Category: Equitablog

Should-Read: Jared Bernstein: Clashing with the Fed: Should they stay or should they go?

Posted on by Brad DeLong

Should-Read: The very sharp Jared Bernstein swings and misses…

Of his five reasons for raising interest rates, [5] is simply wrong–wanting to avoid the ZLB in the future strongly calls for not raising rates in any way that fighter be premature; [4] is incoherent–since the point of raising is to slow job growth, claiming that it won’t is not an argument for raising; [3] is contradictory; and [2] and [1] seem based on a forecasting gestalt that has been overoptimistic for nine years now:

Jared Bernstein: Clashing with the Fed: Should they stay or should they go?: “Should the Fed raise their benchmark interest rate at their meeting later this month?…

…Financial markets put the likelihood of a March rate hike of another 25 basis points at 77.5 percent. That’s about twice what it was a few weeks ago…. Should they stay or should they go? Reasons not to raise: –The job market is… not there yet; both the underemployment rate and the prime-age employment rate remain elevated…. –While the recovery is about eight years old… middle- and low-wage workers have only recently started seeing real paycheck gains…. –Moreover, there’s little evidence that wage growth is bleeding into price growth…. –The strong dollar… is doing the Fed’s work for them!… –core inflation gauge remains below their 2 percent target… has been holding steady at around 1.7 percent….

Reasons to raise: –[1] The Fed… often moves before utilization constraints are fully binding. –[2] The economic headwinds typically cited in favor of holding have somewhat dissipated…. –[3] The Fed may view the stock market rally as a bit overdone… [but] not [to] raise would signal that the Fed is less optimistic…. That could tank the rally…. –[4] The job market, or more precisely, labor demand, is in a solid groove and won’t be slowed by a small hike. –[5] “Normalization” of the Fed funds rate is necessary to avoid the zero-lower-bound problem when the economy weakens…. I see both sides and think it’s a close call

Weekend reading: “From gender norms to level targeting” edition

Posted on by Nick Bunker

This is a weekly post we publish on Fridays with links to articles that touch on economic inequality and growth. The first section is a round-up of what Equitable Growth published this week and the second is the work we’re highlighting from elsewhere. We won’t be the first to share these articles, but we hope by taking a look back at the whole week, we can put them in context.

Equitable Growth round-up

Bridget Ansel writes on new research about what happens to marriage in areas where work, specifically manufacturing work, disappears. Spoiler: gender norms play a role.

Why should policymakers care about a decline in business dynamism in the United States? New research suggests that slowing productivity growth and dynamism may be linked.

Two new papers were released as part of Equitable Growth’s working paper series. This week’s papers cover the effects of increased credit access on employment and proposed changes to corporate taxation in the United States.

One concern about the potential gains from pre-Kindergarten programs is that the gains appear to fade overtime. Kavya Vaghul argues that perhaps this fadeout could be eliminated by smoothing transition into educational levels.

Should policymakers be celebrating gross domestic product soon set to hit its potential growth rate? Should they feel the same if and when inflation hits 2 percent? Here’s the case that they shouldn’t.

Links from around the web

How much of the consumption binge during the 2000s in the United States was due to rising income inequality? Contra some new research, Matthew Klein argues that inequality played an important role. [ft alphaville]

For more than 25 years, the Japanese economy has been stuck in a funk. And despite innovative efforts to boost the economy by the Bank of Japan, a deflationary mindset seems to still have a hold, John Lyons and Miho Inada report. [wsj]

Immigration and increased exposure to international trade are now popular culprits for increasing U.S. income inequality and wage stagnation. But Eduardo Porter argues that domestic factors—namely outsourcing and changing structures of work—are more likely causes. [nyt]

Automation could potentially displace millions of U.S. workers from their jobs in years to come. Such a reality causes anxiety. But what if unpleasant jobs are among those eliminated? Alana Semuels looks at trucking and automation. [the atlantic]

“Despite generations of generally rising college-graduation rates, higher education’s promise of significantly reducing income and wealth disparities across all races and ethnicities remains largely unfulfilled,” write William Emmons and Lowell Ricketts. [in the balance]

Friday figure

Figure from “U.S. homeownership tax policies are expensive and inequitable” by Nisha Chikhale

Must- and Should-Reads: March 3, 2017

Posted on by Brad DeLong

Interesting Reads:

Rethinking Productivity Growth

Posted on by Brad DeLong

Rethinking Productivity Growth: Fresh at Project Syndicate: Today, the world’s population is, on average, about 20 times richer than it was during the long Agrarian Age. Between 7000 BC and 1500 BC, resources were scarce, technological progress was slow, and Malthusian pressures kept almost all human populations at a near-subsistence level, with per capita daily income of less than $1.50 in today’s terms. In 2017, only around 7% of the world’s population is that poor. Read MOAR at Project Syndicate

Must-Read: Simon Wren-Lewis: A Self-Fulfilling Expectations-Led Recession?

