Estimates of World GDP, One Million B.C.-Present [1998]: My View as of 1998: The Honest Broker for the Week of May 24, 2014

Time to update this, as my thinking on a bunch of issues has changed over the past sixteen years. But first, as I think about how to so, let me reprint it...


I construct estimates of world GDP over the very long run by combining estimates of total human populations with largely-Malthusian estimates of levels of real GDP per capita.

Population

I take my estimates of human population from Kremer (1993), but it would not matter if I had chosen some other authority. All long-run estimates of human population that I have found are quite close together (with the exception of estimates of population around 5000 BC, where Blaxter (1986) estimates a population some eight times that of other authorities). Note that this does not mean that the estimates are correct—just that they are roughly the same.

Delong typepad com print 20061012 LRWGDP pdf

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A Very Nice Article by Jim Tankersley About the Affordable Care Act and Tea-Party Land, with One Significant Flaw, with Bonus Whose Resistance Is Futile? Who Is Being Assimilated? Why Oh Why Can't We Have a Better Press Corps? Weblogging

Let me start by saying that I have enormous respect for Ezra Klein, whose work in creating and maintaining WonkBlog has, I would argue, made him the brightest spot and the greatest hero twenty-first century American journalism has seen.

And let me start by saying that I also have enormous respect for Jim Tankersley: a smart, honorable, and hard-working reporter who knows immense amounts about the American economy and about public policy, and who tries his best to inform his readers on both print and screen within the limits of the institutional role allotted him.

And let me say that his 1700 word piece on the economy and politics of Tea-Party hub Rome, Georgia can be and has been read with enormous profit by me and people like me.

But.

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Project Syndicate: Where Is the Greenspan of 1994?

J. Bradford DeLong: Project Syndicate: Greenspan Has Left the Building:

When I first went to Washington as a grownup in 1993 to work for the Clinton Treasury Department, we saw America as having three problems that urgently needed action that year: (1) rebalancing the federal budget so that the debt-to-GDP ratio was no longer on an upward, explosive trajectory; (2) beginning to deal with global warming via the slow ramp-up of a carbon tax; and (3) beginning the reform of our extraordinarily inefficient and extraordinary expensive national health financing system. Behind those three were three more important long-run policy challenges for America: (4) updating our pension system to deal with the aging of America and the decline of defined-benefit pensions; (5) improving our education system so that more of the people who should be going to college would feel that they could risk doing so; and (6) reversing the erosion of America as a middle-class society.

None of these--well, except maybe for (6)--were partisan Democratic issues.

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Inspecting the Mechanism: Dealing with Sudden Stops, the Euro Periphery, the Exorbitant Privilege-Possessing Floating-Rate Sovereigns of the Global North, and the Debt

I found myself procrastinating this morning by trying to work through why I found myself in so much disagreement with the able, intelligent, hard-working, and honest Antonio Fatas in his Dealing with a Sudden Stop:

A country with a current account deficit must have a matching capital inflow to finance the excess of spending above its income (this is an accounting identity). During the financial crisis many European countries faced a sudden stop.... This is something that any textbook discusses although normally in the context of emerging markets [by the way, it is not easy to use the IS-LM model to deal with sudden stops given that the IS-LM model is not the best model to analyze current account imbalances and situations where there is no price at which capital will fund a current account deficit]....

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Lost Somewhere in the Territory with the Wrong Map: Alan Greenspan's "The Map and the Territory"

When I first went to Washington as a grownup in 1993 to work for the Clinton Treasury Department, we saw America as having three problems that urgently needed action that year: (1) rebalancing the federal budget so that the debt-to-GDP ratio was no longer on an upward, explosive trajectory; (2) beginning to deal with global warming via the slow ramp-up of a carbon tax; and (3) beginning the reform of our extraordinarily inefficient and extraordinary expensive national health financing system. Behind those three were three more important long-run policy challenges for America: (4) updating our pension system to deal with the aging of America and the decline of defined-benefit pensions; (5) improving our education system so that more of the people who should be going to college would feel that they could risk doing so; and (6) reversing the erosion of America as a middle-class society.

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Assessing Alan Greenspan: Monday DeLong Self-Smackdown

Greenspan in Retrospect

Six years ago, I wrote a highly complimentary review of Alan Greenspan's The Age of Turbulence:

Brad DeLong (September 2007): Review of Alan Greenspan's "The Age of Turbulence": For nearly 20 years Alan Greenspan… was the most powerful economic central planner the world has ever seen…. Why should a central planner be setting interest rates? The only reason is that this system appears to work less badly than the alternatives we have tried…. Greenspan is world famous because he was very good and very lucky…. He made roughly 36 substantive decisions about the direction interest rates should go. Six times I disagreed with him. Five of those six times, he was right…. That is an amazing record….

