been employed--has traded her labor for a secured lien on Beverly's house. (c) Beverly has taken out a mortgage on her house and in exchange has gotten a deck built. (d) Carol has the $500 cash that Beverly owed her in the first place.

Alice has more income and consumption expenditure than if she hadn't taken Beverly's job offer. Carol has more income and saving than if she hadn't cooked for Alice and then invested her earnings with Beverly. Beverly has an extra capital asset (the deck) and an extra financial liability (the mortgage) than if she had never offered to hire Alice.

A deck has gotten built. Meals have been cooked and eaten. Two women have been employed. And all this has happened without printing any extra money.

John Cochrane would say that this is impossible.

John Cochrane would say:

If money is not going to be printed, it has to come from somewhere. If Beverly borrows a dollar from Carol, that is a dollar that Carol does not spend, or does not lend to Deborah to spend on new investment. Every dollar of increased Beverly spending must correspond to one less dollar of Carol or Deborah spending.�� Alice's job created by Beverly spending is offset by a job lost from the decline in Carol or Deborah spending. We can build decks instead of fountains, but Beverly stimulus can���t help us to build more of both. This is just accounting, and does not need a complex argument about ���crowding out���...

John Cochrane is wrong.

You sometimes see this mistake in freshmen students in Economics 1, students who do not fully understand either the circular flow of economic activity or what a credit economy is. They think���like Cochrane���that the flow of spending must be constant unless somebody "prints money" because, you see, you need "money" in order to buy things.

The premise is true���you do need "money" to buy things���but the conclusion is false: the flow of spending is not necessarily constant. In the world in which Beverly does not hire Alice but instead pays the $500 directly to Carol, that $500 turns over only once--its velocity of circulation is equal to one. In the world in which Beverly does hire Alice, the velocity of circulation of the $500 is four���it goes from Beverly to Carol, from Carol to Beverly, from Beverly to Alice, and from Alice to Carol.

Cochrane's mistake���an elementary, freshman mistake���is because he has not thought enough about how a credit economy works to recognize that the velocity of circulation can be an economic variable and is not necessarily a technological constant. And as the velocity of circulation varies, the amount of the flow of spending varies as well: it is now longer the case that if Beverly borrows a dollar from Carol that is a dollar that Carol does not spend.

Milton Friedman knew this. Irving Fisher knew this. Simon Newcomb knew this. David Hume knew this. John Cochrane does not know this: does not know that the velocity of circulation is an economic variable rather than a technological constant.

I do want to pound my head against the wall.

I do not know what else to do...

#cognition #economicsgonewrong #highlighted #macro #moralresponsibility #2020-03-03

Once again, the fact that the Republican Party applauds a...

Once again, the fact that the Republican Party applauds and that Washington journalists pretend that this emperor has clothes is deeply disturbing: John Amato: Trump Shocked The Flu Can Be Deadly https://crooksandliars.com/2020/02/trump-shocked-flu-can-be-deadly: 'Most Americans understand that the flu kills thousands of people a year-especially the elderly.... I guess Trump finally went to an actual briefing... finally listening to something other than Fox News and Lou Dobbs wax poetic about his awesomeness.... I can't explain how uneducated and myopic his words were when he said this: "I want to you understand something that shocked me when I saw it. I spoke with the doctor on this. I was really amazed and I think most people are amazed to hear it. The flu in our country kills from 25,000 people to 69,000 people a year. That was shocking to me. So far if you look at the 15 people, they're recovering. One is pretty sick. But hopefully will recover. The ruse in great shame. Think of that. 25,000 to 69,000. Over the last ten years, we've lost 360,000. These are people that have died from the flu. From what we call the flu. Hey, did you get your flu shot? And that's something..." It's not shocking or amazing to over 300 million people in the United States. It's been a known fact for decades. But to this imbecile, it was a revelation. And yes, it is called the flu. Bravo. He acted like a toddler who first learns that fire burns your hand...

#noted #2020-03-03

What Has Gone More Wrong with the Republican Party?: Hoisted from the Archives

Hoisted from the Archives: What Has Gone More Wrong with the Republican Party? https://delong.typepad.com/sdj/2010/04/what-has-gone-more-wrong-with-the-republican-party.html: 'Dean Acheson said that the Progressive/New Deal Democratic Party was the party of everybody else--everybody for whom the American Horatio Alger story was not firing on all cylinders (which was how the Progressive/New Deal Democratic Party could contain both relatively-poor white racists and the African-Americans they oppressed). The Republican Party was, he said, by contrast the party of enterprise--the party of making the American system and the American Horatio Alger story work better for those for whom it worked. Noah Millman wonders what happend to that Republican Party. He has a bunch of answers. But I think he misses the big one: the Republican Party is no longer the party of enterprise; instead, it is the party of un-enterprising wealth--those who have and are scared that they might lose--and of those who are scared that somewhere, somehow some different-looking people are getting something. That is what unites Robert Samuelson and Sarah Palin, Newt Gingrich and Larry Kudlow. And a party whose mainsprings are aristocratic privilege and populist ressentiment is not going to be an attractive place: Noah Millman: _Who Closed the Conservative Mind?... Sanchez��� main point is that a substantial contingent on the right is actively seeking epistemic closure as a response to the end of geographic isolation: relatively homogeneous communities that used to be able to keep the world at bay fairly naturally now have to fight to keep it out because of new communications technology that puts the world at their doorstep every day. I find this answer partly persuasive... but inadequate.... First, the politics of resentment are nothing new.... It doesn���t really explain anything about the state of conservative leadership. Here are some possible additional explanations.... Blame the South.... a distinct region in America, significantly different in history and political culture.... Blame the money. Is there a major patron of conservative intellectuals who is a patron primarily because he or she wants to generate new ideas, insights, works of the spirit.... Blame David Frum. Just prior to the Iraq War, David Frum published a now-infamous essay expelling ���unpatriotic conservatives���.... Frum was not expelling extremists, however; he was expelling dissenters.... While I don���t think it���s fair to blame David Frum as an individual for very much (and poetic justice has already been served on him specifically anyhow), I do think it���s important for those who are concerned with the openness or closedness of the conservative mind to grapple with this particular event.... Blame Iraq. The Iraq War was the cause for which Frum expelled the so-called ���unpatriotic conservatives��� and the Iraq War is the cause for which the conservative mind closed. It won���t open again until this fact is faced.... Blame the times. No analysis of where conservatism has gone wrong would be complete without an utterly fatalistic analysis.... Political movements have their life cycles...

#hoistedfromthearchives #2020-03-03

For the Weekend: Diana Rigg

#fortheweekend #2020-02-29

Convincing Biden Victory in South Carolina: Warren's My Guy, But I Will Happily Work Very, Very Hard for Biden...

Note to Self: For the record, of those above, my rank ordering of who is likely to make the best president goes: Warren, Bennet, Klobuchar, Patrick, Biden, Booker, Buttigieg, Steyer, Delaney, Yang, Sanders, Gabbard...

Impressively done by Joe Biden and his team: kudos:

#moralresponsibility #notetoself #politics #2020-02-29

OK. I have got to stop playing my position, because this ...

OK. I have got to stop playing my position, because this is more important for America today: Jill Lepore: The Last Time Democracy Almost Died https://www.newyorker.com/magazine/2020/02/03/the-last-time-democracy-almost-died?: 'The endless train of academics were also called upon to contribute to the nation���s growing number of periodicals. In 1937, The New Republic, arguing that ���at no time since the rise of political democracy have its tenets been so seriously challenged as they are today,��� ran a series on ���The Future of Democracy,��� featuring pieces by the likes of Bertrand Russell and John Dewey. ���Do you think that political democracy is now on the wane?��� the editors asked each writer. The series��� lead contributor, the Italian philosopher Benedetto Croce, took issue with the question, as philosophers, thankfully, do. ���I call this kind of question ���meteorological,��� ��� he grumbled. ���It is like asking, ���Do you think that it is going to rain today? Had I better take my umbrella?��� ��� The trouble, Croce explained, is that political problems are not external forces beyond our control; they are forces within our control. ���We need solely to make up our own minds and to act���...

...Don���t ask whether you need an umbrella. Go outside and stop the rain. Here are some of the sorts of people who went out and stopped the rain in the nineteen-thirties: schoolteachers, city councillors, librarians, poets, union organizers, artists, precinct workers, soldiers, civil-rights activists, and investigative reporters. They knew what they were prepared to defend and they defended it, even though they also knew that they risked attack from both the left and the right. Charles Beard (Mary Ritter���s husband) spoke out against the newspaper tycoon William Randolph Hearst, the Rupert Murdoch of his day, when he smeared scholars and teachers as Communists. ���The people who are doing the most damage to American democracy are men like Charles A. Beard,��� said a historian at Trinity College in Hartford, speaking at a high school on the subject of ���Democracy and the Future,��� and warning against reading Beard���s books���at a time when Nazis in Germany and Austria were burning ���un-German��� books in public squares. That did not exactly happen here, but in the nineteen-thirties four of five American superintendents of schools recommended assigning only those U.S. history textbooks which ���omit any facts likely to arouse in the minds of the students question or doubt concerning the justice of our social order and government.��� Beard���s books, God bless them, raised doubts.

Beard didn���t back down. Nor did W.P.A. muralists and artists, who were subject to the same attack...

#noted #2020-02-29

"Populism"���in today's climate, neo-fascism would be a b...

"Populism"���in today's climate, neo-fascism would be a better phrase because the original populists actually had policies that were popular and effective (in some cases at least) in boosting the well-being of the people���is only strengthened by a small amount via the economic insecurity channel. But other factors boosting "populism" have currently made it influential enough that that small boost can be politically decisive. Excellent work from Yotam Margalit: Yotam Margalit: Economic causes of populism: Important, marginally important, or important on the margin https://voxeu.org/article/economic-causes-populism: 'A common explanation for the rise of populism is economic insecurity driven by forces such as trade, immigration, or the financial crisis. This column, part of the Vox debate on populism, argues that such view overstates the role of economic insecurity as a driver. In particular, it conflates economic insecurity being important in explaining the overall populist vote and being important by affecting election outcomes on the margin. The empirical findings indicate that the share of populist support explained by economic insecurity is modest...

#noted #2020-02-29

This was absolutely great great great great news for us a...

This was absolutely great great great great news for us associated with Equitable Growth: Equitable Growth: Longtime Capitol Hill Staffer Named Policy Director at Equitable Growth : 'WASHINGTON���The Washington Center for Equitable Growth today announced that longtime congressional staffer Amanda Fischer has joined the organization as its new policy director. ���As our new policy director, Amanda will lead the development of our policy priorities and help position the organization as a go-to resource for understanding the impact of rising inequality in the U.S. economy and what policymakers can do about it,��� said Equitable Growth President and CEO Heather Boushey. ���Amanda brings a wealth of knowledge and experience that will help advance an evidence-backed policy agenda to promote economic growth that is strong, stable, and broadly shared.��� Fischer most recently served as chief of staff for Rep. Katie Porter (D-CA)...

#noted #2020-02-29

This was, I am told, a very good sbow: Equitable Growth: ...

This was, I am told, a very good sbow: Equitable Growth: Vision 2020 Book Release Breakfast https://equitablegrowth.org/event/vision-2020-book-release-breakfast/: 'The Washington Center for Equitable Growth is proud to announce that it will be releasing its new book, Vision 2020: Evidence for a Stronger Economy, at a breakfast event on February 18, 2020. Authored by leading scholars across the country, this compilation of 21 essays highlights a range of new ideas and the research behind them. We compiled Vision 2020 so the latest research informs critical election-year economic policy debates and to inspire decisionmakers to take action to address inequality���s subversive effect on broadly shared and sustainable economic growth. Building on many of the key themes and ideas from Equitable Growth���s Vision 2020 conference, this package of policy proposals tackles many of the ways that the increasing concentration of economic resources translates into political and social power. Panelists: Heather Boushey... Robynn Cox... Susan Lambert... Fiona Scott Morton...

#noted #2020-02-29

Comment of the Day: Dilbert Dogbert: I am old as dirt. ht...

Comment of the Day: Dilbert Dogbert: I am old as dirt. https://www.bradford-delong.com/2020/02/deskilling-among-manufacturing-production-workers-vox-cepr-policy-portal.html#comment-6a00e551f0800388340240a509a3d8200b I remember how all the magazines of my youth were full of do it yourself articles. Now the mags I pickup from time to time are about buying stuff. I used to know the publisher of Sunset Magazine, Bill Lane. As a young married it was full of DIY articles. Now it is full of buy it stuff. What has happened is the DIY has shifted to the internet. I worked up close and personal with engineering either as a draftsman or as an engineer. A lot of the skills I learned as a draftsman are now done by a drafting program. Same with a lot of the skills i learned as an engineer. I have built 7 boats over my lifetime. Had to learn all those old shipbuilding skills from the days of wooden boats and sails. Today's mass employment has to be deadly dull. Maybe that is why loans for education became so onerous. Keep the slaves bound to the debt as they go quietly crazy...

#commentoftheday #2020-02-29