J. Bradford DeLong
U.C. Berkeley and NBER
September 2013 :: University of Missouri--Columbia
J. Bradford DeLong
U.C. Berkeley and NBER
September 2013 :: University of Missouri--Columbia
We invite submissions for “We Robot 2014: Risks & Opportunities”--a conference at the intersection of the law, policy, and technology of robotics, to be held in Coral Gables, Florida on April 4-5, 2014. We Robot is now in its third year, returning to the University of Miami School of Law after being hosted by Stanford Law School last April. The conference web site is at http://robots.law.miami.edu/2014. We Robot 2014 seeks contributions by academics, practitioners, and developers in the form of scholarly papers or presentations of relevant projects…. We are encouraging conversations between the people designing, building, and deploying robots, and the people who design or influence the legal and social structures in which robots will operate.
UC Berkeley Labor Center: 50th Anniversary Celebration:
6:00 to 9:00 pm :: Berkeley Art Museum :: 2626 Bancroft Way
Moving a Proud History Forward
Barbara Lee, Joe Hansen, Marty Morgenstern, Julie Su, Ai-jen Poo, Lou Paulson, Anthony Thigpenn
In 542 AD the late Roman (early Byzantine?) Emperor Justinian I wrote to his Praetorian Prefect concerning the army. The army had been trained and equipped and paid for by the Roman State Justinian headed. It was intended to control the barbarians and to "increase the state." But Justinian was, Peter Sarris reports in his Economy and Society in the Age of Justinian, upset that:
certain individuals had been daring to draw away soldiers and foederati from their duties, occupying such troops entirely with their own private business.... The emperor... prohibit[ed] such individuals from drawing to themselves or diverting troops... having them in their household... on their property or estates.... [A]ny individual who, after thirty days, continues to employ soldiers to meet his private needs and does not return them to their units will face conﬁscation of property... "and those soldiers and oederati who remain in paramonar attendance upon them... will not only be deprived of their rank, but also undergo punishments up to and including capital punishment."
Thomas Piketty and Gabriel Zucman: Capital is Back: Wealth-Income Ratios in Rich Countries 1700-2010:
How do aggregate wealth-to-income ratios evolve in the long run and why? We address this question using 1970-2010 national balance sheets recently compiled in the top eight developed economies. For the U.S., U.K., Germany, and France, we are able to extend our analysis as far back as 1700. We find in every country a gradual rise of wealth-income ratios in recent decades, from about 200-300% in 1970 to 400-600% in 2010. In effect, today’s ratios appear to be returning to the high values observed in Europe in the eighteenth and nineteenth centuries (600-700%). This can be explained by a long run asset price recovery (itself driven by changes in capital policies since the world wars) and by the slowdown of productivity and population growth, in line with the β = s/g Harrod-Domar-Solow formula. That is, for a given net saving rate s = 10%, the long run wealth-income ratio β is about 300% if g = 3.33% and 600% if g = 1.67%. Our results have important implications for capital taxation and regulation and shed new light on the changing nature of wealth, the shape of the production function, and the rise of capital shares.
Manage the macroeconomy to match aggregate demand to potential supply. Take the dual mandate seriously: maintaining full employment is as important a central bank goal as low and stable inflation--and much more important than preserving healthy margins for the banking sector. Run large deficits--run up the national debt--in times of war, depression, or other national emergency calling for government action. Pay down the debt in other times.
Invest. Invest in ideas, in equipment capital, in structures capital, in education: we need more of all forms of investment. Boost public and private investment: we need both kinds.
Over the past generation, America has shifted enormous resources into value-substracting industries: health-care administration, prisons, finance, carbon energy. We need to reverse those shifts, and focus the American economy on the value-creating sectors rather than the value-subtracting ones.
We ought to have had a carbon tax 20 years ago. We still need one.
We need more immigration. It is much easier, worldwide, to move the people to where the institutions are already good than to make good institutions where the people are. More immigration produces a richer country for those already here. More immigration is a mitzvah for immigrants. More immigration is, to a a lesser degree, a mitzvah for those in poor countries outside who see less population pressure on resources. And a U.S. in 2070 that has 600 million people is more of an international superpower than a U.S. in 2070 that has only 400 million people.
We need more equality. If we want to have equality of opportunity 50 years from now, we need substantial equality of result right now.
We are going to need a bigger and better government. The private unregulated market does not do well at health-care finance, at pensions, or at education finance. The private unregulated market does not do well at research and early-stage development. The private unregulated market does not do well with commodities that are non-rival. We are moving into a twenty-first century in which these sectors will all be larger slices of what we do, and so a well-functioning economy will need a larger government relative to the private economy than the twentieth century did.
