## EG: Aggregate Effects of Budget Stimulus: Evidence from the Large Fiscal Expansions Database | PIIE

EG: Jérémie Cohen-Setton, Egor Gornostay, and Colombe Ladreit de Lacharrière: Aggregate Effects of Budget Stimulus: Evidence from the Large Fiscal Expansions Database: "This paper estimates the effects of fiscal stimulus on economic activity using a novel database on large fiscal expansions for 17 OECD countries for the period 1960–2006. The database is constructed by combining the statistical approach to identifying large shifts in fiscal policy with narrative evidence from contemporaneous policy documents. When correctly identified, large fiscal stimulus packages are found to have strong and persistent expansionary effects on economic activity, with a multiplier of 1 or above. The effects of stimulus are largest in slumps and smallest in booms https://delong.typepad.com/lfe_database.zip...

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Olivier Blanchard and Jeromin Zettelmeyer believe that Italy right now is one of those rare cases in which fiscal expansion is likely to be contractionary: Olivier Blanchard and Jeromin Zettelmeyer: The Italian Budget: A Case of Contractionary Fiscal Expansion?: "Putting fiscal multiplier effects and contractionary interest rate effects together—and being generous about the size of the multiplier and conservative about the effect of the interest rate increase—arithmetic suggests that the total effect on growth will be 0.8 * 1.5 – 0.8 * 1.6 ≈ –0.1... [with] risks are skewed to the downside. This means that the planned fiscal expansion will probably fail to increase growth—and may even reduce it. The deficit will come in larger than predicted. Supporters of the government will be disappointed. The government may double down, and investors may flee, leading to a serious crisis. It is possible that Italy will suffer a debt run before it even gets a chance to implement its expansionary budget...

Economist: Britain’s Brexit Debate Regresses to 2016: The Tory Time Warp: "Jeremy Hunt and Boris Johnson make much of their Trump-like dealmaking ability.... Red lines of leaving the single market, customs union and European Court of Justice... threatening to walk away with no deal is the best way to extract further concessions from Brussels... adamant that they can get Brexit done by October 31st.... The list of implausible Tory claims is long, including old assertions that Britain holds all the cards in the negotiation, that what is needed is simply more determination, that the EU is desperate for Britain’s money and that a new prime minister can bypass Brussels and deal directly with Berlin and Paris. Equally unbelievable arguments are made about trade. German carmakers and Italian vintners need the British market, it is claimed. Because Britain runs a trade deficit in goods, no-deal would do more damage to the eu. A fall in the pound would offset any tariffs. Most of the world trades on WTO terms, so Britain would be fine doing the same. As for Ireland, the two governments can agree bilaterally not to impose a hard border with customs controls.... The truth about power and red lines is less forgiving.... A shift of Brexit talk towards the extreme, epitomised by the two candidates’ embrace of no-deal. The linguistic changes are telling. Mrs May’s deal used to be termed a 'hard' Brexit, as it would take Britain out of the single market and customs union. Now it is widely derided as 'Brexit in name only'.... Although most Tory party members like the sound of a no-deal Brexit, a majority of mps and voters are firmly against it. Manoeuvring round all these obstacles would test any prime minister, never mind one who still believes old myths from 2016.

Kim England and Kate Boyer: Women's Work: The Feminization and Shifting Meanings of Clerical Work: "Up to about the 1940s clerical work illustrated a story of women's expansion into the wage-labor market, and the coding of office work as a good respectable job for (certain kinds of) women: notably young, white, educated women prior to marriage. By the middle third of the twentieth century clerical work became an increasingly important source of income for married women. By this time clerical work was emblematic of women's waged work, and provided a primary source of income for women who were single as well married, including a small but growing number of women of color...