I still think most of the review still holds up well[1]. But the very end is now very questionable:

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Two Ways of Looking at a Randite: Hermaneutics of Profound Suspicion vs. Hermaneutics of Goodwill Toward Alan Greenspan Weblogging

Alan Greenspan's publisher did not send me a copy of his new The Map and the Territory. So at the moment I am running on the two different books read by Larry Summers and Steve Pearlstein:

Larry Summers: The Map and the Territory:

It was my privilege to work closely with Alan Greenspan for the eight years I served at the Treasury during the Clinton administration. His new book, The Map and the Territory, brings me back to fond memories of our conversations over the years. I haven’t always agreed with my friend but he has always left me wiser and with something to ponder. I have been struck… by the way… his approach… draws both on commitments to an individualist, libertarian philosophy and on extensive and deep immersion in economic statistics…. The range of topics and arguments makes this book a very important statement, whether one ultimately agrees or disagrees with the author. I found myself doing plenty of both. Greenspan’s range, vision and boldness is especially important at a time like the present, when Washington is preoccupied with the political and petty….

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Should Kansas's (and Missouri's) Future Be "a Lot More Like Texas"?: The View from The Roasterie **La Farine** XIV: October 18, 2013

That is one of Kansas Governor Sam Brownback's constant applause lines--that he wants Kansas to be a lot less like California and a lot more like Texas.

And so I was reading Bryan Burrough on Erica Grieder: ‘Big, Hot, Cheap and Right’: What America Can Learn from the Strange Genius of Texas, and ran across Burrough's claim:

AS a Texas-raised journalist, I can tell you two things with confidence about my native state. One, its economy has been humming nicely for years…

And I think: which years are those? The Texas unemployment rate jumped 4.5% points to above 8% in the depths of the Lesser Depression, and is still 6.5%. That's not "humming"--at least not unless you view the experience of the unemployed and of those who fear they might lose their jobs as of no account.

FRED Graph St Louis Fed

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Macroeconomics in the Public Square: Part IIIB of My "The Economist as ?: The Public Square and Economists: Equitable Growth Note for October 16, 2013

The sixth thing economists have to say is about “macro”: about how sometimes the entire market system appears to go awry in some puzzling way. Sometimes when you go the market, you find the money prices that you have to pay higher than you expected—perhaps 10% higher than you expected last year when you made your plans. It seems that, somehow, there is too much spending money chasing too few goods. How is this that this happens? And what should the government do to make sure that it does not happen?

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The Important Takeaway from Ken Rogoff's Latest Is That He Agrees with Us That Since the Start of 2010 European (Including British) Fiscal, Monetary, and Banking Policies Have Been too Austere

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On the horizon, I see the eurozone breakup vigilantes approaching the form of Ken Rogoff's latest: Three Wrongs Do Not Make a Right. But first, focus on his conclusion:

High return infrastructure projects pay for themselves in the long run, and are a reasonable risk for the short run… [as are] effective expenditures aimed at making education more effective…. Monetary policy should have been even more aggressive after the crisis…. Debt overhang is a huge problem…. I have long clearly favoured sharply writing down debts… at the ultimate expense of taxpayers in the core of Europe…

Hold tight to that: Ken Rogoff believes, along with the rest of us, that since 2010 European governments (including Britain's) should have spent more, that central banks should have eased more, and that banking policy should have written-off more.

Now I wish Ken would go farther: I wish he would do the arithmetic of fiscal policy in more depth, because I think that if he did he would agree with Larry Summers and me that at current interest rates--and at the interest rates that bond markets expect to prevail for at least the next generation--it is not just government investments in infrastructure and education that pay for themselves in the sense of reducing the future debt burden, but any government expenditures at all that do so.

But right now I will take what I can get: And what I get is that Ken Rogoff agrees with us that on the far side of the Atlantic fiscal, monetary, and banking policies have all there been inappropriately austere since 2010. The only questions we have to debate are: how much and how far should governments have gone in additional stimulative fiscal, monetary, and banking policies.

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The Salience Today of the Economic: Part II of My "The Economist as ?: The Public Square and Economists: Equitable Growth Note for October 10, 2013

Sit down some evening and watch the news on the TV, or scan the magazine covers in the supermarket, or simply immerse youself in modern America.

If you are like me, you will be struck by the extent to which our collective public conversation focuses on seven topic areas:

  1. The personal doings of the beautiful, the powerful, and the rich—and how to become more like them.
  2. The weather.
  3. Local threats and dangers, especially to children.
  4. Amusements—usually gossip about the past or about our imaginary friends, frenemies, etc. (it is amazing how many people I know who have strong opinions about Daenerys Stormborn of House Targaryen--many more than have any opinions at all about her creator George R.R. Martin).
  5. How to best procure necessities and conveniences.
  6. Large scale dangers (and, rarely, opportunities): plagues, wars, the fall and rise of dynasties. 7.“The economy”: unemployment, spending, inflation, construction, stock market values, and bond market interest rates.

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Kenneth Rogoff's Hooverismo…

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Just what is Ken Rogoff's argument that the Cameron-Osborne-Clegg government in Great Britain was correct to hit the British economy over the head with the austerity hammer in the spring of 2010, anyway?

Simon Wren-Lewis opens: Ken Rogoff on UK austerity:

Ken Rogoff’s article… is a welcome return to sanity…. Rogoff focuses on what was always the critical debate: was austerity necessary because financial markets might have stopped buying government debt…. As critical pieces go, you couldn’t have a friendlier one than this…. Rogoff agrees that it was a mistake to cut back on public sector investment…. He says that austerity critics “have some very solid points”…. His comment after putting the austerity critics’ case is “perhaps” or “maybe”…

But… But… But…

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I Am Uncertain About Where Republicans See "Uncertainty" as a Drag on Demand...