Posted on by Brad DeLong

Must-Read: Simon Wren-Lewis: A Self-Fulfilling Expectations-Led Recession?: “I acknowledge that macro rightly got a lot of stick by largely ignoring the role of finance…

…but I also point out that the poor recovery has involved a vindication of the core macro model: austerity is a bad idea at the ZLB, QE was not inflationary and interest rates on government debt did not rise but fell…. I end by showing them this chart:

Cursor and https 4 bp blogspot com WBnpOUepJU0 WLdNRgyu7FI AAAAAAAABcA Qj6NRm1MD1ownCEarfhoryMO zLCm79egCLcB s1600 UK 2BGDP 2Bper 2Bhead jpg

There has been no recovery from the Great Recession…. A mechanical way to explain what has happened is to bend the trend: to suggest that technical progress has been slowing down for some time. This inevitably means that the pre-crisis period is transformed into a boom. I have been highly skeptical… traditional ideas about what inflation would do in a boom….

Suppose that firms and consumers came to believe that the output gap was currently zero when it is not…. Suppose also that unemployed workers priced themselves into jobs by cutting their (real) wage or disappearing by no longer looking for work…. How do we know that we are suffering from demand deficiency? The traditional answer in macroeconomics is nominal deflation: falling wages and prices. But because workers have already priced themselves into jobs, nothing more will come from the wages route. So why would firms cut prices?…

The accelerator remains a very successful empirical model of investment…. But if beliefs are such that the market is not going to expand that much, because firms believe the economy is ‘at trend’ and trend growth has now become pretty small, then the need to invest to meet an expanding market largely goes away…. It is this possibility which is the reason that I have always argued central banks and governments should have been much more ambitious about demand stimulation after the Great Recession. As I and others have pointed out, you do not have to attach a very high probability to the scenario that demand will create supply before it justifies a policy of ‘testing the water’ by letting the economy run hot. Every time I look at the data above, I ask whether we have brought this on ourselves by a combination of destructive austerity and timidity.

Should-Read: Clare McCann: The False Promises of Online Education

Posted on by Brad DeLong

Should-Read: Clare McCann: The False Promises of Online Education: “Caroline Hoxby found that online education may not be the ‘low-cost, high-quality’ opportunity many say it is…

…Tuition that sometimes exceeds the on-campus price and post-college earnings that do not cover students’ upfront costs. But the report has set off something of a firestorm within the industry this week as researchers and other stakeholders (including several online learning experts) challenged the study’s methodology. That’s because the study, which used individuals’ IRS data to calculate tuition costs and return on investment, estimated a student’s likelihood of being online based on the school’s distance-education offerings. Serious data limitations mean that the author couldn’t know whether each student attends online or not.

A separate, nationally representative survey of postsecondary students shows that, among students attending an entirely online program in 2012, 36 percent were at for-profit institutions, while more than half were at public institutions…. But in the Hoxby study, which uses data from the IRS along with information about school-level offerings,  77 percent of students attending  exclusively online institutions were at for-profit schools. Given the limitations of the methodology, along with these discrepancies across data sources, the conclusions can’t necessarily be extrapolated out to include every online program, particularly for students who attend online programs through mostly brick-and-mortar institutions. Rather, the findings are largely applicable to students at for-profit online institutions…

Should-Read: Richard Lipsey: The Phillips Curve and an Assumed Unique Macroeconomic Equilibrium in Historical Contex

Posted on by Brad DeLong

Should-Read: Richard Lipsey: The Phillips Curve and an Assumed Unique Macroeconomic Equilibrium in Historical Context: “So we seem to have gone full circle from the early Keynesian view…

…in which there was no unique level of GDP to which the economy was inevitably drawn, through a simple Phillips curve with its implied trade-0ff, to an expectations-augmented Phillips curve (or any of its more modern equivalents) with its associated unique level of GDP, and finally back to the early Keynesian view in which policymakers had an option as to the average pressure of aggregate demand at which economic activity could be sustained. However, the modern debated about whether to aim for [the high or low range of stable unemployment rates] is not a debate about inflation versus growth, as it was in the 1950s, but between those who would risk an occasional rise of inflation above the target band as the price of getting unemployment as low as possible and those who would risk letting unemployment fall below that indicated by the lower boundary of the NAIBU  as the price of never risking an acceleration of inflation above the target rate.

