Live from the Ferry Building: Is the San Francisco Housing Market Efficient? (2006): "Under the direction of: Professor Jonathan Levin...**:
Live from the Ferry Building: Vineet Bhagwat**: Is the San Francisco Housing Market Efficient? (2006): "Under the direction of: Professor Jonathan Levin...
When did I first come out in support of Nominal GDP targeting?
Damned if I remember.
If you are asking:
Should monetary policy and fiscal policy together aim at a stable growth path for nominal GDP?,
I think the answer is that I have always believed that.
If you are asking, instead:
Over at Equitable Growth: The very sharp Jared Bernstein wrote:
Jared Bernstein: Going Bold in Los Angeles: "The city council of Los Angeles has voted near-unanimously...
...in support of a gradual increase in the city minimum wage, from $9 today to $15 in 2020... thereafter, indexed to inflation.... What its impact might be is a harder question.... READ MOAR
...In August 2011 he denounced the ‘delusions’ of the chancellor whose ‘experiment in austerity’ was ‘going really, really badly’.... Mr Osborne was worrying needlessly about business confidence. ‘The confidence fairy’ was the term Mr Krugman coined to ridicule anyone who argued for fiscal restraint. Unfortunately for Mr Krugman, the more he talked about the confidence fairy, the more business confidence recovered in the UK. In fact, at no point after May 2010 did business confidence sink back to where it had been throughout the past two years of Gordon Brown’s premiership.... UK unemployment is now 5.6%, roughly half the rates in Italy and France.... Weekly earnings are up by more than 8%; in the private sector, the figure is above 10%. Inflation is below 2% and falling...
The graph that Ferguson is looking at: READ MOAR
Must-Read: Speaking of people who were wrong in and before 2010 and get appear do made little effort to market their beliefs to market, Francesco Giavazzi. Karl Whelan reads him and gets shrill:
Karl Whelan: The FT Lets Itself Down Again: Francesco Giavazzi on Greece: "With regular opinion pieces from the likes of Hans-Werner Sinn and Niall Ferguson...
Over at Equitable Growth: I found myself debating Tom Davis--a very smart and well-trained professional--on Bloomberg TV last Friday, on the occasion of the monthly employment report. I did better than I had expected, probably because we are both on the same side of the technocratic "we badly need to do more for infrastructure" issue: READ MOAR
What about the 2009 stimulus package, anyway?
Ah. The 2009 Recovery Act. Christie Romer's original calculations suggested we needed a fiscal stimulus program of $1.8 trillion over three years, even with all of the banking-support and monetary policy moves the Treasury and the Federal Reserve were making. Her forecasts--like almost every forecast in December and January 2009--were optimistic. We needed not $1.8 trillion over three years, but rather more like $4 trillion over 5 years (which could be pruned back or offset by tighter monetary policy if recovery came rapidly.
This month's employment report--in fact, the last few months' employment reports--should not lead us to change our minds about anything. What did you think three months ago? You should think the same thing now. Information about the changing destiny of the economy drips out only slowly. And so your view should change only slowly
What should you have thought three months ago? Eight things:
Robert Waldmann: The Long Run Is My Shepherd: "DeLong Praises The Long Run...[, saying:]
...these beliefs hinged and hinge on a firm and faithful expectation that this long run is at hand, or is near, or will soon draw near (translations from the original koine texts differ)' those who believe will not taste death before, but will live to see exit from the liquidity trap'
Must-Read: Timothy Garton Ash: Xi Jinping’s China: The Greatest Political Experiment: "Xi is... trying to steer a complex economy and society... by top-down changes...
Daniel P. Tompkins: What the Ancient Greeks Can Teach Us About Human Capital: "Unsupervised, cooperative Athenians developed an economy powerful enough to escape the Malthus trap...
The Rise and Fall of Classical Greece by Josiah Ober, Princeton University Press, 464pp. "Must it not then be acknowledged by an attentive examiner of the histories of mankind, that in every age and in every State in which man has existed, or does now exist, That the increase of population is necessarily limited by the means of subsistence? That population does invariably increase when the means of subsistence increase? And, That the superior power of population it repressed, and the actual population kept equal to the means of subsistence, by misery and vice?"