Paul Krugman: What They Say Versus What They Mean:

"Over at Wonkblog, Lydia DePillis asks, 'Remember when Republicans were worried about "economic uncertainty"?' Actually… I don’t…. They claimed to be worried… but it was… an attempt to put a new, quasi-academic gloss on the same old same old… that the economy will boom only once we get rid of the Islamic atheist Kenyan socialist, and install someone who will be nice to rich people…. There was never any question that they would drop the uncertainty thing the moment it became inconvenient…. And so they did. It’s a lot like the austerity debate, where… the carping on debt was really a way to go after the welfare state…. There are a lot fewer good-faith economic arguments out there than a naive observer might think--and that’s precisely because powerful forces are doing their best to hoodwink said naive observers. So, goodbye “economic uncertainty”. The truth is that nobody ever took it seriously.

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The Taper and Its Shadow: Central Bankers Need to Explain the Risks of Further Quantitative Easing

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We are live at Project Sydicate: http://www.project-syndicate.org/commentary/the-absence-of-compelling-reasons-to-end-quantitative-easing-by-j--bradford-delong

The central banks of the North Atlantic have promised that they will not raise the short-term safe nominal interest rates they control until the economies under their stewardship show substantial economic recovery.

So far the economies have not done so: they continue to be battered by the destructive fiscal headwinds of austerity, by uncertainty over whether the Republican Party will in fact attempts to crash the credit of the United States, by broken systems of residential finance, and by uncertainty about how the burdens of necessary structural adjustment are to be allocated. With all that, it would seem premature for central banks to even begin to talk about adopting a less stimulative monetary posture.

Yet the central banks of the North Atlantic are doing so.

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On a Thousand Year Timescale the Human Race Really Is Just One Big Unhappy Family

470 years ago, in 1543, King Henry VIII Tudor of England married his sixth and last wife, Katherine Parr. He also allied with the Holy Roman Emperor Charles V Habsburg "of Ghent"; declared war on France; imposed the English administrative grid of counties, shires, boroughs, and House of Commons representatives on Wales; made yet another short-lived treaty with Scotland; burned the three Protestant Windsor Martyrs; and named the composer Thomas Tallis a Gentleman of the Chapel Royal. A busy king, for one so sick and mad.

Also in 1543 a woman named Katherine was born around 1543 in Hartfordshire--in a place called, simply, "West Mill".

Westmill hertfordshire england Google Maps

West of what it does not say.

Google Maps tells us that West Mill today has an establishment called The Tea Room, and another called the Sword Inn Hand--demonstrating that no pun is too weak for the Englishmen and Englishwomen of the Home Counties to think it absolutely hilarious. Google Maps tells us that West Mill stands west of the River Rib and the A-10 road beyond, partially shielded from the noise of passing cars taking the alternate route to the M-11 from London to Cambridge by Langley Wood and Norwich Grove.

Westmill hertfordshire england Google Maps

Zooming out reveals that West Mill lies three km north of the East Herts. Golf Club…

Westmill hertfordshire england Google Maps

and roughly 20 km west by northwest of Bishop's Stortford nd Stansted Mountfichet, which is better known today as the home of Stansted Airport, London's other other airport…

Westmill hertfordshire england Google Maps

and 50 km north of London.

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Brad DeLong: Up the Mississippi with Gun and Plough

Few professional economists will say that the market shapes the economy to the exclusion of the government. But many op-ed writers, newspaper editorial page editors and columnists, and think-tank myrmidons will say it. Perhaps they will put it in this way: All government ever does is mess things up. Whatever the government does to shape the economy will go badly awry.

It really should not be necessary, here and now in the twenty-first century, to demonstrate the propositions that the unregulated market does not always get it right, that a well-functioning government is an essential support for a prosperous economy, and that a great deal of the difference between different countries' levels of prosperity comes from whether their governments have made wise or foolish strategic choices. But, here in America at least, it is necessary to demonstrate these propositions.

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Monday DeLong-Being-Stupid Self-Smackdown Watch: Expansionary Fiscalists vs. Expansionary Monetarists and the Federal Reserve's Shift from a Time- to a State-Based Policy Rule: Will It End Our "Lost Decade"?

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The Federal Reserve's announcement last December that it was switching from a time- to a state-based policy rule has not REPEAT NOT raised expectations of inflation over the next five, ten, or thirty years. Perhaps this is because Federal Reserve communicators have spent a lot of time telling people that the shift does not mean that the Federal Reserve will tolerate higher inflation. Perhaps it is for other reasons.

This is a powerful empirical piece of evidence that it is much harder to summon the Inflation Expectations Imp than economists like Greg Mankiw had thought. It is a point for the expansionary fiscalists in their debate with the expansionary monetarists.

And it is a smackdown of me for my fit of enthusiastic expansionary monetarism last December, when I wrote: Brad DeLong: The Federal Reserve's Shift from a Time- to a State-Based Policy Rule: Will It End Our "Lost Decade"?:

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J. Bradford DeLong and Laura D. Tyson: Discretionary Fiscal Policy as a Stabilization Policy Tool: What Do We Think Now That We Did Not Think in 2007?

J. Bradford DeLong and Laura D. Tyson: Discretionary Fiscal Policy as a Stabilization Policy Tool: What Do We Think Now That We Did Not Think in 2007?

DRAFT 1.4: May 31, 2013: 31 pp. 8166 words

Six years ago there was near-consensus among economists and policymakers alike in support of Taylor's (2000) argument that aggregate demand management was the near-exclusive domain of central banks. Today central bankers like Federal Reserve Chair Bernanke (2013) are actively asking for help by fiscal authorities. What caused this shift? In part, the course of interest rates has made the costs of discretionary expansionary fiscal policy lower than anyone would have believed. In part, the benefits via Keynesian multiplier processes appear to have been much larger than was presumed. And in large part monetary policy has proven inadequate to the task without undertaking risky and untried non-standard policy measures at a scale that has so far proven too large for central banks to risk. Against this shift in the benefit-cost calculus toward use of discretionary expansionary fiscal policy in the current conjuncture we must set uncertain long-run costs of debt accumulation. These costs, however, remain especially hard to analyze, as they seem to substantially consist of “unknown unknowns”.

8362 words


Brad DeLong: Trade and Distribution: A Multisector Stolper-Samuelson Finger Exercise: Wednesday Hoisted from the Archives from Five Years Ago Weblogging

Trade and Distribution

One of the basic building blocks of the political economy of international trade is the Stolper-Samuelson result: the shift from no trade to free trade is good for the owners of the abundant factor of production, but bad for the owners of the scarce factor of production. This accounts for why support for free trade tends to be stronger in democratic than in authoritarian regimes. The scarce factor of production tends to be, well, scarce. Hence not many potential voters own a lot of it. Hence the political support for trade protection in any system of government that gives weight to broad as opposed to strong preferences will tend to produce trade liberalization.

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Three Ways of Looking at the Government's Debt-Sustainability Transversality Condition

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An outtake from the in-progress DeLong and Summers, "Fiscal Policy in a Low-Interest Rate Environment". This digression has no proper place in the paper, so I am posting it here...

Suppose that we have an economy growing at rate n + g, population growth plus productivity growth, with a government borrowing at an interest rate r. Suppose that the social welfare function is a sum over all periods of ln(C(t)), with three different possible sums:

  1. the simple sum of per-capita consumption levels in each period: ln(C(t))
  2. a population-weighted sum of per-capita consumption levels in each period: ln(C(t))(N(t))
  3. a sum that treats increases in real GDP from higher population and increases in real GDP from higher per-capita consumption symmetrically: ln(C(t)(N(t))

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Brad DeLong: Looking in the Encyclopedia

Looking in the Encyclopedia:

A Fire Upon the Deep

Many years ago I was reading A Fire Upon the Deep, a science fiction novel by Vernor Vinge, and I was curious about where Vinge had gotten the name "Qeng Ho"--which in the novel was the name of a group to which the protagonist had belonged in the distant past. So I went downstairs to my then newly-acquired copy of the Encyclopedia Britannica and looked up "Qeng Ho."

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2013 Industry Studies Conference: America's Innovation Future

2013 Industry Studies Conference:

The 2013 Conference will be held at the Ewing Marion Kauffman Foundation Conference Center in Kansas City, Missouri, May 28 - May 31, 2013. The address for the Kauffman Foundation is:

4801 Rockhill Road, Kansas City, Missouri 64110


“America’s Innovation Future” at ISA 2013:

  • J. Bradford Delong, Professor of Economics at the University of California, Berkeley, Research Associate of the National Bureau of Economic Research, Visiting Scholar, Kauffman Foundation, and former U.S. Deputy Assistant Secretary of the Treasury for Economic Policy (1993-5).
  • Julia Lane, Senior Managing Economist for the American Institute of Research International Development Program
  • Martin Kenney, Professor of Human and Community Development, University of California, Davis and Senior Project Director of the Berkeley Roundtable on the International Economy

Date: Wednesday, May 29, 2013 :: Time: 8:45am – 10:15am :: Location: Kauffman Foundation Conference Center – Kansas City, MO

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Moby Ben, or, The Washington Super-Whale: Hedge Fundies, the Federal Reserve, and Bernanke-Hatred

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In February 2012, a number of hedge fund traders noted one particular index--CDX IG 9--that seemed to be underpriced. It seemed to be cheaper to buy credit default protection on the 125 companies that made the index by buying the index than by buying protection on the h125 companies one by one. This was an obvious short-term moneymaking opportunity: Buy the index, sell its component short, in short order either the index will rise or the components will fall in value, and then you will be able to quickly close out your position with a large profit.

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The Long-Run and Short-Run Budget Picture

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Opening statement at K-State Debate with Alan Reynolds:

How big a government should we have?

