Month: June 2014

Matthew Yglesias: The deafening silence of “reform conservatives” on climate change: “With climate change policy in the news this week…

…I thought I might take the time to broaden my horizons by checking out the energy policy ideas contained in a recent policy book Room to Grow published by the YG Network… widely hailed as representing the best, freshest conservative thinking… “evidence that conservatism may be experiencing an intellectual resurgence as well as a political one.” On climate, as it happens, it has nothing to say. They don’t mount an argument that the scientific consensus on anthropogenic global warming is mistaken. They don’t mount an argument that despite the scientific consensus, inaction is nonetheless the right policy. They don’t mention it at all. Not even as something their political opponents wrongly care about.

The thought process that ended with this approach is easy enough to understand. Whether climate change is a massive conspiracy orchestrated by Al Gore, 99 percent of scientists, and a dazzling array of foreign governments or a genuine problem is hotly debated inside the conservative movement. Whether or not fossil-fuel producers should be hampered in their activities by regulatory concern about pollution, by contrast, is not controversial. For smart, up-and-coming conservatives to mention climate change, they would have to pick a side on the controversial issue. Do they sound like rubes by siding with the conspiracy theorists, or do they alienate the rubes by acknowledging the basic facts and the coming up with some other reason to favor inaction? The optimal choice is not to choose…. Of course one does not expect conservatives to endorse liberals’ approaches to these issues or even necessarily to share their concerns. But discussing energy policy without even using the words “climate change” or “global warming” makes nonsense of the actual political debate… makes it impossible to to try to think of compromises or constructive areas for joint action…. Just a few years ago, the GOP’s presidential nominee, John McCain, ran on a fairly robust climate change platform. Now even the most forward-thinking elements of the conservative coalition have simply disappeared the issue from the agenda.

Alex Tabarrok: Depreciating Capital: “There are no contradictions [in Piketty]…

..but many a slip ‘twixt the cup and the lip. Namely, will [n+]g fall? If [n+]g does fall, will K/Y increase? If K/Y increases will capital’s share of income increase? My answers: Will [n+]g fall? Uncertain. Piketty’s forecast is as good as anyone’s…. If g does fall, will K/Y increase? Yes, but probably less than Piketty estimates and more in line with Solow. If K/Y increases will capital’s share of income increase? Uncertain but more likely no than yes. It depends on the elasticity of substitution between K and L and as Rognlie and Summers argue, the elasticity that Piketty needs is higher than current estimates suggest is the case…

Per Krusell II

So I wrote this on Friday, and put it aside because I feared that it might be intemperate, and I do not want to post intemperate things in this space.

Today, Sunday, I cannot see a thing I want to change–save that I am, once again, disappointed by the quality of critics of Piketty: please step up your game, people!

In response to my Department of “Huh?!”–I Don’t Understand More and More of Piketty’s Critics: Per Krusell and Tony Smith, Per Krusell unfortunately writes:

Brad DeLong has written an aggressive answer to our short note…. Worry about increasing inequality… is no excuse for [Thomas Piketty’s] using inadequate methodology or misleading arguments…. We provided an example calculation where we assigned values to parameters—among them the rate of depreciation. DeLong’s main point is that the [10%] rate we are using is too high…. Our main quantitative points are robust to rates that are considerably lower…. DeLong’s main point is a detail in an example aimed mainly, it seems, at discrediting us by making us look like incompetent macroeconomists. He does not even comment on our main point; maybe he hopes that his point about the depreciation rate will draw attention away from the main point. Too bad if that happens, but what can we do…

Let me assure one and all that I focused–and focus–on the depreciation assumption because it is an important and central assumption. It plays a very large role in whether reductions in trend real GDP growth rates (and shifts in the incentive to save driven by shifts in tax regimes, revolutionary confiscation probabilities, and war) can plausibly drive large shifts in wealth-to-annual-income ratios. The intention is not to distract with inessentials. The attention is to focus attention on what is a key factor, as is well-understood by anyone who has control over their use of the Solow growth model.