David Glasner enters the lists in the Omega Point discussion, making two big and important points:
There is an equilibrium in which the long-run comes quickly, and an equilibrium in which it comes so slowly that other things inevitably intervene. We do not know very much about what determines which the economy settles in, but we do strongly suspect from the Great Depression that sufficiently aggressive monetary régime change can eliminate the permanent-depression equilibrium
1931 was the once-in-a-century time for a monetary régime change in the twentieth century (and, if we are allowed one every half-century, 1978 was the time for the second). And it looks to him very much like 2009 was the time for a monetary régime change in the first half of the twenty-first century. That the Federal Reserve did not realize this in late 2009--that it expected a rapid recovery from the economy's self-equilibrating forces even without additional fiscal and monetary stimulus--is our sorrow today.
I agree with (2). I am less certain about (1).
I would say probably, and note that sufficiently aggressive in this case is a weasel phrase, and admit that I am surprised that Abenomics in Japan has not been more successful. But more on that anon. READ MOAR
U.S. Employers Add 280,000 Workers in May: "Is Jobs Data Truly Good News About U.S. Economy?
39:21 - UC Berkeley Professor of Economics Brad Delong and former republican Congressman Tom Davis examine the state of the U.S. economy following the May jobs report and discuss what the U.S. government needs to do to spark growth. They speak on ‘Bloomberg Markets.’ (Source: Bloomberg)
The past three months' job market reports do not lead us to change our minds about anything. What did you think three months ago? You should think the same thing now.
What should you have thought three months ago? Four things:
First, for the past 50 years the unemployment rate and other indicators of the health of the labor market--ease of getting a job, business willingness to build more to fill vacancies, employment the population adjusted for demographics and sociology--have all pointed in the same direction.
Thus, second, it looks to me like we are still far short of anything that might be called a normal or neutral business-cycle level of employment.
Third, it will not be time to start cooling off the economy until either we get different signals:
Fourth we never recovered to the pre-2007 trend.
Fifth, it is still not too late to turn the macroeconomic policy ship around:
Sixth, there are also important structural issues:
Seventh, Obama... Taking a broad view, under Obama the American economy has done worse than it has done under any Democratic president since the Civil War
Eighth, things could have been much better:
Matt Miller: Tom, let me start with you. Weren't you impressed with this month's job report? We added 280,000 jobs. That is much higher than the average of the past twelve months. We boosted hourly pay.
Tom Davis: Yes. It was a good report.
Matt Miller: And, Brad, do you find it to be a good report as well?
Brad DeLong: Yes. It was a good report. But combine it with the past two reports. We are about where we were three months ago. Whatever you thought about the state of the economy three months ago, you should think it now. The last quarter has not been one in which there has been a great deal of news to lead anyone to change their mind.
Matt Miller: Tom, are you more positive about this report than Brad? He's got a lot more "buts" and "ifs" in there.
Tom Davis: Well, there are a lot of "buts" and "ifs". I think lower gas prices have given a tax cut to everybody. I think they have created a lot of optimism. But there is still a lot of uncertainty. And there are still a number of international factors that come into this that nobody can control. I think some times we give the government too much credit for what goes well and too much blame for what goes badly.
Matt Miller: So what should we do, Tom, to make things better here? What is your prescription? Or what is the Republican prescription, I should say?
Tom Davis: Look: Our prescription has always been that higher taxes and needless regulations--and there are a lot hanging around. You need to be looking at them so that businesses can operate more efficiently. One of the biggest problems right now is that we have a political system that is not operating very efficiently on issues from the Export-Import Bank; to getting a long-term transportation bill which has been on life-support for six months--for six years; to just getting the Appropriations bills out on time. We just have a political system that is not functioning very efficiently. And that has, I think, a drag on the economy. We're not getting out of the government what we ought to be.