Right now the U.S. has a relatively small government: in a normal year the U.S. government as a whole spends something like 32% of total production. The U.S. government spends about ten percentage points less of GDP than the average rich, industrialized country spends. The U.S. government spends about 15 percentage points less of GDP than a never-Communist country as rich as the U.S. is today would be expected to spend. We are thus, in comparative perspective, a small-government country.

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Reinhart-Rogoff Weblogging: No, Their Argument for Austerity Now Out of Fear of Debt Didn't Seem to Me to Make That Much Sense

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Let me highlight a passage from the "Understanding Our Adversaries" evolution-of-economists'-views talk that I started giving three months ago, a passage based on work by Owen Zidar summarized by the graph above:

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Economic Policy: Saturday Twentieth Century Economic History Weblogging

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Note well: the economy will not manage itself, at least not in a good way.

As John Maynard Keynes shrilly stated back in 1926:

Let us clear… the ground…. It is not true that individuals possess a prescriptive 'natural liberty' in their economic activities. There is no 'compact' conferring perpetual rights on those who Have or on those who Acquire. The world is not so governed from above that private and social interest always coincide. It is not so managed here below that in practice they coincide. It is not a correct deduction from the principles of economics that enlightened self-interest always operates in the public interest. Nor is it true that self-interest generally is enlightened… individuals… promot[ing] their own ends are too ignorant or too weak to attain even these. Experience does not show that… social unit[s] are always less clear-sighted than [individuals] act[ing] separately. We [must] therefore settle… on its merits… "determin[ing] what the State ought to take upon itself to direct by the public wisdom, and what it ought to leave, with as little interference as possible, to individual exertion".

The management of economies by governments in the twentieth century was at best inept. And, as we have seen since 2007, little if anything has been durably learned about how to regulate the un-self-regulating market in order to maintain prosperity, or ensure opportunity, or produce substantial equality.

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The Future of the Euro: Lessons from History

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The 1919-1939 interwar period taught us four lessons:

  1. In order for the world economy to be prosperous, adjustment to macroeconomic disequilibrium needs to be undertaken by both "surplus" and "deficit" economies--not by "deficit" economies alone.

  2. If the world economy is to have any chance of avoiding or limiting crises, an integrated banking system requires an integrated bank regulator and supervisor.

  3. In order for crises to be successfully managed, the lender of last resort must truly be a lender of last resort: it must create whatever asset the market thinks is the safest in the economy, and must be able to do so in whatever quantity the market demands.

  4. In order for any monetary union or fixed exchange rate system larger than an optimum currency area to survive, it must be willing to undertake large-scale fiscal transfers to compensate for the exchange rate movements to rapidly shift inter-regional terms of trade that it prohibits.

I, at least, thought that everybody--or everybody who mattered in governing the world economy--had learned these four lessons that 1919-1939 had so cruelly taught us. Now it turns out that the dukes and duchesses of Eurovia had, in fact, learned none of them. History taught the lesson. But while history was teaching the lesson, the princes and princesses of Eurovia and their advisors were looking out the window and gossiping on Facebook.

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DRAFT… DRAFT… DARFT… Kauffman Foundation 2013 Economic Webloggers' Forum: Opening Remarks

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Brad DeLong: Introductory Remarks:

I would very much like to thank the Kauffman Foundation--President McDonnell and Research Director Stangler for giving me the keys and letting me drive this; Shelley Wertz, Bob Strom, Mette Kramer, and the entire Kauffman communications and support teams that have made this possible.

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Tyrannies: Saturday Twentieth Century Economic History Weblogging

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The twentieth century’s tyrannies were more brutal and more barbaric than those of any previous age. And—astonishingly—they had their origins in economic discontents and economic ideologies. People killed each other in large numbers over questions of how the economy should be organized, which had not been a major source of massacre in previous centuries.

Twentieth-Century governments and their soldiers have killed perhaps forty million people in war: either soldiers (most of them unlucky enough to have been drafted into the mass armies of the twentieth century) or civilians killed in the course of what could be called military operations.

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Economists Who Do Not Know Pre-Elementary Monetary Economics: Wednesday Hoisted from the Archives Time to Bang My Head Against the Wall Some More Weblogging

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A correspondent complains that John Cochrane's (February 27, 2009) "Fiscal Stimulus, Fiscal Inflation, or Fiscal Fallacies?" appears to have disappeared from the internet. It may well be a configuration problem at http:/chicagogsb.edu/, but a quick check of the Wayback Machine does indicate that, indeed, "Fiscal Stimulus, Fiscal Inflation, or Fiscal Fallacies?" has not been successfully crawled since February 20, 2012.

Here's a copy.

And, indeed, Chicago GSB appears to have ditched http://chicagogsb.edu/ for http://chicagobooth.edu without properly setting up forwards from chicagogsb.edu to chicagobooth.edu. Sloppy...

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Brad DeLong (2011): The Interest Rate That Did Not Bark in the Night: The Surge in U.S. Treasury Debt and the Non-Reaction of Rates: Tuesday Hoisted from Archives Weblogging

http://delong.typepad.com/sdj/2011/06/hoisted-from-the-archives-if-you-are-looking-for-a-monument-to-john-hicks-look-around-you.html

FRED Graph  St Louis Fed 107

At the very start of the 2000s in the years of the Clinton budget surpluses--remember those?--the U.S. government was repaying its debt at the rate of $60 billion a quarter: each quarter saw $60 billion less of U.S. Treasury debt out there in the private market for savers to hold.