No Libertarians in the Seventeenth-Century Highlands: Archive Entry From Brad DeLong's Webjournal: March 06, 2004: John and Belle Waring have been driven insane by reading a debate in Reason where Richard A. Epstein takes the role of the voice of practical reason and experience:
Peter Temin: Tribute to David S. Landes:
David Landes was… the author of masterful narratives written throughout the latter half of the twentieth century… the growth of technology, given a primary place in economic history by the importance of the Industrial Revolution and in economics by the pioneering work of Robert Solow… the role of entrepreneurs… the role of culture in economic affairs….
The lead book in the first area is The Unbound Prometheus… describes how the world economy was freed from the Malthusian constraint of static resources…. Landes supplied the evidence behind these broad generalizations in a riveting narrative of discoveries. He added a detailed case study to this general narrative in Revolution in Time, the history of innovation in the clock and watch industries….
"Well, as Odysseos says to Kalypso, I must be going…"
"But you don't need Hermes to force us to release you…"
"And I haven't been weeping bitter tears for years, staring across the wine-dark sea at my homeland either…"
"I will not pretend that you will be sorry, and I will not say: 'Good luck go with you, but if you could only know how much suffering is in store for you before you get back to your own place, you would stay where you are…'"
"Nevertheless, I must be going."
Justin Lahart: Heard on the Street: Targeting the Fed's Inflation Problem:
Federal Reserve policy makers will debate this week whether it is time to start scaling back bond purchases. One argument against: Inflation is far too low. Since January 2012, the Fed has set as its target a long-term inflation rate of 2%. And since then, inflation has fallen increasingly short of that. As of July, the Commerce Department's price index for personal-consumption expenditures, excluding food and energy--the Fed's preferred measure--was running just 1.2% above its year-earlier level. To get to 2% by the end of 2013, the index would have had to increase at a 3% annual rate in the final five months of the year. It hasn't held that sort of pace since the early 1990s….
Fed officials and most private economists thought inflation would be stronger this year. That it hasn't presents something of a mystery, given the overall economy has performed broadly in line with forecasts. It may simply be they underestimated how much slack remains in the economy…. Another reason inflation has been so low may be that people have simply come to expect it to stay that way…. Because the Fed cares so much about its inflation-fighting credentials, the 2% level may serve as more cap than target. So the Fed is like a cautious golfer driving a ball toward a green in front of a sand trap--it tends to come up short.
Paul Krugman: But Where's My Phoenix?:
Olivier Accominotti and Barry Eichengreen look at the crisis in Europe, and tell us something new. I knew that it was best viewed as a balance-of-payments crisis, not a debt crisis — a case in which large capital inflows to Europe’s periphery suddenly went into reverse. What I didn’t know was that something quite similar happened in Europe from 1919 to 1933, with huge inflows to Austria, Hungary and Germany suddenly shifting to huge outflows, and with similarly disastrous results. One thing worth following up on, however, is an issue suggested by their use of the term “sudden stop”… coined by Guillermo Calvo…. Calvo went on to point out… that sudden stops are often followed by “phoenix miracles,” in which the economy comes roaring back…. Seen any phoenixes lately? The thing is, there were indeed phoenix-like recoveries after 1929-33, everywhere except France…. It stayed on the gold standard. And it’s hard to avoid the notion that the absence of any phoenixes in Europe today comes from the role of the euro, which is acting as a similar constraint, only worse. But hey, Europe has just had one quarter of (modest) growth. The euro is a triumph!
…is in the Hotel Ukraina, on Kutuzovsky Prospekt on the bank of the Moscow River, across the river from Gazprom HQ and the Russian Federation's White House:
Francis Spufford (2010): Red Plenty (London: Faber and Faber).
From the early 1950s to the early 1990s, increases in Social Security benefits in the United States varied widely in size and timing, and were generally not undertaken in response to short-run macroeconomic developments. This paper uses these benefit increases to investigate the macroeconomic effects of changes in transfer payments. It finds a large, immediate, and statistically significant response of consumption to permanent changes in transfers. The effects of temporary benefit changes, in contrast, appear small. The consumption effects of the permanent changes appear to decline at longer horizons, and there is no clear evidence of effects on production or employment.
Finally, there is strong evidence of a sharply contractionary monetary policy response to permanent benefit increases, which may account for the apparent decline of the consumption effects and their failure to spread to broader indicators of economic activity.
M 2-4 Evans Hall 597
ECONOMICS 211 ECONOMIC HISTORY SEMINAR
September 2: Labor Day, no meeting
September 9: Gabriel Zucman, University of Chicago (Joint with Public Finance Seminar; note special room)
September 16: John Tang, Australian National University
September 24: Christina Romer and David Romer, University of California, Berkeley (Joint with the Macro and International Seminar; note special day and time.)