Matt Miller: Brad, Democrats and even President Obama would agree with that. They would like to see lower taxes and fewer regulations, but also more spending. Right?
Brad DeLong: Well, I don't think it is just Democrats who would like to see more spending. Back in the 1970s Milton Friedman looked back at the Great Depression. He talked about what his teachers had recommended as policies and what he would have advocated in the Great Depression. He called for, in situations like that, and, I think, in situations like this, for coordinated monetary and fiscal expansion. With interest rates at their extraordinarily low levels, now, as in the 1930s, is a once-in-a-century opportunity to pull all the infrastructure spending we will be doing over the next generation forward in time and do it over the next five years, when the government can finance it at such extraordinarily good terms.
Matt Miller: We have a national infrastructure crisis, right? Roads and bridges, ports and airports are at levels that are critical and certainly not worthy of a first-world country. Tom, don't you agree we need to fix that up quickly?
Tom Davis: I agree with that. Look, I think that with the stimulus package that was passed in 2009 they blew an opportunity to do more for infrastructure. We should have had something to show at the end of that. With the money, maybe we got a short-term stimulus, but we should have gotten something long-term.
Brad DeLong: They had to get it through with only Democratic votes. Why weren't there any Republicans willing to deal? We could have gotten a larger and much better-crafted program.
Matt Miller: There was a lot of money there. There was a lot of money there, Brad.
Tom Davis: Let me interject. I know something about politics. I think the President's inclination was to deal with Republicans, but Democrat leaders said: "No: We are in charge. You have to go through us." And I think that hampered his ability. It wasn't just Republicans. You offer us a bad deal, don't expect us to take it.
Matt Miller: That doesn't change the fact that we still have crumbling infrastructure in this country.
Tom Davis: No, I agree.
Matt Miller: It needs to be, somehow, brought up to snuff. How would you do that?
Tom Davis: You need a massive transportation bill at this point. And you need continuity. Right now this thing is on life support. So long-term projects are not moving through. States are taking some initiative in some cases. But this is the time to do it.
Matt Miller: Brad, it sounds like...
Brad DeLong: When Larry Summers was in the White House, he spent two years trying to assemble a centrist bipartisan coalition for a large-scale long-lasting infrastructure bank, and got no Republican bites at all.
Tom Davis: Well, the Democrats controlled both houses. They could have done it. That is all I am saying. We have to look ahead at this point. But I think they blew the opportunity with that bill when they controlled everything. I think bipartisan government right now has just crumbled. We have turned almost into a parliamentary system in our behavior, and unfortunately with our system of government that just does not work very well.
Matt Miller: It sounds like we are all in agreement that something needs to be done. Hopefully that can happen. Maybe the two of you can get together after this program.
Today's Economic History: Matthew Yglesias: Surplus content: "Keynes on bubbles...
...I think Chapter 22 of the General Theory is enduringly relevant:
It may, of course, be the case — indeed it is likely to be — that the illusions of the boom cause particular types of capital-assets to be produced in such excessive abundance that some part of the output is, on any criterion, a waste of resources; — which sometimes happens, we may add, even when there is no boom. It leads, that is to say, to misdirected investment. But over and above this it is an essential characteristic of the boom that investments which will in fact yield, say, 2 per cent. in conditions of full employment are made in the expectation of a yield of, say, 6 per cent., and are valued accordingly.
When the disillusion comes, this expectation is replaced by a contrary ‘error of pessimism’, with the result that the investments, which would in fact yield 2 per cent. in conditions of full employment, are expected to yield less than nothing; and the resulting collapse of new investment then leads to a state of unemployment in which the investments, which would have yielded 2 per cent. in conditions of full employment, in fact yield less than nothing.
We reach a condition where there is a shortage of houses, but where nevertheless no one can afford to live in the houses that there are. Thus the remedy for the boom is not a higher rate of interest but a lower rate of interest! For that may enable the so-called boom to last. The right remedy for the trade cycle is not to be found in abolishing booms and thus keeping us permanently in a semi-slump; but in abolishing slumps and thus keeping us permanently in a quasi-boom.
Think about Greece with its 'unsustainable' economy bolstered by government borrowing, or the US with its 'unsustainable' housing boom. Indeed, those particular arrangements could not be sustained forever. But why, when they unwound, were they replaced by a boom in unemployment? Surely it's not hard to come up with a higher-productivity sector for people to work in than the unemployment sector? To simply observe that the old arrangement suffered from some mis-valuation problems doesn't explain what's really mysterious and troubling about recessions.
Over at Equitable Growth: Watching a Discussion: The Omega Point:
Over at Equitable Growth: Convergence to the Long-Run Macroeconomic Omega Point and Inflation Targeting: Nick Rowe's View
Nick Rowe enters what I am starting to call: The Omega Point Discussion:
Nick Rowe: Back propagation induction does not work under inflation targeting: "Suppose you lived in a world where, whenever the price level fell/rose by 1%...
the central bank responded by decreasing/increasing the base money stock by the same 1%. A world like that would not have a long-run Omega point, from which some present equilibrium can be pinned down by back propagation induction. READ MOAR
Hoisted from the Archives from Two Years Ago:: Moby Ben, or, The Washington Super-Whale: Hedge Fundies, the Federal Reserve, and Bernanke-Hatred
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 125 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.
Comment of the Day: Robert Waldmann: "Yea, though I walk through the valley of the shadow of debt, I will fear no evil:
Thou -- long run -- art with me; thy root and saddle path, they comfort me.
Live from Evans Hall: When I arrived at 506 Evans Hall for this morning's workshop, this book was on the seminar table looking at me.
I think the ghost of John Hicks is weighing in on the inadequacy of Hicks (1937) as the thing you need to know to do policy-relevant macro with success...
Over at Equitable Growth: The question is: Why were we wrong? We had, after all, read, learned, and taught the same Hicks-Hansen-Wicksell-Metzler-Tobin macro that was Paul Krugman's foundation.
Yesterday I wrote: New Economic Thinking, Hicks-Hansen-Wicksell Macro, and Blocking the Back Propagation Induction-Unraveling from the Long Run Omega Point: The Honest Broker for the Week of May 31, 2015
And now I see Paul Krugman writing:
Paul Krugman: Backward Induction and Brad DeLong (Wonkish) - NYTimes.com: "One more thing: Brad says that we came into the crisis...
...expecting business cycles and possible liquidity-trap phases to be short. What do you mean we, white man?
Touché... READ MOAR
Must-Read: I understand that voters have short memories, And thus the politicians who predict that, say, the 1993 Clinton tax increase would crater the economy may evade the consequences of having recommended bad policies and remain in office. But they do want to enact policies that will work. So you would think that a Paul Ryan would be thinking twice right now about palling around with a John Cochrane, a Stephen Moore, a Cliff Asness, or an Arthur Laffer. Yet somehow...
I do not understand it:
Paul Krugman: Fraternity of Failure: "Jeb Bush wants to stop talking about past controversies....
Comment of the Day: Robert Waldmann: Austerity, Recovery, and Macroeconomic Analysis: "Something else. You say that those who don't trust the power of financial repression can lock in low interest rates by borrowing long...
At that time--or, rather, in that logical state to which the economy will converge if values of future shocks are set to zero--expected inflation will be constant at about the 2% per year that the Federal Reserve has announced as its target. At that time the short-term safe nominal rate of interest will be equal to that 2% per year of expected inflation, plus the real profits on marginal investments, minus a rate-of-return discount because short-term government bonds are safe and liquid. At that time the money multiplier will be a reasonable and a reasonably stable value. At that time the velocity of money will be a reasonable and a reasonably stable value. Why? Because of the powerful incentive to economize on cash holdings provided by the the sacrifice of several percent per year incurred by keeping cash in your wallet rather than in bonds. And at that time the price level will be proportional to the monetary base. READ MOAR
Over at Equitable Growth: Barry Eichengreen sees four important sources of new economic thinking:
Comment of the Day: Nathanael: What Is the American Principles Project?: "'How does opposition to contraception and abortion and advocacy of discrimination...
