Let me start this course about American economic history with a story:
This is a story about a guy born in the late 19th century, in 1879, on the prairie: his family's homestead was 17 miles from the nearest post office. In historical terms, the horse-riding nomads who had dominated the prairie had only recently been driven off by the guns of government soldiers. Agricultural settlement in one of the richest soil regions of the world was well advanced, but frontier life was still raw and uncivilized.
Last chance to change any of them out. Are these the right readings? Which will fail in their task? What should I replace the ones that will fail with? What things I have not included must be added?
From left and right alike we hear something called "globalization" condemned. The forces driving the world economy toward increased economic integration are sinister. On the left politicians like Democratic congressman David Bonior begin speeches by noting three things that come to the U.S. from Mexico--dirty trucks, drugs, and hepatitis. On the right politicians like ex-Republican Pat Buchanan blame a century-old conspiracy to deliver America into the hands of the international bankers--and somehow to Buchanan the bankers are always named Goldman, Sachs, or Rubin; never Morgan or Baker.
January 10, 2017 at 07:23 AM in Economics: Growth, Economics: History, Economics: Macro, History, Philosophy: Moral, Political Economy, Politics, Streams: (Tuesday) Hoisted from Archives, Streams: Cycle, Streams: Economics, Streams: Equitable Growth, Streams: Highlighted | Permalink | Comments (2)
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Not running the table in January 2009 to make a V-shaped recovery all but inevitable, but instead trusting to good luck and the accuracy of the forecast. An obvious mistake then. An obvious mistake now. And I have never heard a good account of why it was made--other than that Obama, Emmanuel, Plouffe, and Axelrod bonded with Geithner, and that Geithner is always "let's do less", no matter how strong the arguments to do more are:
We have very little indication of what policies Donald Trump will try to follow or even what kind of president he will be. The U.S. press corps did an extraordinarily execrable job in covering the rise of Trump--even worse than it usually does. Even the most sophisticated of audiences--those interested in asset prices and how they are affected by government policies--have very little insight into Trump's views or those of his key associates.
I. The Third Coming of John A. Hobson
In my view, the current debate about “secular stagnation” started by Larry Summers is best thought of as the third coming of John A. Hobson.
Ah. Memories of 1981...
Back in 1981 the Reagan administration promised big tax cuts for the rich; higher defense spending; no spending cuts in programs that were really useful but only in rent-seeking waste, fraud, and abuse; and a balanced budget. They didn't add up. They went forward anyway.
The consequence was the huge full-employment Reagan budget deficit, and gave America a Hobson's choice between:
In many businesses, the explicit or implicit human-resources policy is LHFF--last hired, first fired. That means that workers who jump from a job in one firm to a job in another purchase a greater beta with respect to the business cycle along with the higher wages, better working conditions, and more interesting responsibilities that would lead them to jump. This seems the most likely explanation for the fact that more than one-fifth of the hiring we would expect to get at the current aggregate level of unemployment relative to job openings is not there. After the catastrophic downturn of 2008-9 and the subsequent half a decade noncovery, workers' assessments of the risks taken on in jumping firms and thus going to the back of the tenure-in-job queue are likely to be greatly elevated. Everybody knows people who lost their jobs in 2008-9 and then had the devil's own time finding another one.
Hoisted from the Archives from 2000: The Neoliberal Bet: January 15, 2000 ; Our panelists--Robert Kaplan, Saskia Sassen, and Manuel Castells--are all seeing not a crowded, thirsty world, but a crisis of urban governance. We are becoming an urban world. Cities require a lot of public services to function well. And our panelists seem to have no confidence in the ability of city governments in what we call emerging market economies to deliver services--police, electricity, roads, schools.
Donald Trump lost the 2016 national popular vote_ by 2,860,000 votes.
Over the past three cycles, Republicans candidates have received United States--I think--18.3 million fewer votes than Democratic candidates. (There are a lot of ways to try to do this calculation. But they all show a Democratic edge.)
Only Paul Ryan has a popular vote majority: his supporters won 56.3 million votes, while Nancy Pelosi's won only 53.2 million.
A correspondent reminds me of [a moment] almost four years ago that powerfully drove home to me how low the intellectual standards are on the American right. This will be very important to remember over the next four years--especially since the Trumpists are not the brightest of the lights on the American right as it stands today, never mind how it stood before the ascendancy of George W. Bush fifteen years ago, and never never mind how it stood before the ascendancy of Newt Gingrich twenty-five years ago.
It takes some wind-up, however. Let's start with the (usually) very sharp Thomas Nagel:
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...