September 30: Ran Abramitsky, Stanford University
October 7: No meeting
October 14: Noam Yuchtman, University of California, Berkeley
October 21: Einar Lie, University of Oslo
October 28: Edward Nelson, Board of Governors of the Federal Reserve System
November 4: Christopher Meissner, University of California, Davis
November 11: Veteran’s Day, no meeting
November 18: Alan Taylor, University of California, Davis (Joint with the Macro and International Seminar)
November 25: Liang Bai, University of California, Berkeley
December 2: Caitlin Rosenthal, University of California, Berkeley
One of the wonderful things about the internet is how it plays the Glass Bead Game with one, bringing together disparate trains of thought in unexpected ways. In this case, it was my running across a piece about the church in Texas that discourages vaccinations--and the resulting disease outbreak--immediately before finding, once again, Henry David Thoreau's rant about the uselessness of the telegraph.
But, this time, "whooping cough" had a very different valence. And so I reacted much differently than when I first studied the passage in English class at the Sidwell Friends High School in the late 1970s…
The first half of the nineteenth century prefigured what was going to come over the 1870-1914 period with the creation of the first true global economy.
The first half of the nineteenth century saw the creation of a much more limited form of trans-oceanic economic integration--the growth to maturity of the trans-Atlantic trade in the first industrial staple: cotton. The ménage a trois between the United States’s African-American slaves, the rich river valley cotton-growing soils of the American south, and Eli Whitney’s cotton gin together produced a cheap material input to an important manufacturing industry. This time the industry was dynamic enough and the raw material important and cheap enough that the presence of the Americas did change the shape of the leading European economy, that of Britain.
John Ball (1381):
When Adam delved and Eve span/Who was then the gentleman?
From the beginning all men by nature were created alike, and our bondage or servitude came in by the unjust oppression of naughty men. For if God would have had any bondmen from the beginning, he would have appointed who should be bond, and who free. And therefore I exhort you to consider that now the time is come, appointed to us by God, in which ye may (if ye will) cast off the yoke of bondage, and recover liberty…
You need to understand three things to grasp the state of the world economy outside the North Atlantic in 1870:
that the drive to make love is one of the very strongest of all human drives,
that living standards were what we would regard as very low for the bulk of humanity in the long trek between the invention of agriculture in 1870, and
that the rate of global and even leading-nation technological progress up to 1870—even in the heat of the Industrial Revolution itself—was, by our standards, glacial.
Kong Shangren, as quoted by Jonathan Spence:
White glass from across the Western Seas
Is imported through Macao:
Fashioned into lenses big as coins,
They encompass the eyes in a double frame.
I put them on—-it suddenly becomes clear;
I can see the very tips of things!
And read fine print by the dim-lit window
Just like in my youth!
In 1870 a part of the world was starting to become not-poor, yet not the obvious part. The technological and organizational edge of human civilization in 1870 was the North Atlantic. That was, in historical perspective, distinctly odd.
Homer, Iliad, 18:398, Lombardo translation:
Thetis' silver feet took her to Hephaestus' house,
A mansion the lame god had built himself…
She found him at his bellows, glazed with sweat
As he hurried to complete his latest project,
Twenty cauldrons on tripods to line his hall
With golden wheels at the base of each tripod.
…He was getting these ready,
Forging the rivets with inspired artistry…
Richard Landes: David S. Landes, May his memory be a blessing:
This last Saturday afternoon, August 17, 2013, my father, David Landes died in Haverford PA. The following is a brief obit to which I will add when I have more time. He was the beloved husband of Sonia T. Landes, who died on April 12, 2013, after 69 years of marriage. He was the father of Jane Landes Foster, Richard Allen Landes and Alison Landes Fiekowsky, grandfather of eight and great-grandfather of nine.
Mark Thoma: The Great Lesson from the Great Recession:
Is there a similarly important policy lesson to be drawn from the Great Recession we’ve just experienced?… The Fed did avoid the big error of allowing massive bank failures and declines in banking reserves that were so problematic during the Great Depression, and many people give the Fed credit for avoiding a Great Depression type collapse…. I would not have wanted to experience a repeat of the Fed’s failures during the Great Depression…. When the recession hit this time around, we had a much, much higher level of societal wealth, and hence a much larger cushion to absorb the shocks than we had during the Great Recession. Second, and importantly, the presence of automatic stabilizers, particularly those that come in the form of social insurance programs, made a big difference…. Third, it’s not as though the Fed created a miracle recovery…. The improved response of monetary authorities and the existence of automatic stabilizers certainly made the downturn far less severe than it might have been, but a big lesson from our recent experience is that these policies alone are not enough to turn the economy around. Help from fiscal policy is needed…. Congress failed to implement a fiscal stabilization package that was large enough to address the big problems the economy was facing, and due to Republican opposition it refused to implement additional measures when it became clear the initial package was too small in both size and duration…. That failure was bad enough. But even worse is that fiscal policymakers actually began moving in the wrong direction--toward austerity--at a time when just the opposite policy was needed. The result has been a much slower recovery than we might have seen otherwise. After the Great Depression, the Fed learned from its mistakes…. But what about fiscal policy? Will fiscal policymakers in the US and Europe learn from the big mistakes they made recently--mistakes that have prolonged the recession and imposed permanent harm on some members of society? As much as I’d like to hope that somehow economists will speak with a strong, unified voice on the usefulness of fiscal policy in deep recessions, a position I believe is firmly supported by the empirical evidence, and that politicians--Republican politicians in particular--would follow their advice, it’s hard to imagine either of those things happening. That means, discouragingly, that the next time a severe recession hits fiscal policymakers will likely fail us once again and leave us with yet another unnecessarily slow, agonizing recovery.