Few people today want to say "Uber is a bad investment". But its track record of no signs of convergence to profitability gives nobody any reason to believe that it is a good investment. And its prospectus and other documents gives nobody any reason to believe that it is a good investment either. Surely if it were to be a good investment, there would be something you could point to suggesting that it is? I find myself puzzled it has gotten this far—not that ridesharing does not promise to be a sustainable productive activity, but that is a very different question from whether ridesharing will be a wildly profitable activity for the first mover. I think Uber is probably a societal plus: a little creative destruction in taxis and a little destruction of monopoly medallion value is a good thing, plus there is a transfer from rich investors to middle-class riders and working-class drivers. But a good investment going forward? What is the road to pumping value equivalent to a flow of 3.5 billion a year starting now out of the system through control of the hailing-and-billing website?: Ben Thompson: Uber’s Rocky IPO, What Went Wrong, The Perils of Private: "I think the private funding model that Uber pioneered, which puts off going public for years, is terrible for nearly all of the relevant stakeholders.... The private investment market is bad for private investors... dramatically less oversight and accountability.... Most importantly, I think that these private investment rounds are bad for the companies themselves. Being able to attract investors on a vision is a wonderful thing when a company is small, and something that makes Silicon Valley great. Being able to do so when a company is large is a recipe for a lack of discipline and a dismissal of economic realities.... The only way to use the proceeds of such a large round is to take on massive operating losses. Historically, as a company neared an IPO level of revenues (say $50-$100mm), investors would expect convergence toward profitability. As these late-stage private companies digest these large fund raises, they are pushing profitability further and further into the future, as well as the proof that their business model actually works. Let me be clear: I am not saying that Uber is a bad investment. I am reiterating the fact that I don’t know, and that I believe that extremely large late-stage rounds not only denied me that knowledge, but very well may have denied that knowledge to Uber itself...

## A Year Ago on Equitable Growth: Twenty Worthy Reads from the Past Week or so: July 19, 2018

Worthy Reads on and from Equitable Growth:

1. Here is the website for Zucman, Wier, and Torslavon's work on missing profits from tax avoidance and tax evasion (yes, I have decided I should spend some time occasionally listing paper authors in reverse alphabetical order): Gabriel Zucman et al.: The Missing Profits of Nations: [Working paper][1], June 2018. [Online appendix][2], June 2018. [Presentation slides][3], June 2018...

2. I have not yet welcomed the extremely sharp Kate Bahn to Equitable Growth: Equitable Growth: Kate Bahn: "Her areas of research include gender, race, and ethnicity in the labor market, care work, and monopsonistic labor markets.... She was an economist at the Center for American Progress. Bahn also serves as the executive vice president and secretary for the International Association for Feminist Economics.... She received her doctorate in economics from the New School... and her Bachelor of Arts... from Hampshire...

3. Wealth inequality measures have been grossly understating concentration because of tax evasion and tax avoidance in tax havens: Annette Alstadsæter, Niels Johannesen, and GabrielZucman: Who owns the wealth in tax havens? Macro evidence and implications for global inequality: "This paper estimates the amount of household wealth owned by each country in offshore tax havens...

4. The "optimal tax" literature in economics has always been greatly distorted by the fact that models simple enough to solve bring with them lots of baggage that leads to misleading—and usually anti-egalitarian and anti-equitable growth—conclusions that would not follow if we had better control over our theories. Here Saez and Stantcheva make significant progress in resolving this problem: Emmanuel Saez and Stefanie Stantcheva: A simpler theory of optimal capital taxation: "We first consider a simple model with utility functions linear in consumption and featuring heterogeneous utility for wealth..

5. Very much worth reading from Equitable Growth alum Nick Bunker: Nick Bunker: Puzzling over U.S. wage growth: "Hiring has not been particularly strong during this recovery...

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Martin Wolf: China Vattles the US in the Artificial Intelligence Arms Race: "What counts is implementation not innovation, and here the Chinese have big advantages.... Kai-Fu Lee.... China has scale... more internet users than the US and Europe combined... a supportive government... [with] ambitious goals... build complementary infrastructure.... Lee distinguishes four aspects of AI: 'internet AI'—the AI that tracks what you do on the internet; 'business AI'—the AI that allows businesses to exploit their data better; 'perception AI'—the AI that sees the world around it; and 'autonomous AI'—the AI that interacts with us in the real world. At present, he thinks China is equal to the US in the first, vastly behind in the second, a little ahead in the third, and, again, far behind in the fourth. But five years from now, he thinks, China might be a little ahead in the first, less far behind in the second, well ahead in the third and equal in the last...