Should-Read: John Maynard Keynes (1941): Keynes on the Limits of Econometrics: To Koopmans

Posted on by Brad DeLong

Should-Read: John Maynard Keynes (1941): Keynes on the Limits of Econometrics: To Koopmans: “Many thanks for sending me your article. I enjoyed it very much…

…I am sure these matters need discussing in that sort of way. There is one point, to which in practice I attach a great importance, you do not allude to. In many of these statistical researches, in order to get enough observations they have to be scattered over a lengthy period of time; and for a lengthy period of time it very seldom remains true that the environment is sufficiently stable. That is the dilemma of many of these enquiries, which they do not seem to me to face. Either they are dependent on too few observations, or they cannot rely on the stability of the environment. It is only rarely that this dilemma can be avoided.

Thinking about levels when it comes to macroeconomic policy targets

Posted on by Bridget Ansel
A stock trader has taped a one dollar bill to his computer screen at the New York Stock Exchange.

In a piece last week at The New York Times’s the Upshot, Neil Irwin highlighted probably the biggest question for the U.S. economy in 2017: How far is it from its potential? That question could launch a thousand blog posts, so let’s focus on one small aspect.

Irwin’s column features a graph of potential gross domestic product measured in trillions of dollars, based on the latest Congressional Budget Office projections, alongside actual GDP charted over time. Actual GDP, at about $19 trillion, seems set to reach CBO’s estimate of its potential of just over $20 trillion soon. GDP approaching its potential level may be something to enjoy, but it’s far from something policymakers should be bragging about.

Whether or not this specific estimate of potential is correct, what policymakers should focus on in that graph is not only where the two measures of GDP are about to intersect, but the gap between actual and potential GDP over time means for macroeconomic policymaking.

On one hand, policymakers could look at the graph to see that the line of actual GDP is just about to intersect with the line of potential GDP and be relatively content with the state of the wider economy. An economy almost at its potential is an economy where demand problems are about to be eliminated.

On the other hand, policymakers could instead focus on the area between actual GDP and potential GDP. The area covered in the gap between those two lines over the years since the start of the Great Recession is the total amount of GDP growth lost due to insufficient demand in the economy. The area between those lines represents trillions of dollars of economic output that could have happened if macroeconomic policy had more aggressively boosted economic growth. Those lost dollars between actual and potential economic output also represents millions of jobs and accompanying paychecks that were forgone as well.

What’s more, the gap in Irwin’s graph may be a low estimate of these lost dollars because potential GDP may be higher than CBO currently projects. If estimates of the economy’s potential are too low because more workers could be employed or productivity growth is set to increase, then the gap between potential and actual GDP would be higher both in the present and the past.

The distinction between the intersection of actual and potential GDP and the gap between the two also is helpful in thinking about the targets for macroeconomic policy. Imagine Irwin’s graph but instead of GDP, the variable being graphed is the price level in the economy. If the Federal Reserve wants to see prices go up by 2 percent a year, then the targeted price level (analogous to potential GDP) would increase by 2 percent every year. Currently, however, the Fed seeks to meet an inflation target, which means it is just trying to get actual inflation back to 2 percent. In other words, just getting back to the line is the goal.

But if the Fed had a price-level target, which may do a better job of convincing employers and employees of the changes in prices, then the goal is to have as little deviation between the two lines and to have corresponding and offsetting deviations. If we think of overshoots of inflation as having a “positive” area and undershoots as having “negative” area, then the goal of price-level targeting is minimizing the total gap between the two lines.

The same logic also could apply to a nominal gross domestic level target for monetary policy. In this case, the Fed would seek to eliminate the total deviation from a targeted path of nominal GDP growth against actual nominal GDP. On a podcast hosted by David Beckworth of the Mercatus Center, Brown University economist Gauti Eggertsson pitches this idea as “nominal GDP debt.” If policymakers think of overshoots of the targeted nominal GDP trend as “growth surpluses” and undershoots as “growth deficits,” then a nominal GDP level target set them up to make sure the U.S. economy doesn’t have “growth debt” over time.

Looking at Irwin’s original graph of actual GDP compared to potential GDP, it may seem to policymakers that the job of boosting economic growth is almost finished. But such thinking might provide little comfort given the potential left idle and the economic possibilities left unfulfilled. Whatever the case, policymakers might be more amenable to level targeting of the pairs of trend lines for inflation and for nominal GDP growth since both of these measures would enable them to get these targets back to level ground.

Should-Read: Rod Dreher: Life In ‘The City Of Rod’

Posted on by Brad DeLong

Should-Read for Ash Wednesday: May I say that I find this from Rod Dreher responding to Elizabeth Stoker Bruenig simply bizarre?:

Rod Dreher: Life In ‘The City Of Rod’][]: “More [from Elizabeth Stoker Bruenig]…:

…Suffice to say, some find the moral landscape of modernity rather impoverished, and the options for pursuing it in a liberal world frustratingly limited. One can chase what one believes to be the good life, but one cannot place moral claims on others. This is the “catch,” as it were, of liberalism: “Liberalism,” political theorist Judith Shklar wrote, “has only one overriding aim: to secure the political conditions that are necessary for the exercise of personal freedom.” Or, as Catholic philosopher Jacques Maritain had it: “Obey none but yourself.”