February 21, 1996: Review of John Maynard Keynes, "A Tract on Monetary Reform":
John Maynard Keynes, A Tract on Monetary Reform (London: Macmillan, 1924)
This may well be Keynes's best book. It is certainly the best monetarist economics book ever written.
What do I mean by monetarist? Consider the book's preface, where Keynes writes:
[The economy] cannot work properly if the money... assume[d] as a stable measuring rod, is undependable. Unemployment, the precarious life of the worker, the disappointment of expectation, the sudden loss of savings, the excessive windfalls to individuals, the speculator, the profiteer--all proceed, in large measure, from the instability of the standard of value.
It is often supposed that the costs of production are threefold... labor, enterprise, and accumulation. But there is a fourth cost, namely, risk; and the reward of risk-bearing is one of the heaviest, and perhaps the most avoidable, burden on production....[T]he adoption by this country and the world at large of sound monetary principles, would diminish the wastes of Risk, which consume at present too much of our estate.
Larry Summers (1983):
The first way to find a topic is to open Keynes's General Theory at random, read what's on that page, and math it up…
John Maynard Keynes (1936):
The General Theory of Employment, Interest and Money: Clearly we do not mean by ‘involuntary’ unemployment the mere existence of an unexhausted capacity to work. An eight-hour day does not constitute unemployment because it is not beyond human capacity to work ten hours. Nor should we regard as ‘involuntary’ unemployment the withdrawal of their labour by a body of workers because they do not choose to work for less than a certain real reward. Furthermore, it will be convenient to exclude ‘frictional’ unemployment from our definition of ‘involuntary’ unemployment. My definition is, therefore, as follows: Men are involuntarily unemployed if, in the event of a small rise in the price of wage-goods relatively to the money-wage, both the aggregate supply of labour willing to work for the current money-wage and the aggregate demand for it at that wage would be greater than the existing volume of employment.
Robert Hall(2013): The Routes into and out of the Zero Lower Bound:
To the extent that high unemployment is an equilibrium, the stability of inflation in the presence of persistent high unemployment is less of a mystery. The tradition of regarding high unemployment as a disequilibrium that gradually rectifies itself by price-wage adjustment may rest on a misunderstanding of the mechanism of high unemployment….
Not, mind you, that I am complaining about the very-smart but never-conventional Hall: the paper worries about the right things, says a lot of things that are true, says a lot of things that might be true and that provoke insight, and says nothing that is known to be false.
But it is striking that useful and important frontier work in economics can still be done in 2013 by mathing-up pieces of the General Theory…
And yet his work remains. Jeff Weintraub asks a question:
Let's imagine that one wants to give students (or any other set of non-expert readers) a sweeping and illuminating introductory overview on the industrial revolution--what it was about, how & why it marked a major break in human history, why it was a socio-economic and socio-political transformation as well as a purely technological one, along with some consideration of the major controversies about its nature & causes & consequences--that is brief & compact, but also intellectually substantial & theoretically sophisticated, not to mention well written. As far as I can tell, the best available single piece of this sort is still David Landes's 39-page ["Introduction"] to The Unbound Prometheus. At least, I'm not aware of a superior substitute that meets all those criteria…
I am not aware of a superior substitute either. Is anybody?
Here is a taste: the first section of David's introductory chapter:
Belle Waring: A Woman Rice Planter — Crooked Timber:
After my grandmother died and before my dad sold the house (with much gnashing of teeth and wailing on my part) I nabbed some excellent books, in particular A Woman Rice Planter, by Patience Pennington, published in 1903. An unmarried woman living just to the north of my family home, she relates her trials as she attempts to keep her family plantation running after the end of the Civil War. This is just a taste of how much her former slaves, who now either work for her or are sharecroppers, hate her, and how much she completely doesn’t understand that they do, or why:
Paul Krugman: The (Lack of) Utility of Close Reading: :
In general, what people thought Keynes or Friedman meant ends up being more important than what they turn out, on close reading, to (maybe, possibly) actually have meant. For what it’s worth, I think Glasner makes a good case that Friedman was indeed more or less a Keynesian, or maybe Hicksian--certainly that was the message everyone took from his Monetary Framework, which was disappointingly conventional. And Friedman’s attempts to claim that Keynes added little that wasn’t already in a Chicago oral tradition don’t hold up well either.