Kevin Drum: Liberals Need to Be Lincolnesque In Our Latest Race War: "The entire Republican Party is now all-in on this strategy. They mostly stay quiet themselves and let Trump himself do the dirty work, but that’s enough. Nobody talks anymore about reaching out to the black community with a spirit of caring or any other spirit. Nor is there anything the rest of us can do about this. Republicans believe that wrecking the fabric of the country is their only hope of staying in power, and they’re right. If working-class whites abandon them even a little bit, they’re toast. So all we can do is try to crush them. What other options are there?... Liberals need to be as Lincolnesque as possible in this endeavor—we don’t have to win the votes of unrepentent bigots, just the fretful fence-sitters—but we also need to be Lincolnesque in our commitment to winning America’s latest race war...

Sean Gallagher: The Fourth Industrial Revolution Emerges from AI and the Internet of Things: "IoT has arrived on the factory floor with the force of Kool-Aid Man exploding through walls.... Smart, cheap, sensor-laden devices paired with powerful analytics and algorithms have been changing the industrial world.... Companies are seeing more precise, higher quality manufacturing with lowered operational costs; less downtime because of predictive maintenance and intelligence in the supply chain; and fewer injuries on factory floors because of more adaptable equipment. And outside of the factory, other industries could benefit from having a nervous system of sensors, analytics to process 'lakes' of data, and just-in-time responses to emergent issues—aviation, energy, logistics, and many other businesses that rely on reliable, predictable things could also get a boost. But the new way comes with significant challenges, not the least of which are the security and resilience of the networked nervous systems stitching all this new magic together.... And then there's always that whole 'robots are stealing our jobs' thing. (The truth is much more complicated—and we'll touch on it later this week)...

This paper seems to rest on a distinction between "removing inefficiencies" and "transformational growth" that they do not theorize, yet should. That very few of those countries that have grown faster than the North Atlantic economies over the past two decades are on anything like Korea's trajectory is surely true. But why not? Why doesn't the removal of one inefficiency lead to a chain-reaction removal of others?:

Paul Johnson and Chris Papageorgiou: It’s too Soon for Optimism about Convergence : "The recent wave of growth in several developing economies has led to many analysts to claim that poorer countries are catching up with advanced economies. This column argues that, with the exception of a few countries in Asia which exhibited transformational growth, most of the economic achievements in developing economies have been the result of removing inefficiencies which are merely one-off level effects. While these effects are not unimportant and are necessary in the process of development, they do not imply ongoing economic growth...

Robert Bork and his ilk managed to set antitrust on a destructive path, and we badly need to recover somehow: Jonathan B. Baker: The Antitrust Paradigm: "At a time when tech giants have amassed vast market power, Jonathan Baker shows how laws and regulations can be updated to ensure more competition. The sooner courts and antitrust enforcement agencies stop listening to the Chicago school and start paying attention to modern economics, the sooner Americans will reap the benefits of competition...

Note that even if gentrification were to raise housing demand by as much as housing supply—which is not the case—note that the general-equilibrium effects are enormously beneficial: much less pressure on non-gentrifying neighborhoods, and much larger increase in the tax base to support urban services:

Brian James Asquith, Evan Mast, and Davin Reed: Does Luxury Housing Construction Increase Nearby Rents?: "There are many plausible mechanisms by which an increased concentration of wealthy households could make a neighborhood more attractive.... We study induced demand near new apartment complexes in gentrifying areas using listing-level data on rental prices from Zillow and exact household migration data from Infutor... difference-in-differences.... In neighborhoods where new apartment complexes were completed between 2014-2016, rents in existing units near the new apartments declined relative to neighborhoods that did not see new construction until 2018. Changes in in-migration appear to drive this result. Although the total number of migrants from high-income neighborhoods to the new construction neighborhoods increases after the new units are completed, the number of high-income arrivals to previously existing units actually decreases, as the new units absorb a substantial portion of these households. On the whole, our results suggest that—on average and in the short-run—new construction lowers rents in gentrifying neighborhoods...

## Liveblogging: The Anglo-Saxon Chronicle:

The Anglo-Saxon Chronicle (J.A. Giles and J. Ingram trans.): __: "A.D. 616. This year died Ethelbert, king of Kent, the first of English kings that received baptism: he was the son of Ermenric. He reigned fifty-six winters, and was succeeded by his son Eadbald. And in this same year had elapsed from the beginning of the world five thousand six hundred and eighteen winters. This Eadbald renounced his baptism, and lived in a heathen manner; so that he took to wife the relict of his father...

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Scott Lemieux: The Real Victims: "I’m not sure it’s scientifically possible to build a violin small enough to accompany this story: 'Jacqueline Sackler was fed up. HBO’s John Oliver would soon use his TV show to pillory her family, the clan that owns Purdue Pharma, the maker of OxyContin. In a nearly 15-minute Sunday-night segment, he joined a long line of people who blamed the Sacklers in part for the nation’s opioid crisis. Before the show aired, Ms. Sackler, who is married to a son of a company co-founder, emailed her in-laws, lawyers and advisers. “This situation is destroying our work, our friendships, our reputation and our ability to function in society,” she wrote. “And worse, it dooms my children. How is my son supposed to apply to high school in September?”'...

Gideon Rachman: Boris Johnson, ‘Cakeism’ and the Blitz Spirit : "If Boris Johnson’s name is ever linked to a political idea, it is likely to be “cakeism” — the notion that it is possible to govern without making hard choices. Mr Johnson’s famous remark that, when it comes to cake, he is 'pro having it and pro eating it too' has defined his approach to Brexit.... It feels, at times, as if Britain is preparing psychologically for adversity. Certainly, in casual conversations I have heard older Leavers suggest that self-indulgent millennials could benefit from the shock of learning to live without avocados and just-in-time deliveries.... If the cake hits the fan after a Johnson government had forced through a bitterly contested no-deal Brexit, the new prime minister will not be leading a united nation.... He would risk ending up as a British version of Marie Antoinette — a French queen, infamous for an ill-advised remark about cake, who met a sticky end...

## Jo Walton: The Spearpoint Theory: The Dyer of Lorbanery: Weekend Reading

Jo Walton: The Dyer of Lorbanery (Spearpoint Theory): "There comes a point in writing, and it’s a spear-point, it’s very small and sharp but because it’s backed by the length and weight of a whole spear and a whole strong person pushing it, it’s a point that goes in a long way. Spearpoints need all that behind them, or they don’t pack their punch in the same way. Examples are difficult to give because spear-points by their nature require their context, and spoilers. They tend to be moments of poignancy and realization. When Duncan picks the branches when passing through trees, he’s just getting a disguise, but we the audience suddenly understand how Birnam Wood shall come to Dunsinane...

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I am swinging around to the position that private pharmaceutical companies have no role in a well-functioning health-care system. The efficiency losses from private property in what is a public good plus a few cents' worth of ingredients are enormous. And the efficiency loss from behavioral grifts on patients by drug companies appear to me to be likely to be even greater. So I am on the point of condemning Michael Kades's aggressive pharmaceutical competition agenda as an inadequate halfway house:

Michael Kades: To Combat Rising U.S. Prescription Drug Prices, Let’s Try Competition: "Let’s look at the variety of problems with anti-competitive practices engaged in by U.S. pharmaceutical companies. Take ViroPharma Inc. When faced with the possibility that the U.S. Food and Drug Administration would approve generic versions of its Vancocin product (a drug to treat a potentially life-threatening gastrointestinal infection), the company filed 43 petitions to delay or prevent generic approval. Although none were successful on the merits, it took years before the FDA approved any generic competitors. The Federal Trade Commission alleged the strategy increased costs by hundreds of millions of dollars...

If you missed Alyssa Fisher here on automatic stabilizers last May, go back and reread it: Alyssa Fisher: Planning for the Next Recession by Reforming U.S. Macroeconomic Policy Automatic Stabilizers: "Six big idea... to be triggered when the economy shows clear, proven signs of heading into a recession...... Gabriel Chodorow-Reich... and... John Coglianese... propose to expand eligibility for Unemployment Insurance and encourage take-up.... Jason Furman and Wilson Powell III... aim to reduce state budget shortfalls during recessions... by increasing the federal matching rate for Medicaid and the Children’s Health Insurance Program.... Hilary Hoynes... and... Diane Whitmore Schanzenbach... propose to limit or eliminate work requirements for supplemental nutrition assistance during recessions.... Indivar Dutta-Gupta... proposes a countercyclical stabilization program through... Temporary Assistance for Needy Families.... Andrew Haughwout... proposes an automatic infrastructure investment program.... Claudia Sahm... proposes to boost consumer spending during recessions by creating a system of direct stimulus payments to individuals...