Consider the Solow growth model Krusell and Smith deploy, calibrated to what Piketty thinks of as typical values for the 1914-80 Social Democratic Era: a population trend growth rate n=1%/yr, a labor-productivity trend growth rate g=2%/yr, W/Y=3. Adding in the Krusell-Smith depreciation assumption of 10%/yr means (always assuming I have not made any arithmetic errors in https://www.icloud.com/iw/#numbers/BAJQ8MCS-CfQAKyIcIOBR6yniZzZlgmFu3qF/20140606_Krusell-Smith_Comment.numbers) that a fall in n+g from 3%/yr to 1%/yr holding the gross savings rate constant generates a rise in the steady-state wealth-to-annual-net-income ratio from 3 to 3.75–not a very big jump for a very large shift in economic growth: the total rate of growth n+g has fallen by 2/3, but W/Y has only jumped by a quarter. Adopting a less ludicrously-awry “Piketty” depreciation assumption of 3%/yr generates quantitatively (and qualitatively!) different results: a rise in the steady-state wealth-to-annual-net-income ratio from 3 to 4.708–the channel is more than twice has powerful.

We have a very large drop in Piketty’s calculations of northwest European economy-wide wealth-to-annual-net-income ratios from the Belle Époque Era that ended in 1914 to the Social Democratic Era of 1914-1980 to account for. How would we account for this other than by (a) reduced incentives for wealthholders to save and reinvest and (b) shifts in trend rates of population and labor-productivity growth? We are now in a new era, with rising wealth-to-annual-net-income ratios. We would like to be able to forecast how far W/Y will rise given the expected evolution of demography and technology and given expectations about incentives for wealthholders to save and reinvest.

How do Krusell and Smith aid us in our quest to do that?

Paul Krugman: The War on Coal Already Happened: “I’m trying to pull together some thoughts about interests and ideology…

…in the fight over climate policies, and found myself wondering what exactly is at stake in the supposed “war on coal”…. There used to be a lot of coal miners, but not any more…. It’s a job that was destroyed by technology long ago…. So what is this fight about?… Capital invested in coal and coal-related stuff, hiding behind the pretense of caring about the workers. And there’s also ideology…. But the war on coal already happened, it had nothing to do with liberals and environmentalists, and coal lost…

Nouriel Roubini: The Great Backlash: “In the immediate aftermath of… 2008…

…policymakers’ success in preventing… into Great Depression II held in check demands for protectionist and inward-looking measures. But now the backlash against globalization… has arrived. This new nationalism… trade barriers, asset protection, reaction against foreign direct investment, policies favoring domestic workers and firms, anti-immigration measures, state capitalism, and resource nationalism… populist, anti-globalization, anti-immigration… outright racist and anti-Semitic parties…. The main causes of these trends are clear. Anemic economic recovery has provided an opening for populist parties, promoting protectionist policies, to blame foreign trade and foreign workers for the prolonged malaise. Add to this the rise in income and wealth inequality in most countries, and it is no wonder that the perception of a winner-take-all economy that benefits only elites and distorts the political system has become widespread…

Should-Reads:

1. Max Auffhammer: The Yoga Theorem: “With yesterday’s historical release of the EPA’s new carbon emissions policy, I took an extra day to comb through and digest the news. I have organized my intermediate microeconomics class around something called the ‘Yoga Theorem’. This almost universal truth states that the less flexible you are, the more you will suffer. It holds in a very large number of settings (e.g., tax incidence, market power). Yesterday, the Obama administration… turned up the heat on existing coal fired power plants. This is big news. Almost 40% of energy related US CO2 emissions come from power generation and the new rule will cut these emissions by 30%…. As far as standards are concerned, there is a lot to like about the new rule…. Instead of prescribing what states have to do to meet these standards, there are a number of flexibility mechanisms…. While I applaud the Obama administration for this very smart piece of regulation in a world where the right side of the aisle is hostile to least-cost, market-based approaches, I am concerned that this will do little to move the countries that matter to act in a significant way. China, one day after the new rule was published, signaled that it is likely to put a total cap on carbon emissions–not just the carbon intensity of GDP. We will find out soon whether the negotiating strategies of the LDCs will change at the all important Paris meeting of the parties and how big that Chinese cap is. I am certain that this new rule is part of a solution, but by no means the last word in mitigation policy. We need to do much more. And very soon.”

2. Josh Bivens et al.: Raising America’s Pay: Why It’s Our Central Economic Policy Challengee: “The failure of wages to grow for the vast majority is the leading reason why progress in reducing poverty has stalled over the last three-and-a-half decades. Wage-driven inequality has severed the link between poverty reduction and overall economic growth…. From 1979 to 2012, the impact of rising inequality was nearly five times more important in explaining poverty trends than changes in family structure, while rising educational attainment of low-wage workers actually put downward pressure on the poverty rate over that time. Wage growth is key to poverty reduction: The bottom fifth of non-elderly American households relied on work-related income (wages, benefits, and wage-based tax credits) for more than two-thirds (69.7 percent) of their total incomes in 2010…”

Should Be Aware of:

• Jason Furman: Global Lessons for Inclusive Growth
• Peter Beinart: How he came to regret his pro-war stance
• Cullen S. Hendrix and Marcus Noland: Confronting the Curse: The Economics and Geopolitics of Natural Resource Governance
• Tim Worstall: Marc Andreessen Is Right About Trickle Down As Apple’s iPhone And The $20 Android Prove
• • Re/code
• Larry Fink: Want to Be A Better Investor? Tune Out the Noise
• Marco Lombardi and Feng Zhu: A shadow policy rate to calibrate US monetary policy at the zero lower bound
• John Jacobi: Ensuring Successful Health-Care Reform Follow-Through, Part 2: Affordability
• Lili Loofbourow: Louie, Season 4: “Elevator, Part 6” and “Pamela, Part 1”

And:

1. James Fallows: Prisoners of Knowledge: “It was the most exultantly pro-war that I can recall. The prevailing mood was a William Randolph Hearst–type production. It was not just disagreement on the merits of doing this, it was dismissive ridicule of the weakness of the people who weren’t with the program. [If you were against the war] it was a sign that you shrank reflexively from the use of force, that you were a symptom of America’s long slouch into fearfulness around the world, that you were dismissive of the moral claims of the Kurds or others in Iraq. If you were tough as a thinker and decision-maker, if you were brave about America’s role in the world, and if you were properly sensitive to the moral claims of the people Saddam Hussein had abused, then the logic of history and the times led you not to just support the war, but to embrace it…. The editorial page of the Washington Post… was stridently pro-war and has never reflected on that…. I’ve never seen any introspection from them. They were the only major publication that on the ten-year anniversary didn’t have any look-back.”

2. Ashok Rao: This is Ashok: “I think this only further implicates the European elite by serving a certain ‘German perspective’ that requires such a deep prior that any and all monetary stimulus is always and everywhere evil. And while journalists are responsible for their audience, they are also beholden to the truth: and at least given what I know the perspective peddled in this interview is an unfair representation of reality. To a layman reading the interview, the tone is dominated not necessarily by the clarity of Praet’s thought, but the forceful austerity of Schieritz’ question…”

3. Catherine Garcia: A decade later, woman blamed for fiancé’s death discovers it was caused by faulty GM part: “For almost 10 years, Candice Anderson blamed herself for the car accident that killed her fiancé, Mikale Erickson. But in May, she found out that GM has linked his death to a faulty ignition switch…. Anderson told CBS News that in November 2004, the Saturn Ion she was driving in Canton, Texas, went off the road. The airbags did not deploy and there were no skid marks or any other obvious clues as to what had happened. Anderson barely survived, and was found with a small amount of anti-anxiety drugs in her system. She was charged with manslaughter and pleaded guilty to criminal negligent homicide. ‘It’s been a question if I was at fault for his death, and I’ve carried it for so long’, she told CBS News. In May, Anderson and Mikale’s mother, Rhonda Erickson, heard that Mikale’s death was one of 13 GM linked to the faulty ignition switch, a fact confirmed by the National Highway Traffic Safety Administration. The women say they have yet to hear from GM. ‘I think they owe me an apology’, Erickson said. ‘They can’t give me back my son. But, I mean, they could at least give me an apology’.” She would also like to see Anderson’s record cleared.”

4. Brian Buetler: Republican Bergdahl Overreach Will Backfire: “The original sin was to crosswire the question of the propriety of the administration’s communication strategy with the issues surrounding the quality of the deal that secured his release. The answer to the former hinges on the conduct of the soldier himself. If Bergdahl was a deserter, he didn’t deserve a hero’s welcome. But conservatives decided to lace the debate over the terms of his rescue with doubts about his worthiness. The proposition of trading terrorists for a traitor isn’t cursed with nuance. On the basis of third party testimonials, they rendered a verdict on his conduct; and on the basis of that verdict they concluded his rescue was misbegotten, turning the “leave no man behind” ethos on its head…”

Already-Noted Must-Reads:

1. Jared Bernstein: Where’s the Automation in the Productivity Accounts?: “The pace of productivity growth has decelerated…. There’s considerable speculation that the pace at which machines are displacing workers has accelerated…. The robots-are-coming advocates need to explain why a phenomenon that should be associated with accelerating productivity is allegedly occurring over a fairly protracted period where the trend in output per hour is going the other way. A shave with Occam’s razor would lead one to conclude that over this weak expansion characterized by large output gaps, a simpler explanation for decelerating productivity would be weak demand and its corollary, weak capital investment…. Until someone can convince me what’s wrong with the above argument, I don’t want to hear that automation-induced productivity gains are precluding full employment. The problem isn’t productivity; it’s negligent policy.”