Robert Hall http://www.kansascityfed.org/publicat/sympos/2013/2013Hall.pdf http://www.kansascityfed.org/publicat/sympos/2013/2013.Hall.handout.pdf says that the cutting-edge macroeconomics we need today is that of Knut Wicksell's Knut Wicksell's Geldzins und Guterpreis, originally published in 1898:
The United States and most other advanced countries are closing on five years of flat-out expansionary monetary policy that has failed in all cases to restore normal conditions of employment and output. These countries have been in liquidity traps, where monetary policies that normally expand the economy by enlarging the monetary base are ineffectual…. The U.S. economy entered this state… [as] real-estate claims came close to collapse…. Rising risk premiums discouraged investments in plant, equipment, and new hiring… declining collateral values… forced… deleveraging. The combination of low investment and low consumption resulted in an extraordinary decline in output demand, which called for a markedly negative real interest rate, one unattainable because the zero lower bound on the nominal interest rate coupled with low inflation…. As output demand recovers, the lower bound will cease to be an impediment and normal conditions will prevail again.
Aaron Carroll: About Singapore…:
Man, this has been a week. Just a few days ago, I wrote about how Singapore has been a go-to for many of my move conservative colleagues, who think it’s a much more market friendly alternative to the ACA. I think that many of them underestimate how much “government” there is in the system. Today, all that is a bit irrelevant, because Singapore announced that however much government is involved, it’s not nearly enough….
Singapore’s Prime Minister Lee Hsien Loong announced a number of policy adjustments on Sunday evening in areas such as medical insurance and education, outlining a strategic shift in his approach to nation building. Individuals must still do their best, but the community and government must do more to reduce the pressures on individuals, he said at the annual National Day Rally….
Hoo-boy. What kind of changes can we expect? You don’t think they’ll look anything like Obamacare, do you? Let’s get out our scorecards…. A “Medicaid expansion”! Check…. Guaranteed issue! Check…. Less cost-sharing! Check…. A stronger mandate! Check…. Rate shocks! Increased subsidies! Check and check…. A new entitlement program! Check. It’s almost as if Singapore doesn’t realize that it’s supposed to eschew all of these things so wonks can point to some system somewhere that hews to a more market-based health system. Don’t they understand what they’re supposed to do?
Paul Krugman: Stagflation, Stagnation, and Intellectual Asymmetry:
[The] stagflation [of the 1970s] led to a major rethinking of macroeconomics, all across the board; even staunch Keynesians conceded that Friedman/Phelps had been right (indeed, they may have conceded too much), and the vertical long-run Phillips curve became part of every textbook. But the Great Recession and the long stagnation that followed (and continues) have brought no such concessions from the anti-Keynesians…. Even the most spectacular failures of prediction… have been met with nothing but excuses (It’s Obamacare! It’s interest on reserves! It’s uncertainty!)
What accounts for this asymmetry? Partly, I think… anti-Keynesian macroeconomics is… comfortable… because it involves a return to notions of perfect markets and perfectly rational individuals; so the anti-Keynesians find it hard to leave that comfort zone…. But it’s also the usual left-right asymmetry…. The right is purist, uncompromising, and ultimately not interested in contrary evidence; the left is much more open and empirical. And the economics profession, it turns out, is not that different from the political sphere. This is an uncomfortable truth…. But you go to economic debates with the profession you have…
Yes: the title is stolen from Paul Krugman, and from Styx--it is too good not to steal…
Cardiff Garcia writes:
The history of the robot future’s future history: The graph represents three decades of US middle class employment shrinking…. Frank Levy… and Richard Murnane….
The hollowing-out is… consistent with the idea… [of]computer substitution…. Low wage work--Personal Care, Personal Services, Food Preparation, and Building and Grounds Cleaning--have all grown… involve non-routine physical work that is hard to computerize. Technicians and Professional and Managerial Occupations also have grown… involve abstract, unstructured cognitive work that is hard to computerize…. Machine Operators, Production, Craft and Repair Occupations, Office and Administrative… have declined… [as] routine work… [following] deductive or inductive rules and so were candidates for computer substitution….
And the BLS expects these trends to roughly continue….
Paul Krugman wrote a blog post saying that Milton Friedman's influence has been largely forgotten in macro policy debates…. Three later posts by Krugman… get it right, I think. Friedman hasn't disappeared from policy discourse; he's disappeared from right-wing policy discourse. Friedman's ideas are pretty close to the mainstream New Keynesian idea of the macroeconomy… consumption smoothing, monetary policy rules, and a NAIRU with a downward-sloping short-run Phillips curve--all Friedman ideas. And in New Keynesian models, monetary policy reigns supreme; only at the zero lower bound is monetary policy possibly ineffective. That's a very Friedman idea too…. Now notice that Quantitative Easing, and the Fed in general, are reviled by the American right. Rick Perry famously threatened to do physical harm to Ben Bernanke for "printing more money". Ron and Rand Paul are famous for decrying QE and Bernanke, as are right-wing darlings like Peter Schiff…. Meanwhile, more sober conservative economist types, like Martin Feldstein and Allan Meltzer, are also extremely dubious of QE. And of course the Wall Street Journal is forever warning about the dangers of inflation from the policy. So the American right… despises… Milton Friedman. What they support looks a lot closer to "Austrian" economics, which Friedman explicitly denigrated.