Paul Krugman: After Draghi: "Europe’s overall performance since the 2008 crisis has been better than I believe most U.S. observers realize. The big problem now, I’d say, is the extreme fragility of Europe with respect to any future shocks. In the years since Draghi came in, the euro area has done surprisingly well in restoring growth and regaining employment losses. But this success rests on extremely low interest rates and an undervalued euro. What this means is that Europe has essentially no “monetary space”–there is nothing more it can do if something goes wrong. If there’s a Chinese recession, or Trump slaps tariffs on German cars, or whatever, what can Europe do? The ECB can’t significantly ease monetary policy. Fiscal expansion could help, but it would have to be led by Germany, which seems implausible...

From one and a half years ago, a primer on what tax distribution tables are good for from Equitable Growth's newly-anointed chief economist: Greg Leiserson: If U.S. Tax Reform Delivers Equitable Growth, a Distribution Table Will Show It: "Distribution tables—estimates of who wins and who loses from changes in tax law—are central to any debate about tax reform. Such analyses frequently show the plans put forward by Republican politicians to be severely regressive, delivering large income gains for high-income families and little for the overwhelming majority of families. The blueprint for tax reform released by House Republicans in 2016, for example, would increase after-tax incomes for the top 1 percent of families by 13 percent in the first year after enactment but would increase incomes for the bottom 95 percent of families by less than half of 1 percent...

Disruption in Dingolfing. The network of knowledge and machinery that has developed and built the world-class internal-combustion engines of BMW over the past three-quarters of a century has been a tremendously valuable economic asset. But its societal value will be zero in a very few short years, if it is not already zero:

Elisabeth Behrmann: Twilight of Combustion Engine Comes for Germany: "The completed combustion engine fitted into a BMW M5 is a 1,200-piece puzzle that weighs more than 181 kg (400 pounds). There are about 150 moving parts whose interlocking precision can catapult a six-figure sports car to 97 kph (60 mph) in 3.3 seconds. The engine... has come together from a web of hundreds of suppliers and many, many hands. The electric-vehicle motor... is... light enough for a single person to lift... just two dozen parts... lacking an exhaust, transmission, or fuel tank. The battery cells themselves are mostly an industrial commodity.... No one brags about the unique power of BMW's electric drivetrain. Yet, this slight battery-driven motor can outgun the combustion engine in BMW's fastest performance car from a standstill at a traffic light. The fact that both combustion engines and electric motors find themselves inside the same 18,000-person complex in Dingolfing, BMW's largest in Europe, makes it a microcosm of a shift overtaking automakers the world over...

## Titus Livius: The Latin War: The History of Rome: Weekend Reading

Weekend Reading: Titus Livius: The Latin War: The History of Rome: "The consuls now were Caius Plautius a second time, and Lucius Æmilius Mamercinus; when the people of Setia and Norba came to Rome to announce the revolt of the Privernians, with complaints of the damages received by them. News were brought that the army of the Volscians, under the guidance of the people of Antium, had taken post at Satricum...

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I confess that the normal thing to do would be to give the 737MAX a de novo safety review, which it would flunk, and then shut down the value chain. Let Airbus have the business. But there is a large margin of safety in commercial aviation. And with the value chain setup, more planes can now be made cheap. Plus there are those planes already made now on the ground.

I do not know what I would do if I were king of the world:

David Fickling: Boeing's 737 Max Defense Is Poor Crisis Management: "We can expect Boeing Co.’s treatment of its two 737 Max crashes to join the syllabus–as an example of what not to do. Engineers at the planemaker discovered problems with the aircraft’s angle-of-attack sensors within months of the model’s first delivery, but didn’t share its findings with airlines, regulators or even senior management until much later, the company said Sunday. That we’re still getting incomplete details of the situation–almost two years after the problems were first found, and six months after the Lion Air crash last October that brought it to wider attention–is an almost perfect inversion of the Tylenol lesson...