Live from Chicago: American Economic Association: [The Nature of Capitalism and Secular Stagnation][]: Chair: Matias Vernengo…
…Panelist(s): Bradford DeLong, University of California-Berkeley; Han Despin, Nichols College; William Lazonick, University of Massachusetts-Lowell; Deirdre McCloskey, University of Illinois-Chicago; Anwar Shaikh, New School…
Should-Read: Disagreeing with Olivier, my chances of success are surely less than 50-50. Nevertheless…
As I read the evidence, the short-run fiscal multipliers (1) from government purchases are rather high, (2) from transfer payments to the liquidity-constrained are moderate, and (3) from high-income tax cuts are next to zero. At the moment it looks like effectively all of the Trump fiscal initiative to be will take the form of (3). Some of it will be direct tax cuts. The rest will be tax credits to businesses that are not currently cash-constrained but rather, at the margin, in the share buyback business.
But they will produce a stronger dollar.
Thus I expect next to no effective fiscal stimulus. I expect a larger capital inflow (trade deficit). And I am told we now expect the trade war to start soon.
Thus I do not see why Olivier Blanchard is so optimistic. Where is he coming from? What does he see that I do not?
Olivier Blanchard: In Light of the Elections: Recession, Expansion, and Inequality: “What happens to the US economy depends mainly on the balance between macroeconomic and trade measures…
…Larger fiscal deficits, as a result of both higher infrastructure spending and corporate and personal tax cuts… will lead to higher spending and higher growth for some time… [and] higher inflation….
Will the Fed indeed clamp down on demand and increase interest rates to pre… Trump the candidate criticized Fed Chair Janet Yellen for being too dovish…. To the extent that both growth and interest rates are higher, the dollar is likely to appreciate, leading, ironically, to larger US trade deficits…. This leads me to trade….
The pre-election program emphasized the use of tariffs to reduce imports and reestablish a “level playing field.”… Things could quickly escalate…. And… as fiscal deficits lead to larger trade deficits, the pressure to reduce them through more tariffs, as misdirected as that strategy is, will likely increase. So, in the end, expansion or recession will depend on the balance between macroeconomic and trade measures. My own guess is the first will dominate…
The U.S. labor market is heading toward full employment in 2017. But not every metric of labor market health seems to be in line with previous periods of labor market tightness. There’s less hiring for each job opening, relative to years past. That is, the data indicate that the number of people hired is out of line with our experience during past economic recoveries. Employers are getting fewer hires out of job openings than at similar levels of labor market tightness in the past. (See Figure 1.) New evidence points to a lack of movement between jobs, a problem that has implications for the strength of U.S. wage growth.
A change in the relationship between labor market tightness and the vacancy yield could indicate that something about the process of matching workers to jobs has shifted. It looks like for each job opening, there’s less hiring. This shift may be related to the fact that employers are posting more job openings than in the past, but policymakers need to take into account hiring patterns among different types of job seekers as well.
In a working paper released late last year, economists Peter Diamond of the Massachusetts Institute of Technology and Ayşegül Şahin of the Federal Reserve Bank of New York take a look at this so-called “matching function”—the relationship between hiring and labor market tightness. Specifically, they disaggregate the function for a number of characteristics of workers and employers.
One particularly interesting disaggregation looks at differences in hiring for workers with different labor-force characteristics. Diamond and Şahin compare hiring for workers who were previously out of the labor force, those who were officially unemployed, and those who were previously employed. They find that hires of those who were unemployed and out of the labor force are more sensitive to the overall health of the labor market, which means these new hires rise and fall more (and unemployment rises and falls more) compared to hires of those who were previous unemployed.
Yet looking at hires similar to the way they are presented in Figure 1 but with data going back to 1975, the economists show hires of those who were previously employed during the current recovery are far below the trend from previous recoveries. Hires of those out of the labor force are in line with previous recoveries, and hires of those who were unemployed are slightly lower, but the recent experience for hires of those who are currently employed is way out of line. Hires of these already employed workers has been quite weak compared to the tightness of the labor market.
Such “job switching” has been trending downward for all age groups since 2000. This lack of movement among those with jobs might be a sign that sticking at a job is paying more than in the past, but there’s no evidence that the boost to earnings from longer job tenure has increased in recent years. Something is amiss with either the willingness of workers to switch jobs or employers’ interest in hiring already employed workers. As we look at the labor market moving forward in 2017, this is a trend to keep an eye on.