I have always thought that stable MV is, while not as bad as liquidationism, also a batshit-insane macroeconomic doctrine: it calls for the overall price level to fall at a rate equal to the sum of population and productivity growth. In the real world we live in, why would anybody want that?
Facts & other stubborn things: Hayek said liquidationist things and he said stable nominal income things and the latter doesn't erase the former: Larry White has a very odd response up to Paul Krugman on Hayek.
For those of you that don't know about his JMCB article, White makes a great argument that Hayek said he wanted to stabilize MV in response to a piece by Brad DeLong. The trouble is, he also made alarmingly liquidationist statements. I hate this tendency to act like people are dummies because of Hayek's inconsistency or the tendency to act like because Hayek said X on Tuesday it means he didn't say Y on Friday. The latter absolutely does not follow from the former.
Elizabeth Anderson of U. Mich. makes me aware that the Social Security Administration has a copy of Tom Paine's "Agrarian Justice" social-insurance plan:
Author's Inscription- French Edition
To the Legislature and the Executive Directory of the French Republic:
THE plan contained in this work is not adapted for any particular country alone: the principle on which it is based is general. But as the rights of man are a new study in this world, and one needing protection from priestly imposture, and the insolence of oppressions too long established, I have thought it right to place this little work under your safeguard.
When we reflect on the long and dense night in which France and all Europe have remained plunged by their governments and their priests, we must feel less surprise than grief at the bewilderment caused by the first burst of light that dispels the darkness. The eye accustomed to darkness can hardly bear at first the broad daylight. It is by usage the eye learns to see, and it is the same in passing from any situation to its opposite.
Synthesis Lost: Mark… linked to Friedman’s 1998 comments on Austrian economics:
I think the Austrian business-cycle theory has done the world a great deal of harm. If you go back to the 1930s, which is a key point, here you had the Austrians sitting in London, Hayek and Lionel Robbins, and saying you just have to let the bottom drop out of the world. You’ve just got to let it cure itself. You can’t do anything about it. You will only make it worse. I know the Austrians accuse Friedman of crudely caricaturing their views — but I don’t see how you can read the extended quote from Hayek I presented yesterday and not read it as saying exactly what Friedman claimed the Austrians were saying….
In today’s column I described Friedman as a man trying to save free-market ideology from itself. What I think one has to say, in fairness, is that he wasn’t alone in that project. Paul Samuelson’s “neoclassical synthesis”, as described in a nice survey by Olivier Blanchard (pdf), was the notion that monetary and fiscal policy could be used to solve the problem of recessions and depressions, and that once you did that, conventional microeconomics — with its favorable view of free markets — could go back to its old self. Samuelson:
Solving the vital problems of monetary and ﬁscal policy by the tools of income analysis will validate and bring back into relevance the classical verities.
Friedman’s contribution, if you like, was to take out the words “and fiscal”,and furthermore to suggest that monetary policy could be reduced to simple, mechanical rules. During the era of the Great Moderation, it seemed as if Friedman had won much though not all of this war…. But the experience of the past 6 years, since the financial crisis began, has blown apart not just Friedman’s position but much of Samuelson’s as well…. The liquidity trap is real; conventional monetary policy, it turns out, can’t deal with really large negative shocks to demand…. While… fiscal policy does in fact work, with multipliers well above one, the political economy of policy turns out to make an effective fiscal response to depression very difficult. So the neoclassical synthesis--the idea that we can use monetary and fiscal policy to make the world safe for laissez-faire everywhere else--has failed the test. What does this mean?
At the very least it means that we need “macroprudential” policies….
What’s more, you have to ask why, if markets are imperfect enough to generate the massive waste we’ve seen since 2008, we should believe that they get everything else right. I’ve always considered myself a free-market Keynesian--basically, a believer in Samuelson’s synthesis. But I’m far less sure of that position than I used to be.
Alexander Hamilton (1790): From Report on the Public Credit:
To these more direct expedients for the support of public credit, the institution of a national bank presents itself, as a necessary auxiliary. This the Secretary regards as an indispensable engine in the administration of the finances. To present this important object in a more distinct and more comprehensive light, he has concluded to make it the subject of a separate report.
In my rare coffees and phone calls with Milton Friedman, I found I could distract him whenever I was losing an argument by saying: "Why is it that the government needs to intervene and keep the flow of liquidity services provided to the economy growing along a smooth path? Why must there be a quantitative target achieved by government for the path of the liquidity services industry--commercial banking--when there must not be a quantitative target for kilowatt hours or freight-car loadings?"