Thus ardent Christians who believe that a life modeled after Christ’s is not best for them but simply best have little room to advance their case in public life. To do so would be to infringe upon the liberties of others, and liberalism cannot abide such a violation. (It’s no accident that the earliest liberals had a special contempt for Catholics, who are especially inclined to protest the reduction of the faith to a private sentiment.)

This is good. She understands what’s at stake here. If the absolute telos of liberalism is to free the individual to do what he or she wills, then not only is that the “irresolvable kernel of discord” between Christianity and liberalism, but it also explains (as ESB does above) why liberalism now pushes Christians who dissent from liberalism out of public life…

I disagree 1000%, at least if “advancing their case in public life” = “passing laws to make people do what you regard as shaping up”.

My great^10 (I think it’s great^10–I should sign up on http://ancestry.com to check) grandfather John Winthrop was definitely a liberal: the only other option for him was to be a Catholic or an Anglican, both of which he was sure to the core of his bones would be to lose his soul. But he was not going to be pushed out of public life, even though he was sailing 3000 miles away from the land in which he was born. What was he going to do there? He was going to build a utopia. And then that utopia would be his testimony in public life–not pushed out of it, at the core of it, and not by passing laws to mandate that others behave as his sect thought they should, but by setting a good and ultimately irresistible example:

Now the only way to avoid this shipwreck, and to provide for our posterity, is to follow the counsel of Micah, to do justly, to love mercy, to walk humbly with our God. For this end, we must be knit together, in this work, as one man. We must entertain each other in brotherly affection. We must be willing to abridge ourselves of our superfluities, for the supply of others’ necessities. We must uphold a familiar commerce together in all meekness, gentleness, patience and liberality. We must delight in each other; make others’ conditions our own; rejoice together, mourn together, labor and suffer together, always having before our eyes our commission and community in the work, as members of the same body.

So shall we keep the unity of the spirit in the bond of peace. The Lord will be our God, and delight to dwell among us, as His own people, and will command a blessing upon us in all our ways, so that we shall see much more of His wisdom, power, goodness and truth, than formerly we have been acquainted with. We shall find that the God of Israel is among us, when ten of us shall be able to resist a thousand of our enemies; when He shall make us a praise and glory that men shall say of succeeding plantations, “may the Lord make it like that of New England.”

For we must consider that we shall be as a city upon a hill. The eyes of all people are upon us. So that if we shall deal falsely with our God in this work we have undertaken, and so cause Him to withdraw His present help from us, we shall be made a story and a by-word through the world. We shall open the mouths of enemies to speak evil of the ways of God, and all professors for God’s sake. We shall shame the faces of many of God’s worthy servants, and cause their prayers to be turned into curses upon us till we be consumed out of the good land whither we are going.

And to shut this discourse with that exhortation of Moses, that faithful servant of the Lord, in his last farewell to Israel, Deut. 30. “Beloved, there is now set before us life and death, good and evil,” in that we are commanded this day to love the Lord our God, and to love one another, to walk in his ways and to keep his Commandments and his ordinance and his laws, and the articles of our Covenant with Him, that we may live and be multiplied, and that the Lord our God may bless us in the land whither we go to possess it. But if our hearts shall turn away, so that we will not obey, but shall be seduced, and worship other Gods, our pleasure and profits, and serve them; it is propounded unto us this day, we shall surely perish out of the good land whither we pass over this vast sea to possess it.

Therefore let us choose life, that we and our seed may live, by obeying His voice and cleaving to Him, for He is our life and our prosperity.

Yeshua bar Yosef had things to say about those wanted to “place moral claims on others”. Basically, he said, don’t:

Ye have heard that it hath been said, An eye for an eye, and a tooth for a tooth: But I say unto you, That ye resist not evil: but whosoever shall smite thee on thy right cheek, turn to him the other also. And if any man will sue thee at the law, and take away thy coat, let him have thy cloak also. And whosoever shall compel thee to go a mile, go with him twain. Give to him that asketh thee, and from him that would borrow of thee turn not thou away.

Ye have heard that it hath been said, Thou shalt love thy neighbour, and hate thine enemy. But I say unto you, Love your enemies, bless them that curse you, do good to them that hate you, and pray for them which despitefully use you, and persecute you; That ye may be the children of your Father which is in heaven: for he maketh his sun to rise on the evil and on the good, and sendeth rain on the just and on the unjust.

For if ye love them which love you, what reward have ye? do not even the publicans the same? And if ye salute your brethren only, what do ye more than others? do not even the publicans so?

Be ye therefore perfect, even as your Father which is in heaven is perfect.