George W. Bush--with assistance from Alan Greenspan and the entire rest of the Republican Party--quickly fixed that: from 2002 to 2007 the average quarter saw net Treasury issues of some $70 billion. Each quarter saw the U.S. Treasury having to find extra buyers for another $70 billion of bonds.

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The Grand Narrative: Saturday Twentieth Century Economic History Weblogging

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Every history tells a story of what happened: one damned thing after another. But which story do you tell?

If you are telling a story of the history of five hundred years ago, you most-likely focus on Martin Luther and Jean Calvin’s Protestant Reformation, on the Spanish conquest of the Americas, on the rise of the Shāhān-e Gūrkānī—the Moghul Empire—in the Indian subcontinent, and maybe a couple more. Those are the axes of the history of the 1500s: religion, expansion, and conquest. If you are telling a story of a thousand years ago, you most-likely focus on the rise of the Song Dynasty in China, on the waning of the golden age that was Abbasid Baghdad-centered Islamic civilization, and on, perhaps, the establishment of feudal “civilization” in western Europe. Those are the axes of the history of the 1000s: politics and culture. Other stories of other centuries would most-likely focus on the Christianization of the Roman Empire, the shift of China’s population center of gravity to the rice-growing south and and so forth. The rise, diffusion, and fall of dynasties, empires, religions, and cultures are the axes of history, with perhaps some reference to what the cultures of material subsistence in the background were and how they slowly changed.

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Why Oh Why Can't We Have a Better Press Corps?: Andrew Ferguson of the Weekly Standard Edition

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Why do the Weekly Standard's writers work so hard to persuade me that they lack both intelligence and honor? I mean, they work really hard to do so--and they do so quite effectively.

Let's back up, and start with one of my favorite readings from Thomas Nagel (2012), Mind and Cosmos:

If I decide, when the sun rises on my right, that I must be driving north instead of south, it is because I recognize that my belief that I am driving south is inconsistent with that observation [that the sun is rising on my right], together with what I know about the direction of rotation of the earth. I abandon the belief because I recognize that it couldn’t be true…. If I oppose the abolition of the inheritance tax, it is because I recognize that the design of property rights should be sensitive not only to autonomy but also to fairness…. I operate in the space of reasons. The appearance of reason… seems… something radically emergent…. Like consciousness, reason is inseparable from the physical life of organisms that have it…. It was originally a biological evolutionary process…. This, then, is what a theory of everything has to explain… the emergence from a lifeless universe of reproducing organisms… greater and greater functional complexity… consciousness… [and] the development of consciousness into an instrument of transcendence that can grasp objective reality and objective value.

I claim that Thomas Nagel's mind is not an instrument of transcendence grasping objective reality and objective value. I claim that, as Thomas Nagel claims to transcendentally grasp objective value when he concludes that there should be an inheritance tax, he is wrong. I claim that, as Thomas Nagel claims to transcendentally grasp objective reality when he concludes that if he is facing south the rising sun must be on his left, he is wrong.

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Is There Still a Demand for Even More Modern Monetary Theory Weblogging?

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If not, don't look below the fold!

Sigh. This morning was supposed to have been spent outlining the inner logic of the perspective of today's Austerians. It wasn't. It was spent thinking about MMT.

My lack of self-discipline is depressing. It is particularly so because, as Paul Krugman says, this is not an argument to be having now. Right now the question of how the government budget constraint binds in a floating-rate fiat-money economy in which government debt is perceived as a highly valuable safe nominal asset is a question of interest only to schoolmen. There are other questions that are much more important to deal with--like why John Taylor thinks that Europe's taxes must have turned it into an impoverished hellhole...

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Why Should We Care?: Saturday Twentieth Century Economic History Weblogging

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Why should you care about how our history and the history of our parents and grandparents and great-grandparents--the history of the long twentieth century, 1870-2010--will appear to people five and more centuries into the future?

First of all, it makes a very good story. And it makes an even better story because the story is real. We are gossiping animals—we have evolved to like to tell and hear stories about what is happening and has happened to our friends and not-friends. We like this so much. We like this so much that out of our time that is not spent hewing wood and drawing water we spend a very large chunk gossiping and listening to gossip about not our real friends and not-friends but about imaginary friends: there is no such person as Harry Potter, and so there is no strong reason to care about what happens to him or to Severus Snape, but we do.

And the best stories to tell and listen to are the real stories, about real people: they have a depth and an import that fiction cannot reach.

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As Cosma Shalizi Says, "The Singularity Is in Our Past": Saturday Twentieth Century Economic History Weblogging

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Look at the bleeding edge of urban North Atlantic or East Asian civilization, and you see a world fundamentally unlike any human past. Hunting, gathering, farming, herding, spinning and weaving, cleaning, digging, smelting metal and shaping wood, assembling structures--all of the “in the sweate of thy face shalt thou eate bread” things that typical humans have typically done since we became jumped-up monkeys on the East African veldt--are now the occupations of a small and dwindling proportion of humans. And where we do have farmers, herdsmen, manufacturing workers, construction workers, and miners, they are overwhelmingly controllers of machines and increasingly programmers of robots. They are no longer people who make or shape things--facture--with their hands--manu.

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FIRST DRAFT: Review of Stanley L. Engerman, Kenneth L. Sokoloff, *et al.*, *Economic Development in the Americas since 1500: Endowments and Institutions*

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Stanley L. Engerman, Kenneth L. Sokoloff, Stephen Haber, Elisa V. Mariscal,and Eric M. Zolt (2011), Economic Development in the Americas since 1500: Endowments and Institutions (Cambridge: Cambridge University Press: NBER Series on Long-Term Factors in Economic Development: 978-0521251372):

FIRST DRAFT REVIEW: Engerman and Sokoloff begin with the eighteenth-century European view of the Americas: that the smart money of the time saw extraordinary opportunities for exploitation, trade, and wealth in Latin America and the Caribbean and virtually no opportunities in North America, for:

no area north of 40 degrees latitude ever produced wealth" and such military contests as the 1756-63 French and Indian War was madness, in Voltaire's words "fighting over a few acres of snow.

The pre-1800 smart money was wrong: those who both before and since 1800 migrated to North America today see their descendants far richer than those who migrated to Latin America and the Caribbean. Why?

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Mike Beggs: "On the Point at Issue, [DeLong] Was Right": Yet More Fama's Fallacy Freshman Macroeconomic Mistakes Weblogging

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I see that today, in the Journal of Australian Political Economy, Mike Beggs has taken his 2011 Jacobin essay up to the top of the Temple of Huitzilpochtil, ripped its heart out with an obsidian knife, and left it dead on the ground. The most important paragraph--and my favorite paragraph--is missing. The paragraph reads, as Beggs evaluates my critique of David Harvey's word-salad:

[O]n the point at issue, [whether boosting government spending would boost employment, DeLong] was right – it is a question of interest rates, not of the number of bonds that can be sold. When Harvey went on to clarify his argument, it was only with some casual empiricism of his own. He noted that he was hardly the only one to be making the argument that East Asian central banks could stop collecting US Treasuries, so that “the track of long-term treasury interest rates may go the way of the housing market data in just a couple of years (if not months).” This was an argument you could read in mainstream business pages; there was nothing particularly Marxist about it. Now that we are more than a couple of years down the track, DeLong still looks right: the yields on long-term Treasury bonds are, as I write in July 2011, about the same as they were in February 2009, when the exchange took place. The limits to stimulus have been political, not financial.

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The Austerians' Practice of Dumbing Down the Debate Over Fiscal Policy: The-Gloves-Are-Off-Yes-I'm-Looking-at-You-Rudy-Penner Weblogging

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The way to analyze whether, at the margin, it is raising or lowering government spending that is better for the economy right now is to do a benefit-cost analysis.

Following DeLong and Summers (2012), let the parameters for an economy at the zero lower bound of nominal interest rates and with anchored inflation expectations be:

  • μ, the multiplier—and a depressed-economy zero-lower-bound multiplier, not a monetary- offset multiplier;
  • η, the hysteresis coefficient: the shadow cast on potential output by today’s downturn;
  • τ, the marginal tax-and-transfer share: 1/3;
  • ξ, the deadweight loss from having to raise a dollar of extra tax revenue to service the debt;
  • r, the real government borrowing rate (and the social rate of time discount); and
  • g, the growth rate of potential GDP: 2.5%/year

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Grand Mal Economic Seizures

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Project Syndicate: Across the North Atlantic region, central bankers and governments seem, for the most part, helpless in restoring full employment to their economies. Europe has slipped back into recession without ever really recovering from the financial/sovereign-debt crisis that began in 2008. The United States’ economy is currently growing at 1.5% per year (about a full percentage point less than potential), and growth may slow, owing to fiscal contraction this year.

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We Need More Government Spending Right Now, Not Less...

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If you have a depressed economy where the central bank wishes to but cannot lower short-term interest rates, then it is a fact that with a Keynesian spending multiplier of μ, a marginal tax-and-transfer share of τ, a hysteresis shadow of present depression cast upon future economic growth of η, and a long-term real government borrowing rate of r, increasing government spending now reduces the long-run burden of financing the debt if:

τμη/r > 1 - μτ

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Hoisted from the Archives: The Safe Asset Shortage and the Current Downturn

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In 1829, John Stuart Mill made the key intellectual leap…. Mill saw that excess demand for some particular set of assets in financial markets was mirrored by excess supply of goods and services in product markets, which in turn generated excess supply of workers in labor markets…. If you relieved the excess demand for financial assets, you also cured the… shortfall of aggregate demand….

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Brad DeLong: Cosma Shalizi vs. the Fen-Dwelling Bayesians

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Cosma Shalizi: When Fen-Dwelling Bayesians Can't Handle the Truth:

Attention conservation notice: Self-promotion of an academic talk, based on a three-year-old paper, on the arcana of how Bayesian methods work from a frequentist perspective.