Must-Read: Eric Holthaus: @EricHolthaus: “Now that it’s over, we can say for sure: 2016 was the warmest year we’ve ever measured on Earth.” https://t.co/zmL9tEwWkA
Should-Read: Evan Soltas: On Twitter: “Why Trump has only “charlatans and cranks” for economic advisors, in one graph.” https://t.co/CGb7nJNTlI https://t.co/6g2DwptZ0A
Should-Read: Mark Wu: The ‘China, Inc.’ Challenge to Global Trade Governance: “The rise of China presents a major challenge to the multilateral trade regime…
…At the heart of this challenge is the fact that China’s economic structure is sui generis — having evolved in a manner largely unforeseen by those negotiating WTO treaty law…. The WTO is equipped to deal effectively with only a limited range of disputes — those in which Chinese policies largely resemble elements of other alternative economic structures. Outside of this set of issues, the WTO faces two very different but equally serious challenges. The first is reinterpreting certain legal concepts to adapt and fit an unforeseen Chinese context. The second is deciding whether to expand the scope of its legal rules to accommodate issues that currently fall outside its jurisdiction…. The most likely outcome is one in which China’s rise will exacerbate the diminishing centrality of WTO law for global trade governance.
Must-Read: Since 1970, manufacturing employment has fallen from 25% to 8.6% of nonfarm payrolls. (Since 1940, from 31% to 8.6%.) With different–I will not say “better”__trade policy, that is, absent China’s joining the WTO and absent NAFTA, we might be at 9%. (If you read carefully, you will find that Autor-Dorn-Hanson estimate the effects of increasing trade with China rather than China’s joining the WTO. Trade with China would have grown in any event.) With better macro-industrial policy–i.e., no Reagan tax cuts, no Bush II tax cuts, no big Republican full-employment budget deficits, no strong dollar policy, proper nurturing of our communities of engineering excellence–we would have an economy more like that of Japan or Germany, and might be at 12%.
But 12% is a far cry from 25% or 30%. And almost all of the paths I can think of for getting back toward 12% are destructive. And every idea I have heard from the Trump camp for getting back toward 12% is (a) destructive, and (b) likely to be counterproductive on its own terms:
Paul Krugman: Trade and Manufacturing Employment: “America used to be a nation where a lot of people worked in manufacturing…
…Today, we basically work in office parks and services. But people aren’t reconciled to the change; and ? (I’m using that symbol for the man who will use the Oval Office to turn us into a banana republic) is promising to bring the jobs back by punishing companies who move jobs abroad…. In conversations with various fairly sophisticated people, I’ve realized that there’s a widespread impression of major disagreement within the field… fed, it has to be said, by some misleading statements by economists themselves…. There’s actually very little disagreement about either the facts or the counterfactuals…. it comes down to which of these two questions you’re trying to answer:
- How much of a role did trade play in the long-term decline in the manufacturing share of total employment, which fell from around a quarter of the work force in 1970 to 9 percent in 2015? The answer is, something, but not much.
How much of a role did trade play in the absolute decline in manufacturing employment, down about 5 million since 2000? Here the role is bigger, basically because you’re comparing the same effect with a much smaller denominator; even so, trade is less than half the story, but by no means trivial….
Absent that trade deficit, U.S. manufacturing would probably be about 2 percent of GDP higher… the manufacturing share of employment would also be about 2 percentage points higher… manufacturing would be maybe a fifth bigger than it is…. That wouldn’t make much difference to the long-run downward trend, but looms larger relative to the absolute decline since 2000. But what about the now-famous Autor-Dorn-Hanson paper http://www.ddorn.net/papers/Autor-Dorn-Hanson-ChinaShock.pdf?… It’s… consistent…. The… China shock… 985,000 manufacturing jobs between 1999 and 2011. That’s less than a fifth of the absolute loss of manufacturing jobs over that period, and a quite small share of the long-term manufacturing decline…. The adverse effects on regional economies were large and long-lasting. But… America’s shift away from manufacturing doesn’t have much to do with trade, and even less to do with trade policy.
