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:
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
As of now, an estimated 2.2 million vote edge for Hillary Clinton...
And that's without adding in the effects of 2nd Jim Crow voter suppression...
The big stories of last Tuesday are two:
Big Story: Hillary Rodham Clinton won the vote--more Americans chose her for their leader than chose Donald Trump.
Big Story: The electoral college failed to do its proper democratic job for the sixth time in 58 elections--and a 10.6% failure rate is much too high.
Anybody who does not focus on those two big stories is not being your friend.
Well, that was a very interesting election night...
Our failure in 2000 to introduce into the running code (as opposed to the specification document) of our constitution that electors switch votes so that the national popular vote winner wins the electoral college cost us dear in 2000, and may cost us even more today...
You may ask: How is one to judge what to do in such times? The answer is clear: As one has ever judged. Good and evil have not changed since yesteryear, nor are they one thing among Elves and another among Men. It is a human's part to discern them, as much in the Golden Wood as in his own house. What would have been good policy yesterday would still be good policy today. What would have been bad policy yesterday would still be bad policy today. So we play our position.
I therefore set forth seven principles that should govern good technocratic fiscal policies that promise to enhance America's societal well-being :
Well, that was an interesting election night...
Back in 2000 we had a chance to establish the principle in the running code of our constitution (as opposed to the specifications document) that electors switch so that the winner of the national popular vote becomes president. In fact, back in late October 2000 I was pushing that: I argued that if Al Gore won the electoral college but not the popular vote, he should direct his electors to vote for George W. Bush because the long run stakes at risk were too high for it to be wise to do otherwise.
We did not do that in 2000--to our great cost then, and perhaps to our greater cost now.
Must-Read: Why I reacted badly to journalists who asked me to analyze Trump's economic plans. The first, last, and only correct thing to say was that there never was any coherent plan. To say anything else was to try to normalize the unnormalizable. Everyone who wrote as if there was a plan should be deeply ashamed of themselves.
Here Alan Cole gets it... less wrong than most. He is still trying to normalize the unnormalizable. But he is honest about how difficult it was for him to attempt the task:
Alan Cole: _On Twitter: "This is my 407th (and, I expect, final) day covering Donald Trump's tax proposals for @taxfoundation...
...Here's what we've learned:
Three excellent pieces on how the media has failed us--and failed us worse this election cycle than ever before: Brian Buetler, Todd Gitlin, Jurek Martin.
By the way, I disagree with Buetler in one important dimension. When Brian says "there is no shortage of journalists and outlets in this industry with a lot to be proud of...", he is lying. There is a great shortage. That is why Brian needs to come up with a list--a shortlist--of journalists and outlets to whitelist:
Brian Buetler: [Shame on Us, the American Media]: "There is no shortage of journalists and outlets in this industry with a lot to be proud of...
In 2000 Supreme Court Justices William Rehnquist, Anthony Kennedy, Sandra Day O'Connor, Antonin Scalia, and Clarence Thomas decided the presidential election by casting their five votes in a lawless exercise that they then forbade ever being used as a precedent. In this election Supreme Court Justices John Roberts, Anthony Kennedy, Joseph Alito, Antonin Scalia, and Clarence Thomas are once again casting votes--enough, it looks like right now, to give North Carolina to Donald Trump:
Michael DeLong: The Attack on Voting Rights:
In 2013, by a 5–4 vote, the Supreme Court struck down a couple of key provisions of the 1965 Voting Rights Act. Section 5 of the Act required certain state and local governments to get federal approval before they could implement any changes to their voting laws, and Section 4(b) contained the formula that determined which areas had to get approval. The formula was based on the areas’ past records of discrimination in voting.
I'm going to call this debate--from six and four years ago--for me. I do think I was right then. But even were I to concede that I was not right then about what "economics" was in its essence, I believe I can convincingly make the case that I am correct now:
November 07, 2016 at 01:11 PM in Economics: History, History, Long Form, Philosophy: Moral, Political Economy, Politics, Streams: (BiWeekly) Honest Broker, Streams: (Tuesday) Hoisted from Archives, Streams: Cycle, Streams: Economics, Streams: Equitable Growth, Streams: Highlighted | Permalink | Comments (3)
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Sam Wang: Is 99% a Reasonable Probability?: "Three sets of data point in the same direction:
- The state poll-based Meta-Margin is Clinton +2.6%.
- National polls give a median of Clinton +3.0 +/- 0.9% (10 polls with a start date of November 1st or later).
- Early voting patterns approximately match 2012, a year when the popular vote was Obama +3.9%.
Based on this evidence, if Hillary Clinton does not win on Tuesday it will be a giant surprise.
This is the kind of story that I remember Nate Silver and his http://fivethirtyeight.com doing right over and over again in 2012 and 2008. Take the model--a very useful poll-aggregating model, even with what I regard as its unhelpful Bayesian frame--and use it as a springboard for a really smart, really high quality moderately-deep dive into some aspect of the situation that can be illuminated by the data.
Paul Ryan had a choice: he could have shaped his future political career as the sensible Republican Speaker who had moderated Democratic policy initiatives and made Washington work. Or he could have shaped his future career as another raving loony nutcase who strove to the last to try to make Donald Trump President, get caught between the millstones of the Teabaggers to his right and deserting moderate ex-Republicans and the demographics to his left, and be ground to dust.
Paul Ryan has chosen:
Paul Ryan: The Choice Facing America: "Hillary Clinton... has offered no new ideas...
Let us dispel with the fiction that today's Republican Party, with a primary-voting base that can nominate a Trump, and an establishment of office holders, donors, and apparatchiks that can fall in line behind him, is not an existential threat to America:
Brendan Nyhan: @BrendanNyhan: "Trump's pivot wasn't to the center...
...but to a new divide in American politics that would fundamentally change the party system if Republicans adopt it. Reminder: Not a word of this is conservative. Trying to shift axis of conflict to cosmopolitanism vs. race-inflected version of nationalism:
It is, once again, time for me to think about Ken Rogoff's hypothesis: his claim that right now the world economy as a whole is depressed because we are in the down phase of a debt supercycle--dealing with a debt overhang.
I have never been able to make enough sense of Rogoff's perspective here to find it convincing.
I should, however, warn people that when I fail to see the point of something that Ken Rogoff has written, the odds are only one in four that I am right. The odds are three in four that he is right, and I have missed something important:
The divide between Democrats and Republicans in the United States in 2016 is best conceptualized as a divide between those who think that an America in which black, brown, yellow, red, etc. people vote is great, and a place in which they have a great deal to gain; and those who think that an America in which black, brown, yellow, red, etc. people vote is no longer great, and is a place in which they have something--maybe not a great deal if they do not have much, but something--to lose.
Let me start with the very sharp Francis Wilkinson's argument that the ressentiment driving the Republican Party today is not class-based--is not the result of the economic disappointments and difficulties suffered by the white working class over the past generation--but rather extends all the way up the income ladder:
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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