Month: April 2015

…where powerful interest groups try to use trade rules to overrule democratically elected governments…. The WTO’s dispute-settlement process… puts pressure on countries to actually keep the promises they make in trade deals…. But the complex, secretive, and anti-democratic way the TPP is being crafted rubs a lot of people the wrong way….

We expect the laws that govern our economic lives will be made in a transparent, representative, and accountable fashion. The TPP negotiation process is none of these — it’s secretive, it’s dominated by powerful insiders, and it provides little opportunity for public input. The Obama administration argues that it’s important for TPP to succeed so that the United States — not China — gets to shape the rules that govern trade across the Pacific. But this argument only makes sense if you believe US negotiators are taking positions that are in the broad interests of the American public. If, as critics contend, USTR’s agenda is heavily tilted toward the interests of a few well-connected interest groups, then the deal may not be good for America at all…

…but also read their expressions. They can classify personality types, and have started being able to carry out conversations with appropriate emotional tenor. Machines are getting better than humans at figuring out who to hire, who’s in a mood to pay a little more for that sweater, and who needs a coupon to nudge them toward a sale. In applications around the world, software is being used to predict whether people are lying, how they feel and whom they’ll vote for. To crack these cognitive and emotional puzzles, computers needed not only sophisticated, efficient algorithms, but also vast amounts of human-generated data, which can now be easily harvested from our digitized world. The results are dazzling. Most of what we think of as expertise, knowledge and intuition is being deconstructed and recreated as an algorithmic competency, fueled by big data. But computers do not just replace humans in the workplace. They shift the balance of power even more in favor of employers….

I recently had a conversation with a call center worker from the Philippines. While trying to solve my minor problem, he needed to get a code from a supervisor. The code didn’t work. A groan escaped his lips: ‘I’m going to lose my job.’ Alarmed, I inquired why. He had done nothing wrong, and it was a small issue.‘It doesn’t matter,’ he said. He was probably right. He is dispensable…. This is the way technology is being used in many workplaces: to reduce the power of humans, and employers’ dependency on them….

Optimists insist that we’ve been here before, during the Industrial Revolution, when machinery replaced manual labor, and all we need is a little more education and better skills. But… one historical example is no guarantee of future events…. It’s easy to imagine an alternate future where advanced machine capabilities are used to empower more of us, rather than control most of us. There will potentially be more time, resources and freedom to share, but only if we change how we do things. We don’t need to reject or blame technology. This problem is not us versus the machines, but between us, as humans, and how we value one another.

…[Noah] Smith notes that they all [pieces of finance]… take savings and turn them into investments…. Size might not be the only relevant question when it comes to the financial sector. The structure and the purpose of the financial system and its constituent parts are important to consider as well. If finance acts like an irrigation system for the broader economy, we need to question not only how big specific pipes are but also where those pipes eventually lead…

…They want inequality, but the good kind, the justified kind. Hence it is plausible that someone could rail against the power of the 1% and yet still get snippy: “They want $15 an hour for flipping burgers?!” The good inequality now would be based on getting a college education, but whether you received that education and the degree of quality would be based solely on your merits and efforts…. It’s weird the directions that meritocracy starts taking you, though. Have you ever noticed how many firm believers in meritocracy seem to assume that taking race into account automatically cuts against a merit-based approached?… Racism was once considered the good kind of inequality. The racial hierarchy… was a reflection of inherent merit. After all, how could whites be so much more powerful if they weren’t somehow better on the ontological level? Those for whom the race-based meritocracy was too crass leaned on the superiority of cultural institutions….

People demonize equality as totalitarian uniformity–hat would look different for different people, and I think it’s fair to say that such a life might contain its share of tedium and toil (rendered more bearable by its being shared and unstigmatized)…. But… it’s worth the effort of trying to figure out the elusive “what it would look like.”

…After deleveraging and borrowing headwinds subside, expected growth trends might prove higher…. The US and perhaps the UK have reached the end of the deleveraging cycle…. The evidence in favour of the debt supercycle view…. The lead up to and aftermath of the 2008 global financial crisis has unfolded like a garden variety post-WWII financial crisis… the magnitude of the housing boom and bust, the huge leverage… the behaviour of equity prices… and certainly the fact that rises in unemployment were far more persistent than after an ordinary recession…. Even the dramatic rises in public debt that occurred after the Crisis are quite characteristic….

Modern macroeconomics has been slow to get to grips with the analytics of how to incorporate debt supercycles…. There has been far too much focus on orthodox policy responses and not enough on heterodox responses that might have been better suited to a crisis greatly amplified by financial market breakdown…. Policymakers should have more vigorously pursued debt write-downs… bank restructuring and recapitalisation…. Central banks were too rigid with their inflation target regimes…. Fiscal policy (one of the instruments of the orthodox response) was initially very helpful in avoiding the worst of the Crisis, but then many countries tightened prematurely….