Alexander Hamilton: From First Report on the Public Credit:
The Secretary has too much deference for the opinions of every part of the community not to have observed one which has, more than once, made its appearance in the public prints, and which is occasionally to be met with in conversation. It involves this question, whether a discrimination ought not to be made between original holders of the public securities and present possessors by purchase. Those who advocate a discrimination are for making a full provision for the securities of the former, at their nominal value, but contend that the latter ought to receive no more than the cost to them and the interest: And the idea is sometimes suggested of making good the difference to the primitive possessor.
Alexander Hamilton (1790): Report on the Subject of Manufactures:
The Secretary of the Treasury, in obedience to the order of the House of Representatives of the 15th day of January, 1790, has applied his attention, at as early a period as his other duties would permit, to the subject of manufactures; and particularly to the means of promoting such as will tend to render the United States independent on foreign nations for military and other essential supplies. And he thereupon respectfully submits the following Report: —
The expediency of encouraging manufactures in the United States, which was not long since deemed very questionable, appears at this time to be pretty generally admitted. The embarrassments which have obstructed the progress of our external trade have led to serious reflections on the necessity of enlarging the sphere of our domestic commerce; the restrictive regulations, which in foreign markets abridge the vent of the increasing surplus of our agricultural produce, serve to beget an earnest desire that a more extensive demand for that surplus may be created at home; and the complete success which has rewarded manufacturing enterprise, in some valuable branches, conspiring with the promising symptoms which attend some less mature essays in others, justify a hope that the obstacles to the growth of this species of industry are less formidable than they were apprehended to be; and that it is not difficult to find, in its further extension, a full indemnification for any external disadvantages which are or may be experienced, as well as an accession of resources favorable to national independence and safety…
Apropos of Little Libertarians on the Prairie, Colander and Landreth:
With the depression in the 1930s that view about the role of the market was changing, both in the academic and the political spheres. With the success of the Western governments in World War II, there was also a change in the view of the role of government. It was within this changing ideological structure that Lorie Tarshis wrote his book. Tarshis’s book conveyed a quite different policy perspective. Tarshis saw the government as an agency through which people acted collectively for the common good. That view of government was combined with a belief that the market needed government assistance to assure full employment. Thus, it was inevitable that a book presenting the new view that questioned the self-regulating nature of the economic system would provoke a reaction.
Robert Waldmann: How Keynesian Was Milton Friedman?:
David Glasner argues that Milton Friedman was too a closet Keynesian… that Friedman used an IS-LM model augmented with the Fisher effect and a critique of the hypothesis that there could be a liquidity trap. The critique is based on the Pigou effect…. Glasner correctly notes that he is describing things in Friedman's work which aren't in Hicks's paper "Keynes and the Classics"… but [all but] the Pigou effect are in the General Theory…. I'd be very interested to know if anyone can find anything written by Friedman about unemployment and inflation which isn't there in Samuelson Solow (1960)… [who also] note that cyclical unemployment can become structural. Friedman ignored this possibility in 1968. It was quite a hot topic in 1985 when OJ Blanchard and Samuelson's nephew dusted off the concept….
Paul Krugman: Milton Friedman as a Minor Post Hicksian:
I think [it] is really interesting is the way Friedman has virtually vanished from policy discourse. Keynes is very much back…. Hayek is back… even if… many self-proclaimed Austrians bring little to the table but the notion that fiat money is the root of all evil…. But Friedman is pretty much absent. This is hardly what you would have expected not that long ago… when Greg Mankiw declared Friedman, not Keynes, the greatest economist of the 20th century, when Ben Bernanke concluded a speech praising Friedman with the famous line…. "I would like to say to Milton and Anna: Regarding the Great Depression. You’re right, we did it. We’re very sorry. But thanks to you, we won’t do it again…." So what happened?… Both of Friedman’s key contributions to macroeconomics [collapsed]…. Friedman was still very much associated with the notion that the Fed can control the money supply, and controlling the money supply is all you need to stabilize the economy. In the wake of the 2008 crisis, this looks wrong from soup to nuts…. And in retrospect the same was true in the 1930s, so that Friedman’s claim that the Fed could easily have prevented the Great Depression now looks highly dubious. Second… Friedman’s success… in predicting stagflation was what really pushed his influence… his notion of a… vertical Phillips curve in the long run, became part of every textbook exposition. But it’s now very clear that at low rates of inflation the Phillips curve isn’t vertical at all, that there’s an underlying downward nominal rigidity to wages and perhaps many prices too that makes the natural rate hypothesis a very bad guide under depression conditions. So Friedman’s economic analysis has taken a serious hit.