Because is snowing relentlessly and the occasional bout of merely freezing air is a blessed relief, I will be escaping to a balmier clime next week: Cambridgeshire.

"When Bayesians Can't Handle the Truth", statistics seminar, Cambridge University: Abstract: There are elegant results on the consistency of Bayesian updating for well-specified models facing IID or Markovian data, but both completely correct models and fully observed states are vanishingly rare. In this talk, I give conditions for posterior convergence that hold when the prior excludes the truth, which may have complex dependencies. The key dynamical assumption is the convergence of time-averaged log likelihoods (Shannon-McMillan-Breiman property). The main statistical assumption is a building into the prior a form of capacity control related to the method of sieves. With these, I derive posterior and predictive convergence, and a large deviations principle for the posterior, even in infinite-dimensional hypothesis spaces; and clarify role of the prior and of model averaging as regularization devices. (Paper)

Place and time: 1 February 2013, 4-5 pm in MR 12, CMS

And my views on all this hoisted from archives:

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Revising My Frequent-Reading List: Spring-Cleaning Weblogging

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In 2012, the twenty political-economy weblogs that I most often visited were:

How should I change this list in 2013?

I went to http://technorati.com and searched for the top weblogs on "economics". After pruning the list of things that I found clearly unsuitable, I found myself with 50 candidates for my frequent-reading list (yes, there is overlap):






That leaves me with three questions:

  • What other political-economy weblogs should I add to my candidates for frequent reading?

  • Which of those on my candidate list should I add to my frequent-reading list?

  • And what things on my frequent reading list should I drop?


A Question for Harold Hongju Koh on Changes Over the Last Nine Centuries in the Law of Outlawry...

Come January 6 I will be not in New Orleans but in San Diego, and hence not at the AALS Luncheon with the Legal Adviser of the U.S. Department of State, Harold Hongju Koh.

So I will not get to ask Dean Koh the following question:

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Back When I Feared the Bond-Market Vigilantes: Maundering Old-Timer Reminiscence Weblogging

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I think Paul Krugman gets one partially wrong today…

Paul writes, correctly:

Maya and the Vigilantes: Maya MacGuineas… is the queen of the deficit scolds, having run the Committee for a Responsible Federal Budget, perhaps the most prominent of the many Pete Peterson-backed organizations trying to scare us about the deficit…. As Scheiber points out… her efforts actually make the situation worse. Her stock in trade is denouncing partisanship… but she (like pretty much all the deficit scolds) actually empowers hyperpartisanship by always condemning both sides equally… making excuses for hardliners in the GOP…. [R]emember that CRFB was one of the three deficit-scold organizations that gave Paul Ryan an award for fiscal responsibility. As I’ve pointed out many times, Ryan’s “plan” was essentially a scam: all the alleged deficit reduction came from revenue allegedly generated by closing loopholes, which he refused to specify, and from huge cuts in discretionary spending, which he refused to specify. What he really offered was huge tax cuts for the rich, only partly offset by savage cuts in aid to the poor. But CRFB, in pursuit of the image of even-handedness, chose to pretend that Ryan was a Serious, Honest Conservative, thereby removing any penalty for being, in fact, deeply unserious and dishonest….

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The Federal Reserve's Shift from a Time- to a State-Based Policy Rule: Will It End Our "Lost Decade"?

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Back in the middle of 2011, in the circles in which I traveled--policy-oriented macroeconomists who actually knew something about the world and about financial history--there was a rough consensus that we all ought to make one last charge for more aggressive policies to boost growth and reduce unemployment. We did not think there was much chance that we would actually influence policy: it was more to lay down a marker for the future, to make a demonstration that there were policies that could plausibly have gotten us out the fix of jobless recovery and slow growth--a kind of intellectual Charge of the Light Brigade, a "c'est magnifique, mais ce n'est pas la guerre".

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Jumped-Up Monkeys with Darwinian Heuristics vs. Angelic Reasoning Beings with Direct Unmediated Access to Objective Reality Sun-Sets-But-Sun-Also-Rises Cage Match Smackdown Weblogging

UPDATED: To keep commenters from going down blind bypaths due to my imprecision. Bear with me: I am just a jumped-up monkey, after all...

Thomas Nagel argued that his reason could not have been the result of blind Darwinian evolution. He said:

  • My reason tells me that if the sun is rising on my right then I am going north then.
  • I believe I am going south.
  • I believe I see the sun rising on my right
  • My reason tells me that I must reject one of these two beliefs because they are inconsistent--either I must conclude that I am hallucinating, or I must conclude that I am not going south.
  • Et cetera…
  • This kind of transcendent access to truths of objective reality is not something that a jumped-up monkey with Darwinian heuristics can have.
  • Therefore I am more than a jumped-up monkey with Darwinian heuristics: I am angelic reasoning being with direct unmediated access to objective reality.

I responded that he knew nothing of the kind:

His Darwinian heuristics had made a Humean guess that because the sun had risen on his right if he was facing north every single previous day, that the same held true today. I pointed out that this might be wrong--that he did not know that because the sun was rising on his right he was facing north, and did not know that he knew that he was facing north, and did not know that he knew that he knew he was facing north, but that he was just guessing.

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