The debt supercycle model matches up with a couple of hundred years of experience…. The secular stagnation view does not capture the heart attack…. Secular stagnation proponents… argue that only a chronic demand deficiency could be responsible for steadily driving down the global real interest rate…. In a world where regulation has sharply curtailed access for many smaller and riskier borrowers, low sovereign bond yields do not necessarily capture the broader “credit surface” the global economy faces…. The elevated credit surface is partly due to inherent riskiness and slow growth in the post-Crisis economy, but policy has also played a large role….

What are the policy differences between the debt supercycle and secular stagnation view? When it comes to government spending that productively and efficiently enhances future growth, the differences are not first order. With low real interest rates, and large numbers of unemployed (or underemployed) construction workers, good infrastructure projects should offer a much higher rate of return than usual…

I think that this last point is crucial. We have underemployment. We have interest rates on government debt and thus the debt amortization costs of the government far below any plausible rate of return on productive public investments (or, indeed, any plausible social rate of time discount geared to a sensible degree of risk aversion and the trend rate of technological progress). Under such circustances, at least reserve currency-issuing governments with exorbitant privilege should certainly be spending more, taxing less, and borrowing.

There are, however, long-run issues in which the policies recommended by the different diagnoses differ.

• A Minskyite temporary crisis of overleverage and of excessive underwater debt requires debt writedowns and financial-intermediary recapitalizations.
• A Bernanke-Gertler temporary crisis of impaired capital and trust clogging the credit channel requires the building of new financial intermediary institutions with a proper level of capital and with a regulatory structure that promotes trust–and requires extra levels of both regulation and loan guarantees while that trust is rebuilt.
• A Summers secular-stagnation chronic crisis of insufficiently-profitable risk-adjusted investment opportunities requires a shift in responsibility for long-run expenditure from private to government.
• A Bernanke global savings-glut chronic crisis requires shifts in global governnance that reduce incentives to run large trade surpluses and a redistribution of world income to those with lower marginal propensities to save.

And, of course, these four diagnoses overlap–in the long run policies to deal with each chronic crisis configuration overlap as well.

Paul Krugman takes aim at this part of Rogoff’s piece:

for doing what is necessary to keep Greece in the Euro? No. Is there enough goodwill to support a bridging effort to buy time for detailed discussion of how much money Greece needs and how much control the lender countries want to keep? Yes. Is it natural for the Greek side to use that bridging period to create ‘facts on the ground’? Yes. Are the institutions going to let them get away with that? No. That would be my capsule summary.

Because the guts of the political argument are that in the longer term, the lenders need to a) understand that they have to come up with enough budget financing to put Greece back on a sustainable economic path, and write off past debts, and b) to be given confidence that if they provide such financing, it will actually be used to put Greece back onto a sustainable path, rather than spent on propping up clients and passing a few more years in the pretence that the 2007 peak was ‘normality’. And in the short term, the best way of establishing whether b) is true is to find out if the Syriza government are capable of delivering on negotiated promises, or whether they are going to constantly talk about ‘red lines’. So between now and July, we need to find out what the democratic mandate Syriza keeps talking about actually means…

…In the past few weeks, I’ve seen a number of speeches and articles suggesting that the problem lies in the inadequacy of our economic models–that we need to rethink macroeconomic theory, which has failed to offer useful policy guidance in the crisis. But is this really the story?… It’s true that few economists predicted the crisis…. Since then, however… basic textbook models, reflecting an approach to recessions and recoveries that would have seemed familiar to students half a century ago, have performed very well. The trouble is that policy makers in Europe decided to reject those basic models in favor of alternative approaches that were innovative, exciting and completely wrong…. In America, the White House and the Federal Reserve mainly stayed faithful to standard Keynesian economics…. Meanwhile, the Fed ignored ominous warnings that it was ‘debasing the dollar,’ sticking with the view that its low-interest-rate policies wouldn’t cause inflation as long as unemployment remained high.

In Europe, by contrast, policy makers were ready and eager to throw textbook economics out the window in favor of new approaches. The European Commission, headquartered here in Brussels, eagerly seized upon supposed evidence for ‘expansionary austerity’…. But while European policy makers may have imagined that they were showing a praiseworthy openness to new economic ideas, the economists they chose to listen to were those telling them what they wanted to hear. They sought justifications for the harsh policies they were determined, for political and ideological reasons, to impose on debtor nations…. Theory provided excellent guidance, if only policy makers had been willing to listen. Unfortunately, they weren’t. And they still aren’t. If you want to feel really depressed about Europe’s future, read the Op-Ed article by Wolfgang Schäuble…

…Krugman’s latest offers an argument that is a version of Occam’s razor. I don’t agree, but… they are extremely clever, and both have lots of prior experience…. Blanchard makes the following point.  We should aspire to stabilising the economy.  [Surely one can’t argue with that.]  And if we succeed [we might not, but if], and assuming it’s not done perfectly, but just quite well, then the small movements left over will be described well enough with a linear model.  He’s not saying we definitely will be able to bring this about.  Just that we might be able to.  And, if we can, he states a result in words from function approximation, which again is unarguable.  [With the caveat that this small range should not cross over some crucial point of inflection/attraction/repulsion… ]