...against homosexuals get tied up with the gold standard and the elimination of the pro-poor redistributionist social ethic of Jesus Christ?
Postponed to 2016-2017:
Over at Project Syndicate: Putting Economic Models in Their Place:
Among the voices calling these days for new--or at least substantially different--economic thinking http://ineteconomics.org is the very sharp Paul M. Romer http://paulromer.net/ of New York University, with his critique of what he calls "Mathiness" in modern economics http://paulromer.net/mathiness/. He seems, to me at least, to be very worried principally about two aspects of modern economic discourse. The first is to take what is true about one restricted class of theories and generalize it, claiming it is true of all theories and of the world as well.
Google keep? No thanks, I'll pay for Evernote lest you Google Reader me. @clippingsio charges $2 to format my kindle notes? Take my money.— Zeynep Tufekci (@zeynep) May 19, 2015
Over at Equitable Growth: I confess that I think it is time to stop trying to make sense of John Taylor's views on the Taylor rule. There simply seem to be too many gaps in logic, and too many assertions about the literature that I cannot understand.
In fact, Tony Yates reads John Taylor's attack on Ben Bernanke, and sounds almost... shrill:
Arithmetically, the U.S. economy is depressed because residential construction and government purchases are well below previously-expected trend levels...
Over on Twitter:
Note to Self: Rereading Etienne Mantoux: La Paix Calomniée, ou les Conséquences Économiques de M. Keynes. "The Calumniated Peace" of Versailles. OK. So why is the title of the English translation The Carthaginian Peace? Who decided to replace "Caluminiated" with "Carthaginian", and why?
With his fascination Keynes combines another of the serpent's attributes--his disconcerting ability to molt at more or less frequent intervals, leaving his former conceptions behind him like so many old integuments from which the reader, somewhat disconcerted, must extract himself, having previously been at no little trouble to get in.... We are to witness a revolution. At least so one would gather from some of the more enthusiastic reviews, which go so far as to make Keynes (much to his disgust no doubt) the direct successor of Karl Marx. "My undertaking is one that has no equal, that none will ever equal. I would change the basis of society, shift the axis of civilization..." Is that facetious to place Proudhon's ironic boasts beside Keynes' ambitious sureness? Yet their two proposals are not so very unlike, for it is by decline of the rate of interest to zero that the latter would see our economic ills remedied. Curious that the most sharp-tongued economist of our time should come back, by this unexpected route, to the thought of the famous inventor of "credit gratuit"...
Peter T. asks good research questions about the relationship between what people are paying for and what they are getting. Consider that the GDP contribution of Missouri's payday loan industry is the collective interest payments of the borrowers. Consider that in Portland location premiums are for living in nice convenient places, while in Kansas City they are in large part for largely-illusory insulation from regional sociological and public finance problems:
How much of the greater amount of money in Kansas City is just money, as opposed to goods and services? How much is money generated by grifts (payday loans, student debt for courses with no prospect of employment, cancer cures peddled by Republican presidential wannabees...). How hard would it be to map the density of payday lenders in the US? Or to take a chunk of credit card data and work out where the desperate suckers are? How does these and similar indicators correlate to health, income, education? Where do the profits come from, and where do they go? Is anyone doing this?
Comment of the Day: Brian Schmidt on "Neoliberalisms", Left and Right: "Brad raises the issue of the strength of the magic wand he's given...