[a moment: http://delong.typepad.com/sdj/2013/03/why-oh-why-cant-we-have-a-better-press-corps-andrew-ferguson-of-the-weekly-standard-edition.html
The Age of Incompetence: BERKELEY – On January 20, 2017, US President-elect Donald Trump will take office having received almost three million fewer votes than his opponent; and he will work with a Republican Senate majority whose members won 13 million fewer votes than their Democratic opponents. Only the Republican majority in the House of Representatives, led by Speaker Paul Ryan, has any claim to represent a numerical majority of the 55% of Americans who voted on Election Day 2016. Trump will also begin his presidency with an approval rating below 50%. This is unprecedented – or “unpresidented,” as one of his semi-literate tweets put it (before he deleted it) – in the history of such ratings... **Read MOAR at Project Syndicate
Attempts to make sense out of right wing Austrian economics can never amount to anything.
Nevertheless, like a moth to a flame--or like a dog to vomit, or like a dog to something worse--whenever I see something like:
2003: On Machiavelli's "Letter to Vettori," or, The Value of the History of Economic Thought: A surprisingly-large number of people have recently asked me why I am interested in the history of economic thought. They make various points. First, we don't learn physics from Galileo's Discourse on Two New Sciences. There are other, better, more complete, more accurate ways of presenting the material. In any real body of knowledge, the more up-to-date has to be preferred to the less because we know more than they did.
Missing the Economic Big Picture: As former WTO Director-General Pascal Lamy said earlier this month in my hearing, quoting from a conversation between Wu Jincang and Chinese Sixth Buddhist Patriarch Huineng:
"When the philosopher points at the moon, the fool looks at the finger". Market capitalism is the moon. Globalization is the finger.
Between the Little Englanders' BREXIT vote and those currently installing Donald Trump in the American presidency in the belief that he will make America great again by negotiating very different "trade deals", there has been a lot of finger-watching this year.
A correspondent tells me that the Wall Street Journal has reviewed the book from our Notre Dame public intellectuals conference of three years ago and that, while the book is trashed, my piece is called "entertaining and enlightening" by the reviewer Daniel Johnson. This greatly pleases me--enlightenment is all one can hope for, and if one is entertaining as well one may be read even by those who do not get paid to do so. That makes my--personal--day, and I gratefully thank him.
Unfortunately, he also writes:
I have only been on the same stage as Larry Kudlow twice in my life. In neither case did he provide any intellectual substance at all. This was the second time:
Hoisted from the Archives from 2007: I was sitting on the right end of an nine-person panel at the New School Friday morning http://www.cepa.newschool.edu/events/events_schwartz-lecture.htm#webcast. Bob Solow was sitting on the left end--Solow, Shapiro, Schwartz, Rohatyn, Kudlow, Kerrey, Kosterlitz, Hormats, DeLong. Bob Solow expressed concern and worry over the declines in the U.S. savings rate over the past generation. Larry Kudlow, in the middle of the panel, aggressively launched into an unbalanced and nearly fact-free rant...
Pascal Lamy: "When the wise man points at the moon, the fool looks at the finger..."
Perhaps in the end the problem is that people want to pretend that they are filling a valuable role in the societal division of labor, and are receiving no more than they earn--than they contribute.
But that is not the case. The value--the societal dividend--is in the accumulated knowledge of humanity and in the painfully constructed networks that make up our value chains.
Has academic thinking about countercyclical fiscal policy changed recently? I would not say that thinking has changed. I would say that there is a good chance that thinking is changing--that academia is swinging back to a recognition that monetary policy cannot do the stabilization policy by itself, at least not under current circumstances. But it may not be.
J. Bradford DeLong: On Twitter:
This strikes me as a bad mistake: fiscal needed to create space to normalize interest rates and give Fed room to fight next recession https://t.co/49djGBQRdS— J. Bradford DeLong (@delong) December 14, 2016
Yellen: Fiscal policy is not needed to provide stimulus to get us back to full employment— David Wessel (@davidmwessel) December 14, 2016
I have been thinking about John Maynard Keynes's observations on the mysterious difficulty of being a first-class economist that I quoted a while ago:
John Maynard Keynes (1924): Alfred Marshall: "The study of economics does not seem to require...
When I was working in the Treasury in 1993, I was struck by how much it was the case that President Bill Clinton was still the ex-Governor of Arkansas, and that arguments that would have been powerful and important when directed at a Governor of Arkansas still resonated in his mind much more strongly than they perhaps should have if they were evaluated purely on technocratic grounds.
The very sharp Ken Rogoff predicts a boom over the next four years: "The biggest missing piece... is business investment, and if it starts kicking in... output and productivity could begin to rise very sharply.... You don’t have to be a nice guy to get the economy going.... It is far more likely that after years of slow recovery, the US economy might at last be ready to move significantly faster..."
I really can't see it as likely.
The Thursday night before the 2000 election I gave a talk at St. Mary's College, trying to present the Bush and Gore points of view as fairly as I could...
Q: Have BREXIT and Trump increased the probability of a breakup of the eurozone?
That Britain voted for BREXIT, even under the false pretense of an extra 350 million pounds a week for the health service, is a strong indication that the tide of globalization and integration is not irresistible. That Americans... well, Americans did not vote for Trump--they voted for Clinton. That the quirks of the electoral college have made Trump president-elect is a strong indication that the tide of globalization and integration is not irresistible.
I must take exception to something said earlier today by the very sharp Neville Morley:
Neville Morley: When It Changed: "Unless you do assume that one strand of historical development...
...changes in productivity, or technology, or ideology--is determinative of all the others, then there’s no particular reason to assume that everything will change according to the same chronological pattern...
I think he has gone wrong here. In the past--even in the first half of the nineteenth century--the assumption that there was one principal engine driving the belts and powering the orreries of history was just that: an assumption, and a simplifying and probably badly chosen assumption.
But for the past hundred and fifty years things have been different.
In the "long" twentieth century the pace of economic transformation has been so great as to force nearly every other aspect of history to respond according to the same chronological pattern.
Ah. I see that you have found the first draft of my opening lecture for Econ 115 next semester... https://twitter.com/BrankoMilan/status/804205835543019520 https://t.co/lK82RVQudb
I think whether it is more useful to do the tell of 20th century economic history as the "short" 1914-1989 (as Hobsbswm does) or the "long" 1870-2012 (as I want to) rests on two analytical judgments:
The Kelly Risk Criterion: The intelligent and thoughtful Felix Salmon makes a subtle and interesting error--an error that I would make on at least a monthly basis, had Robert Waldmann not patiently explained all this to me in the winter of 1986.
He discusses Kelly risk analysis. Pushing leverage beyond the Kelly point does not decrease expected return. Rather, it decreases the likelihood of organizational survival, and the chance that you will be wealthy.
If you are acting as one of many agents for a well-diversified principal, you will in general want to ignore the Kelly point and leverage yourself up to the gills.
If your objective is, instead, to maximize your own chances of remaining in the game with boasting rights, you will position yourself at the Kelly point.
Project Syndicate: Missing the Economic Big Picture: BERKELEY – I recently heard former World Trade Organization Director-General Pascal Lamy paraphrasing a classic Buddhist proverb, wherein China’s Sixth Buddhist Patriarch Huineng tells the nun Wu Jincang: “When the philosopher points at the moon, the fool looks at the finger.” Lamy added that, “Market capitalism is the moon. Globalization is the finger.” With anti-globalization sentiment now on the rise throughout the West, this has been quite a year for finger-watching... Read MOAR at Project Syndicate
Understanding Trump: Even the Good Scenario Is Bad: Q: Are we in Europe misunderstanding Trump?
A: The non-legislative powers of the president are extremely large. Thus the risks of disaster-from-incompetence are quite high--even leaving to one side the chance of a Berlusconi bunga-bunga governance kleptocratic orgy...
Some people do have a more positive view of Reagan than I do. But when I look at Reagan I see:
Democracy Must Be Irresponsible: So Responsible Governance Must Be Undemocratic
When is responsible democratic governance possible? Our classical predecessors would have given a simple answer: never.
Let us suppose that we had been transported to some other branch of the multiverse, along which the Federal Reserve had not held interest rates at zero but had steadily and gradually raised them for the past six years them so that the Federal Funds rate now stood at 400 basis points. What does the economy look like along our branch and along that branch?
Note to Self: Was it Mary Beard who said that, much as she loved to read Tacitus and Suetonius, it was implausible that all the good emperors were those who died in their beds and were followed by their chosen successors no matter how many senators they had killed or poets they had exiled, while all the bad emperors were those who had been assassinated? Were no good emperors ever assassinated? Did no bad emperors ever die in their beds? Thus she tends toward structural rather than accident- or personality-based history...
Hoisted from the Archives: 470 years ago, in 1543, King Henry VIII Tudor of England married his sixth and last wife, Katherine Parr. He also:
A busy king, for one so sick and mad.
There are, broadly speaking, three kinds of American patriotism. There is Kentucky, which is the standard ethno-linguistic nationalism of soil and blood (think: age of Andrew Jackson). There is Virginia, which is a peculiar form of libertarianism-of-adoption: "we" have come here so that nobody else can boss "us" or those we adopt to become "us" around (think: Thomas Jefferson). And there is New England, which is the utopian nationalism of election: those who elect to come here and help "us" to build utopia are "us", and are very welcome as long as they commit to building the City Upon a Hill.
To no one's surprise, I like the third kind. And here is its root, in John Winthrop's Arabella Sermon:
John Winthrop: From "A Model of Christian Charity": "We are entered into covenant with Him for this work...
Since 2009 the Federal Reserve and other global north central banks have, first hesitantly and enthusiastically, been trying to sacrifice the health of the commercial banking sector in order to keep the life support machines that are keeping the rest of the economy alive going.
In the United States 24% of nonfarm workers were manufacturing workers in 1971.
It's 8.6% today.
Maybe it would be 9% if NAFTA has not been negotiated and if China had not joined the WTO, but maybe it would still be 8.6%--analysts disagree on trade expansion vs. trade diversion here.
When I was working in the Treasury in 1993-5, I was struck by how much it was the case that President Bill Clinton was still the ex-Governor of Arkansas. Thus arguments that would have been powerful and important when directed at a Governor of Arkansas still resonated in his mind. Moreover, it seemed to me that they resonated much more strongly than they perhaps should have, given that he was now not Governor of Arkansas but President of the United States, if they were evaluated purely on technocratic grounds.
A cleaned-up transcript of my part of this Bank-Fund Meeting cycle's panel on "Fiscal Policy in the New Normal":
Moderator: Vitor Gaspar. Panelists: Mitsuhiro Furusawa, Brad DeLong, Bill Morneau, Ludger Schuknecht, Arvind Subramanian
J. Bradford DeLong :: U.C. Berkeley, NBER, and WCEG :: November 17, 2016 :: PIIE
We are highly unlikely to have any—not for the next two years, and probably not for the next four years. Thus the talk I had prepared and the powerpoint I had drawn up two weeks ago are now totally irrelevant.
Let me distinguish between:
Supervulgar Trumpism: Donald Trump will return manufacturing employment to 24% of the nonfarm labor force.
Vulgar Trumpism: Donald Trump will renegotiate NAFTA and China's accession to the WTO. We will not get all or even most of the manufacturing jobs back, but the industries and the communities will be healthy.
Semi-intelligent Trumpism: The U.S. ought to be a high savings capital and manufactures exporting country, like Germany and Japan. Bad macro and trade policies--the Reagan and Bush 43 deficits, keeping the strong dollar policy long past its sell-by date, prioritizing finance over manufacturing--accelerated the decline of manufacturing employment well beyond its proper technology driven pace and eroded our valuable communities of engineering practice.
Should we expect 2017 to be different than 2016 as far as global economic growth is concerned?
As Gian-Maria Milesi-Ferreti said yesterday, it surely ought to be better because it will be unlikely to be as bad as 2016 was for Russia, Nigeria, South Africa, and Brazil. The anti-productivity shock of BREXIT will not have hit the world economy yet, and Mark Carney and company have managed to drop the pound enough that Britain looks likely to see expenditure-switching rather than expenditure-dropping as people readjust their plans as they wonder what the end of the BREXIT imbroglio will be.
Ken Rogoff: "In nine years, nobody will be talking about 'secular stagnation'. I've been debating Larry on this for a year, and I started saying 'in ten years..., and so for consistency I now say 'in nine years...".
This is a wager that the full-employment long-run in which money and its associates are a veil that does not affect or disturb the Say's Law operation of the economy will come not more than 18 years after the shock of 2017--or at least that whatever remnants of the effects of that shock on the business cycle come 2025 will be dwarfed the effects of other business cycle shocks subsequent to now.
I do know from experience that one disagrees with Ken Rogoff at one's grave intellectual peril. But is he correct here? I really cannot follow him to the conclusion he wants me to reach...
Things to reread and chew over:
Whether Thomas Jefferson's vision of the future of America was coherent was unclear then and remains unclear now.
Jefferson, like most of his founding-father contemporaries, was steeped in one version of classical history: Roman history as a morality play. Jefferson and many, many of his revolutionary peers assumed that yeoman farmers--Cincinnati--were the only possible social class that could maintain a free republic. They all believed that Rome was a great, free Republic because of its fiercely-independent farmers who nevertheless loved their city and would--like Cincinnatus--drop their ploughs and instantly take up their swords to defend (and conquer), and then return to their ploughs after the war was over.
November 14, 2016 at 11:34 PM in Economics: Growth, Economics: History, History, Moral Responsibility, Philosophy: Moral, Political Economy, Politics, Streams: (Wednesday) Economic History, Streams: Cycle, Streams: Economics, Streams: Equitable Growth, Streams: Highlighted | Permalink | Comments (31)
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Fiscal expansion now is really a no-brainer:
What's the downside?
Stephen Cohen and J. Bradford DeLong (2016): Concrete Economics: The Hamilton Approach to Economic Policy (Cambridge: Harvard University Press) http://amzn.to/2fJnSEe | Keynote
Looking Forward to Four Years During Which Most if Not All of America's Potential for Human Progress Is Likely to Be Wasted
With each passing day Donald Trump looks more and more like Silvio Berlusconi: bunga-bunga governance, with a number of unlikely and unforeseen disasters and a major drag on the country--except in states where his policies are neutralized.
Nevertheless, remember: WE ARE WITH HER!
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