Steven Kaplan finds that your average large-company CEO has, historically, received a little more money personally than the average household in the top 0.1%. And he finds that, surprisingly, this does not hold true for the past decade and a half. Over the past decade and a half large-company CEOs have received more than double their standard ratio to the rest of the top 0.1%:
So why, then, do Steve Kaplan and Joseph Ruah write that CEOs are riding the tide of:
technological change, particularly in information and communications, [which] can increase the relative productivity of highly talented individuals, or “superstars”… [as they] become able to manage or to perform on a larger scale, applying their talent to greater pools of resources and reaching larger numbers of people…. Other explanations of the rise in inequality have been offered… managerial power has increased… social norms against higher pay levels have broken down… tax policy affects the distribution of surplus…. We believe that the US evidence on income and wealth shares for the top 1 percent is most consistent with a “superstar”-style explanation rooted in the importance of scale and skill-biased technological change… less consistent with an argument that the gains to the top 1 percent are rooted in greater managerial power or changes in social norms about what managers should earn
Yes, there is a superstar economy--of entertainers like Oprah Winfrey and J.K. Rowling, and of entrepreneurial visionaries like Steve Jobs and Sam Walton. But what has this to do with the career ladder-climbing heads of large bureaucracies? The CEO pay fact looks to be broadly separate from the superstar economy fact, which looks to be broadly separate from the education premium fact.
David Glasner: Hicks on Keynes and the Theory of the Demand for Money:
Mr. Keynes’s Treatise… contains at least three theories of money…. The third is altogether more interesting… he shows that this price-level depends upon the relative preference of the investor--to hold bank-deposits or to hold securities. Here at last we have something which to a value theorist looks sensible and interesting! Here at last we have a choice at the margin! And Mr. Keynes goes on to put substance… by his doctrine that the relative preference depends upon the “bearishness” or “bullishness” of the public, upon their relative desire for liquidity or profit…. It seems to me that this third theory of Mr. Keynes really contains the most important of his theoretical contributions; that here, at last… value theory… offer[s] a chance of making the whole thing easily intelligible; that it is form this point, not from velocity of circulation, or Saving and Investment, that we ought to start in constructing the theory of money….
David Glasner: Second Thoughts on Milton Friedman:
Friedman holds up Jacob Viner as an exemplar of the Chicago quantity theory oral tradition…. Friedman writes: “as I have read Viner’s talk for purposes of this paper, I have myself been amazed to discover how precisely it foreshadows the main thesis of our Monetary History for the depression period, and have been embarrassed that we made no reference to it in our account.” OMG! This is the oral tradition that exerted such a powerful influence on Friedman and his fellow students? Viner explains how to get out of the depression in 1933, and in 1971 Friedman is “amazed to discover” how precisely Viner’s talk foreshadowed the main thesis of his explanation of the Great Depression? That sounds more like a subliminal tradition than an oral tradition.
Responding to Patinkin’s charge that his theory of the demand for money – remember the quantity theory, according to Friedman is a theory of the demand for money — is largely derived from Keynes, Friedman plays a word game:
Sailing the Wine-Dark Sea: Archive Entry From Brad DeLong's Webjournal: H.N. Turteltaub (2001), Over the Wine-Dark Sea: A Sea Adventure of the Ancient World (New York: Forge: 0312876602).
I picked this book up from the Barnes and Noble front table on my way down to Monterey for vacation. I had been looking for something light. Instead, I found myself engaged in the book for perhaps four times as many hours as I would usually spend on a book this length. I was entranced because the subject was interesting, because the writing did not get in the way of the story, and because I found myself greatly admiring the project--the historical, educational project--that the author is engaged in.
Philadelphia, December 5, 1791
To the Speaker of the House of Representatives:
The Secretary of the Treasury in obedience to the order of þe House of Representatives, of the 15th day of January 1790,125 has applied his attention, at as early a period as his other duties would permit, to the subject of Manufactures; and particularly to the means of promoting such as will tend to render the United States, independent on foreign nations, for military and other essential supplies. And he thereupon respectfully submits the following Report.
The expediency of encouraging manufactures in the United States, which was not long since deemed very questionable, appears at this time to be pretty generally admitted…. [R]estrictive regulations, which in foreign markets abrige the vent of the increasing surplus of our Agricultural produce, serve to beget an earnest desire, that a more extensive demand for that surplus may be created at home: And the complete success… in some valuable branches… justify a hope, that the obstacles to the growth of this species of industry are less formidable than they were apprehended to be.…
Philip Aldrick: Was Montagu Norman a Nazi sympathiser?:
Norman was Britain’s… central banker… for… 24 years until 1944…. But he was also an economic dinosaur…. Adam Posen, a former Bank’s rate-setter, has said that when he could not decide which way to vote he would look at the giant portrait of Norman hanging in the Monetary Policy Committee’s meeting room and ask himself “What would Montagu do?”. Then do the opposite. So Mark Carney’s decision to remove the heirloom [portrait]… was loaded with symbolic significance. What he could not have known, though, was that another--more damaging--gold scandal involving Norman was about to erupt…. The Bank revealed that it had helped the Nazis sell gold looted from Czechoslovakia in March 1939….