Note to self:
Perhaps I imposed too much of my own preconceptions on Skidelsky. But I had always seen Skidelsky as arguing that Keynes saw:
Cf: Stephen A. Schuker (2014): J.M. Keynes and the Personal Politics of Reparationshttp://www.tandfonline.com/loi/fdps20
John Maynard Keynes: The Economic Consequences of the Peace: "Very few of us realize with conviction the intensely unusual, unstable, complicated, unreliable, temporary nature
Over at Equitable Growth: Robert Waldmann: In Which I try to Defend Janet Yellen from Brad DeLong: "Fed Chair Janet Yellen said, among other things:
For this reason, if the economy continues to improve as I expect, I think it will be appropriate at some point this year to take the initial step to raise the federal funds rate target and begin the process of normalizing monetary policy. To support taking this step, however, I will need to see continued improvement in labor market conditions, and I will need to be reasonably confident that inflation will move back to 2 percent over the medium term. After we begin raising the federal funds rate, I anticipate that the pace of normalization is likely to be gradual. The various headwinds that are still restraining the economy... READ MOAR
How did I get started weblogging?
In my memory, I got started weblogging because one afternoon sometime in the 1990s that convinced me that weblogging was likely to become a key part of the forthcoming ecology of intellectual influence.
Over at Equitable Growth: Kenneth Rogoff: Inequality, Immigration, and Hypocrisy: "Europe’s migration crisis exposes a fundamental flaw, if not towering hypocrisy, in the ongoing debate about economic inequality...
And Kenneth Rogoff fakes right:
Wouldn’t a true progressive support equal opportunity for all people on the planet, rather than just for those of us lucky enough to have been born and raised in rich countries? READ MOAR
J. Bradford DeLong on May 20, 2015 at 03:00 PM in Economics: Growth, Economics: Inequality, Economics: Macro, Moral Responsibility, Philosophy: Moral, Political Economy, Politics, Streams: Economics, Streams: Equitable Growth, Streams: Highlighted, Twentieth Century Economic History | Permalink | Comments (16)
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Wisdom: Robert Shiller:
The inference from the unpredictability to the rationality of stock prices is the most remarkable error in the history of economic thought...
Over at Equitable Growth Paul Romer inquired why I did not endorse his following Krusell and Smith (2014) in characterizing Piketty and Piketty and Zucman as a canonical example of what Romer calls "mathiness". Indeed, I think that, instead, it is Krusell and Smith (2014) that suffers from "mathiness"--people not in control of their models deploying algebra untethered to the real world in a manner that approaches gibberish.
I wrote about this last summer, several times: READ MOAR
Must-Read: The real problem that Barack Obama has with the Trans-Pacific Partnership is that the intellectual property interests--Hollywood, Silicon Valley, and Pharma--are for it only to the extent that it strengthens their property rights, that the Democratic caucus is against it unless it contains meaningful steps to reduce inequality and increase positive-sum regulatory oversight, and that the Republican caucus is against it if it contains meaningful steps to reduce inequality and increase positive-sum regulatory oversight. Thus from a perspective that is technocrat-utilitarian, legislative-process, and coalition-assembly oriented, the obvious path is to appoint a senior free-trade Republican--a Romney figure--to negotiate TPP, and then to withhold presidential approval of its implementing legislation unless inequality-reducing Democratic legislative priorities are attached to the bill. Yet, once again, this kind of Legislative Process 101 move--to make the situation not "I'm in here with you" but "you're in here with me"--was not undertaken by the Obama White House...
Matthew Yglesias: Obama's Real Problem on Trade Is Way Bigger than Elizabeth Warren: "The coalition against TPP is very broad...
Via Ta-Nehisi Coates: John C. Calhoun: Slavery a Positive Good: "I do not belong... to the school which holds that aggression is to be met by concession...
...Mine is the opposite creed, which teaches that encroachments must be met at the beginning, and that those who act on the opposite principle are prepared to become slaves. In this case, in particular I hold concession or compromise to be fatal. If we concede an inch, concession would follow concession–compromise would follow compromise, until our ranks would be so broken that effectual resistance would be impossible. We must meet the enemy on the frontier, with a fixed determination of maintaining our position at every hazard. Consent to receive these insulting petitions [seeking from the senate a constitutional amendment abolishing slavery], and the next demand will be that they be referred to a committee in order that they may be deliberated and acted upon.