Must-Read: What Noah Smith does not get: The headline is not just part of the article–the headline is the most important part of the article. When academics complain that their articles have been misread because “I didn’t write the headline”, they do not have a valid complaint against the reader: the reader has correctly read what is in front of their eyeballs. They do have a valid complaint against the headline writer, and the organization that employs the headline writer. That’s who they should be directing their fire against.
Noah Smith: Who Is Responsible When an Article Gets Misread?: “How much of the responsibility for understanding lies with the writer of an article, and how much with the reader?…
…Most cases fall somewhere in between. And the fact that writers don’t usually get to write their headlines complicates the issue…. Susan Dynarski wrote an op-ed in the New York Times criticizing school vouchers…. Economist opinion is uncertain about… vouchers…. The headline of the article (which Dynarski of course did not write) might overstate the case a little bit: “Free Market for Education? Economists Generally Don’t Buy It”…. It’s a little click-bait-y, like most headlines, but in my opinion not too bad….
To be fair, [Scott Alexander’s] misreading was somewhat assisted by the headline the NYT put on the piece…. The fault here is partly that of the NYT, who used a headline that focused only on one part of Dynarski’s article and overstated that part. It’s a little harsh for me to say “Come on, man, you should know an article isn’t about what its headline says it’s about!” Misleading headlines are a problem…
A similar point applies to leads.
Headlines are the most important part of an article. And lead paragraphs are the second most important part.
When Jim Tankersley gives Peter Navarro and Wilbur Ross the first eight uninterrupted paragraphs to denounce Marcus Noland, Mark Zandi, and Len Burman, that is unprofessional. I call you out, Jim. You are better than this.
Must-Read: The fact that Bloom et al. think that exponential growth is the baseline and the rule is rather odd, as is the use of the word “harder”. We have had 25 Moore’s Law cycles since the early 1970s. That means that computer chips now are 2^25 = 32,000,000 times as dense as they were then. And Bloom et al are surprised that it takes 25 times as many researchers to move computer chips from 32,000,000 to 64,000,000 times as dense as they were in 1970 as it took then to move to twice the 1970 density? It does seem to me that just because exponential growth models are easy to write down does not mean that they should always be our instinctive default…
Nicholas Bloom et al.: Are Ideas Getting Harder to Find?: “In many growth models… the long-run growth rate is the product of… the effective number of researchers and… research productivity…
…We present a wide range of evidence from various industries, products, and firms showing that research effort is rising substantially while research productivity is declining sharply. A good example is Moore’s Law. The number of researchers required today to achieve the famous doubling every two years of the density of computer chips is more than 25 times larger than the number required in the early 1970s. Across a broad range of cases and levels of disaggregation, we find that ideas–and in particular the exponential growth they imply–are getting harder and harder to find. Exponential growth results from the large increases in research effort that offset its declining productivity.
Should-Read: Martin Wolf: Risks that Threaten Global Growth: “Consistent growth is a relatively recent phenomenon…
…Global output shrank in a fifth of all years between 1900 and 1947. One of the policy achievements since the second world war has been to make growth more stable…. The world has avoided blunders on the scale of the two world wars and the Great Depression… active management of the monetary system, greater willingness to run fiscal deficits during recessions and the increased size of government spending relative to economic output. Behind the tendency towards economic growth lie two powerful forces: innovation at the frontier of the world economy, particularly in the US, and catch-up by laggard economies…. China… gross domestic product per head rose 23-fold between 1978 and 2015. Yet so poor had China been at the beginning of this colossal expansion that its average GDP per head was only a quarter of US levels in 2015. Indeed, it was only half that of Portugal. Catch-up growth remains possible for China. India has still greater room….
The overwhelming probability is that the world economy will grow… by more than 3 per cent…. [But] if we consider the possibility of globally significant financial crises, two possibilities stand out: the break-up of the eurozone and a crisis in China. Neither is inconceivable. Yet neither seems likely…. A third set of risks is geopolitical. Last year I referred to the possibility of Brexit and “election of a bellicose ignoramus” to the US presidency. Both have come to pass. The implications of the latter remain unknown. It is all too easy to list further geopolitical risk….
Catch-up still has great potential. But economic dynamism has declined in the core…. Mr Trump promises a resurgence of US trend growth. This is unlikely, particularly if he follows a protectionist course…