2. Ezra Klein: 7 reasons America will fail on climate change: “I don’t believe the United States or the world… will do nearly enough, nearly fast enough, to hold the rise in temperatures to safe levels. I think we’re fucked. Or, at the least, I think our grandchildren are fucked…. 1) We’ve waited so long that what America needs to do is really, really hard — and maybe impossible: In the early 1990s, scientists converged on 2°C…. We’ve waited so long to begin cutting emissions that two degrees looks flatly impossible. We’re on track for 4°C of warming…. The question isn’t whether we’ll fail. It’s how badly we’ll fail…. 2) The people most affected by climate change don’t get a vote: This map… the US… is one of the countries least affected by global warming…. Carbon emissions disproportionately benefit the US and disproportionately harm countries that are not the US…. 3) We’re bad at sacrificing now to benefit later…. 4) The effects of global warming are not easily reversible…. 5) The Republican Party has gone off the rails on climate change…. 6) The international cooperation required is unprecedented, and maybe impossible…. 7) Geoengineering is nuts…. Not to be a killjoy, but it’s hard to believe that the consequences of the huge, unpredictable changes to the global climate can be safely reversed by further efforts to make huge, unpredictable changes to the climate. So what now?… I could make up a more optimistic story. I just don’t believe it…. On climate change, the truth has gone from inconvenient to awful. Right now we’re failing our future. And we will be judged harshly for it.”

3. Paul Krugman: Energy Choices: “Nate Silver got a lot of grief when he chose Roger Pielke Jr., of all people, to write about environment for the new 538. Pielke is regarded among climate scientists as a concern troll – someone who pretends to be open-minded, but is actually committed to undermining the case for emissions limits any way he can. But is this fair? Well, I’m happy to report that Pielke has a letter… that abundantly confirms his bad reputation…”

4. Cardiff Garcia: Routinous, Rouinous: “The chart comes via this recent note from the Dallas Fed, and the theme will be familiar to those who have read the earlier work of Frank Levy, Richard Murname, and David Autor…. These were mainly middle-income jobs, and as their share of the work force declined, the nonroutine jobs at opposite ends of the wage spectrum–nonroutine cognitive and manual jobs — replaced them…. Another worry is that even jobs that were once considered impossible to automate because of their distinctly ‘human’ qualities might themselves be vulnerable…. Food service and retail jobs are being replaced by kiosks. Machine intelligence is already changing the legal industry. Robots will take over some pattern recognition duties and surgery from doctors. Driverless cars will replace long-distance truck drivers…. What is nonroutine to a human will one day be (by definition?) routine to a machine…”

5. Joe Romm: 7 Reasons America Should Succeed On Climate Change: “1. What America and the world needs to do is really, really cheap economically, as key clean technologies plummet in cost…. 2. All of the people who get a vote are severely affected by climate change…. 3. We’re sometimes very good at sacrificing now to benefit later (and to benefit others)…. 4. There NEVER will be a time when aggressive climate action is not the best strategy for everyone….

6. The Republican Party has gone so far off the rails on climate change that it is triggering a backlash…. 6. The international cooperation required is unprecedented, but the key country for a treaty, China, is on a path toward capping its carbon emissions…. 7. Geoengineering is nuts…”

Joe Romm: 7 Reasons America Should Succeed On Climate Change: “1. What America and the world needs to do is…

…really, really cheap economically, as key clean technologies plummet in cost…. 2. All of the people who get a vote are severely affected by climate change…. 3. We’re sometimes very good at sacrificing now to benefit later (and to benefit others)…. 4. There NEVER will be a time when aggressive climate action is not the best strategy for everyone….
5. The Republican Party has gone so far off the rails on climate change that it is triggering a backlash…. 6. The international cooperation required is unprecedented, but the key country for a treaty, China, is on a path toward capping its carbon emissions…. 7. Geoengineering is nuts…

There has been very little recovery of the employment share from its business-cycle nadir trough. Very little. And it isn’t happening now.

Fromhttp://www.bls.gov/:

Two-thirds of the 1.2%-point reduction in the unemployment rate in the past year comes from a further decline in labor-force participation; only one-third comes from an increase in the employment-to-population ratio:

Nominal wages today are 2.05% above their level of last year–and with a 2%/year trend rate of labor-productivity growth, that means that the rate of inflation consistent with a stable labor share of income is 0.05%. There is no inflation pressure on this economy at all save for pressure exerted by widening inequality, and damned little of that: