Category: Equitablog

Must-Read: Simon Wren-Lewis: Understanding Free Trade

Posted on by Brad DeLong

Must-Read: Simon Wren-Lewis: Understanding Free Trade: “There you have, in one calm and measured paragraph, the contradiction at the heart of the argument…

…put forward by Liam Fox and others that leaving the EU will allow the UK to become a ‘champion of free trade’. You cannot be a champion of free trade, and have sovereignty in the form of taking back control. It is not a contradiction, of course, if you are happy to accept the regulatory standards of the US, China or India. That appears to be the position of Leave leaders like MP Jacob Rees Mogg. Ellie Mae O’Hagan spells out what this may mean in practice. Lead in toys–bring them in so we can sign a trade agreement with China. And you can be sure that this will be the nature of the discussion every time a trade deal is signed. In each case we will be told that we have to accept this drop in regulatory standards, because British export jobs are on the line.

This is the point of Dani Rodrik’s famous impossible trilemma: you cannot have all three of the nation state, democratic politics and deep economic integration (aka free trade). His trilemma replaces sovereignty, by which in meant in this context the nation state being able to do what it likes, by democracy. In the past I have always found this problematic. Surely a democracy can decide to give away a bit of its sovereignty in return for the benefits of international cooperation (in the form of trade deals, or indeed any other kind of international cooperation). After all, every adult in a relationship knows that this relationship means certain restrictions on doing just what they would like…

Must-Read: Ben Thompson: Reconsidering Uber

Posted on by Brad DeLong

Must-Read: There is a serious debate about “Uber, floor wax or desert topping?”–excuse me: “Uber: grift or technological and organizational breakthrough?”: Izabella Kaminska: Mythbusting Uber’s valuation | Why Uber’s capital costs will creep ever higher. Eric Newcomer: Uber Loses at Least $1.2 Billion in First Half of 2016. Hubert Horan: Can Uber Ever Deliver?: Part 1 | Part 2 | Part 3 | Part 4 | Part 5

Ben Thompson: Reconsidering Uber: “Part 2 is far better, and in many respects redeems the series…

…here Horan does get into the unit costs of pre-existing taxi companies and makes the compelling case that Uber has the highest costs in the industry because car depreciation and maintenance will always be higher for individuals than it will be for fleets. The implication–which I suspect is valid more often than Uber would admit–is that whatever advantage Uber has stems from its drivers not properly calculating their costs (and by the time they do some are locked into new car payments “helpfully” arranged by Uber)….

First, I still believe there are supply-side network effects in car-sharing; it follows that venture capital is appropriately used to fund all of the costs excluded from the unit economics calculation above. Second, Uber’s full potential is to replace personal car ownership, at least in some areas; that means the company needs to spend not (just) to kill taxi companies but to overcome the sunk costs of the cars users already have (that most potential users don’t have cars is one of Didi’s big advantages). Third, self-driving cars obviously change the economics of car-sharing completely, and Uber is by far the best-placed to take advantage of those economics…. I’m going to stop there; this update is already far longer than I intended… should probably… be refined into a Weekly Article…. While I spent most of my time pointing out where I disagreed with those Naked Capitalism posts, the reason I addressed them here is that it represents an argument there about Uber’s viability that is worth taking seriously–and it’s especially important for me to take it seriously, given I’ve generally been an Uber bull…

The U.S. Recession and Recovery Have Been Tough on Everyone

Posted on by Nick Bunker


The New York Times ran a surprising graph last week showing that the current economic recovery has been bad for white workers but a boon for workers of color. When we look at the numbers the way most economists would prefer, however, the data actually look disappointing for American workers across the board.

We’ve reproduced the Times’s graph in the left-hand panel of the chart below. The data show large job losses for white workers—down about 700,000—between November 2007 (the month before the recession began) and November of this year. Over the same period, employment of workers of color increased by millions, with African Americans and Asians both up by more than two million and Hispanics up by almost five million. The text accompanying the New York Times figure concluded that the data indicate “robust gains in employment” for these groups.

But, what is “robust” in this context? For this kind of analysis, economists generally prefer to compare changes in employment to changes in the corresponding population over the same period of time. To see why, imagine that an economy creates one million new jobs in a year, but the working-age population rises by two million people over the same period. Even with the all of the new jobs created, workers as a group would be less likely to have a job at the end of the year than at the beginning. We probably wouldn’t want to describe a level of job growth that left a smaller share of the population with a job as “robust.”

That is exactly what happened for workers of color in the United States since 2007. Employment grew, but the corresponding populations grew more. The right-hand panel of the chart below uses the same numbers in the original New York Times figure, but now expresses them as a share of the corresponding population. (See Figure 1.)

Figure 1

This picture is remarkably different. Once population growth is taken into account, we can see that employment rates fell for all four racial and ethnic groups in the analysis. The job growth for African American, Asian, and Hispanic workers emphasized in the newspaper’s account did not keep up with the growth in the corresponding population.

For three groups—Asian, Hispanic, and white workers—employment rates in the most recent data are still well below their pre-recession levels. For black workers, employment rates did not fall as much, but they are still below where they were in 2007. And before breaking out the champagne to celebrate the relative success for African American workers, keep in mind that the employment rate for black workers ages 16 and older in November 2016 was only 56.9 percent, trailing well behind whites (60.1 percent), Asians (61.0 percent), and Hispanics (61.9 percent).)

In a follow-up piece three days later, the newspaper acknowledged the importance of using employment rates to put employment numbers into proper context. But, the new piece argues that taking population into account does not change the original story much. The right-hand panel of the figure above suggests otherwise. The Great Recession and the current recovery have been tough for workers all around.

(For more discussion of these issues, see two analyses by the Center for Economic and Policy Research’s Dean Baker and one by The Washington Post.)

Must- and Should-Reads: December 19, 2016

Posted on by Brad DeLong

Interesting Reads:

Should-Read: Jon Chait: Trump Turns to Always-Wrong Pseudo-Economist Lawrence Kudlow

Posted on by Brad DeLong

Should-Read: Jonathan Chait: Trump Turns to Always-Wrong Pseudo-Economist Lawrence Kudlow: “The emerging cast… suggests… his party’s domestic platform… continued and even intensified…

…Lawrence Kudlow… leading candidate to run his Council of Economic Advisers…. Even hard-core conservatives… like Greg Mankiw… described the arguments used by Kudlow as those of “charlatans and cranks.”…

In 1993, when Bill Clinton proposed an increase in the top tax rate from 31% to 39.6%, Kudlow wrote, “There is no question that President Clinton’s across-the-board tax increases…will throw a wet blanket over the recovery and depress the economy’s long-run potential to grow.” This was wrong….

By December 2000…. “The Clinton policies of rising tax burdens, high interest rates and re-regulation is responsible for the sinking stock market and the slumping economy,” he mourned, though no taxes or re-regulation had taken place since he had credited Reagan for the boom earlier that same year. By the time George W. Bush took office, Kudlow was plumping for his tax-cut plan… endorsed Bush’s argument that the budget surplus he inherited from Clinton — the one Kudlow and his allies had insisted in 1993 could never happen, because the tax hikes would strangle the economy — would turn out to be even larger than forecast. “Faster economic growth and more profitable productivity returns will generate higher tax revenues at the new lower tax-rate levels. Future budget surpluses will rise, not fall.” This was wrong, too….

Kudlow then began to relentlessly tout Bush’s economic program. “The shock therapy of decisive war will elevate the stock market by a couple-thousand points,” he predicted in 2002. That was wrong.

He began to insist that the housing bubble that was forming was a hallucination imagined by Bush’s liberal critics who refused to appreciate the magic of the Bush boom. He made this case over and over (“There’s no recession coming. The pessimistas were wrong. It’s not going to happen. At a bare minimum, we are looking at Goldilocks 2.0. (And that’s a minimum). Goldilocks is alive and well. The Bush boom is alive and well.”) and over (“The Media are Missing the Housing Bottom,” he wrote in July 2008). All of this was wrong. It was historically, massively wrong.

When Obama took office, Kudlow was detecting an “inflationary bubble.” That was wrong. He warned in 2009 that the administration “is waging war on investors. He’s waging war against businesses. He’s waging war against bondholders. These are very bad things.” That was also wrong, and when the recovery proceeded, by 2011, he credited the Bush tax cuts for the recovery….

By 2012, Kudlow found new grounds to test out his theories: Kansas, where he advised Republican governor Sam Brownback to implement a sweeping tax-cut plan that would produce faster growth. This was wrong….

Any economic forecaster is bound to make some wrong predictions. But Kudlow hasn’t made a handful of failed guesses…. Kudlow’s crank theories have a key advantage over the crank theories propounded by, say, the Jim Jones cult: They confer massive windfall benefits upon society’s richest individuals. His unwavering fealty to supply-side theology is the very characteristic that proves his ideological bona fides and qualifies him to give Trump advice….

If you put Republicans in office, the Kudlows of the world will be designing their policy agenda, and the agenda will be designed around lower taxes for rich people. And Kudlow will insist it worked.

Millions of Americans are stuck in part-time jobs

Posted on by Bridget Ansel
A server smiles as she talks with customers at a Seattle restaurant.

At first glance, 178,000 jobs added in November and the unemployment rate falling to 4.6 percent—the lowest level since before the Great Recession—indicates that the U.S economic recovery continues to hum along. Weak spots exist—many men are not working and have stopped looking for a job altogether—but millions of people have gotten back to work over the past seven years.

Yet millions of working Americans cannot find a full-time job, and are forced to patch together an income through taking on one or more part-time jobs. This extent of this phenomenon is quantified by the Economic Policy Institute in a new report by Lonnie Golden, who finds that 6.4 million Americans are now working part-time involuntarily—a level that is 44.6 percent higher than it was in 2002, after the “dot-com” recession in the early 2000s.

Golden’s report highlights that involuntary part-time work is most prevalent in the low-wage retail and hospitality industries and finds that Hispanic and African American workers—especially women—are more likely to be part-time involuntarily (which is echoed by other research as well). Golden finds that the rise in involuntary part-time work is not just due to lingering effects of the recession but also because of a fundamental change in the way many employers do business. The low-wage retail and hospitality industry (including restaurants) have increasingly adopted so-called “lean-labor strategies” that precisely match the number of staff working with consumer demand. These scheduling practices mean that it’s common for even “full-time” workers to see their hours cut if a manager decides they are not needed.

Part-time workers also are paid less, and not just because they are working fewer hours. Golden notes that the hourly wages of part-time workers are lower than their full-time counterparts, even in the same job. The nature of part-time work also in increasingly different, with many employers doing away with the “standard” weekly shift. Instead, many part-time workers must cope with their schedules shifting week-to-week amid last-minute schedule changes.

Then there are growing reports of “on-call” shifts, in which employees are forced to call their employer to see if they will be assigned to work, and of workers reporting to work only to be sent home early (or before the shift even begins). Golden finds that part-time workers, whether voluntary or involuntary, face variable hours at a rate 2.5 times higher than full-time workers, and are much more likely to report irregular and on-call shifts.

No longer is it easy for workers in these industries to combine a part-time job with school or a second job and arrange predictable childcare because their schedules change week-to-week or day-to-day. What’s worse is this—these workers may have no idea how much they are going to bring home at the end of the month and may lose eligibility for government benefits if they do not work enough hours.

The rise in involuntary work poses macroeconomic challenges as well. When people do not have money to spend, businesses cannot sell their goods and services. While some states have “reporting pay” laws or regulations that address unpredictable scheduling practices, there is no state or federal legislation that directly targets the millions of employees that are stuck in part-time jobs. Golden suggests policies such as laws that give part-time workers more hours if they become available (instead of hiring another part-time worker), and a federal mandate that pays workers when their shifts or canceled or change.

No, Larry Kudlow Is Not an Economist…

Posted on by Brad DeLong

I have only been on the same stage as Larry Kudlow twice in my life. In neither case did he provide any intellectual substance at all. This, a decade ago, was the second time:

Hoisted from the Archives from 2007: I was sitting on the right end of an nine-person panel at the New School Friday morning http://www.cepa.newschool.edu/events/events_schwartz-lecture.htm#webcast. Bob Solow was sitting on the left end–Solow, Shapiro, Schwartz, Rohatyn, Kudlow, Kerrey, Kosterlitz, Hormats, DeLong. Bob Solow expressed concern and worry over the declines in the U.S. savings rate over the past generation. Larry Kudlow, in the middle of the panel, aggressively launched into a rant…

…about how the NIPA savings rate was wrong, about how the right savings rate was the change in household net worth, about how there was no potential problem with America saving too little, that the economy was strong, and that that day’s employment report had been wonderful, and that Paul Krugman had predicted nine out of the last zero recessions, et cetera, et cetera, et cetera.

What is one to do? You watch a guy–Bob Solow–one of the smartest and most thoughtful people I know, having his intellectual impact neutralized by a guy–Kudlow–who really isn’t in the intellectual inquiry business anymore. Kudlow clearly has not thought through the biases and gaps in the household net worth number: if he had, there is no way he could say what he is saying.

On paper, in print, on the screen, one can point out that the employment report was anemic–it was not a bloodletting by any means, but it was a bit disappointing. On paper, in print, on the screen, one can say that there is reason to worry about the decline in housing demand and the possibility that it might trigger a recession.

On paper, on print, on the screen, one can list the seven potential wedges between the NIPA savings rate and the change in household net worth:

  1. There is a gap between the rate of return on the average investment made in a year and the cost of capital, which means that $1 of savings on average produces more than $1 of value.
  2. The NIPA may well understate corporate savings and investment by counting a bunch of investments in organizational form as corporate operating expenses.
  3. All of us free-ride on technological research and development, reaping where we do not sow, gathering where we do not scatter, and profiting where we do not save and invest.
  4. Shifts in the distribution of income away from labor and toward capital increase measured household net worth–which includes the increased expected future profits from capital–but not true household net worth–which also includes the decreased expected future wages of labor.
  5. Declines in interest rates make the future more valuable relative to the present and so raise measured household net worth today–which is measured in today’s dollars–without any outward shift in the true consumption-possibilities frontier.
  6. Government deficits that raise the debt lower national savings but not measured household net worth.
  7. Good news about the future produces windfall gains and bad news windfall losses which alter this year’s household net worth without telling us much about over-all long-run accumulation trends.

On paper, in print, on the screen one can say that reasons (4), (5), and (6) pushing up measured household net worth are reasons to discount that statistic as misleading: they do not reflect any true increase in appropriately-defined wealth. One can say that any increase in household net worth caused by (7) is a transitory phenomenon that tells us little about permanent saving and accumulation patterns. One can say that (1) and (2) affect the level but not the trends of saving, and do not speak to Solow’s worry about the savings-investment rate’s decline. One can say thus that only reason (3)–the effects of the now decade-long computer-and-communications real investment boom on our total wealth–provides a reason to even begin to think about whether Bob Solow’s worries about declining savings as measured by the NIPA are at all overblown.

But there are ninety minutes for a panel with nine people on it. To the audience it looks like two cocksure economists who disagree for incomprehensible reasons. And my ten minute share will come too late to try to referee Solow-Kudlow in any fair, balanced, and effective way.

It’s an un-discourse situation: Kudlow doesn’t acknowledge–may not know–the flaws in his chosen statistic. And I can’t help wonder what Kudlow would be saying if a Democrat were president.

It’s an intellectual Gresham’s Law in action…

What can I do? I can blog about it.

And I can, a decade letter, hoist it from the archives…

Must-Read: Tim Duy: The Federal Reserve Turns Hawkish

Posted on by Brad DeLong

Must-Read: I do not get this: it was 21 years ago that I learned–from an early draft of Staiger, Stock, and Watson (1997)–that nobody had any business thinking or acting on any belief that they had the correct estimate of the natural rate. The natural rate shifts. And because the natural rate shifts there is no way to estimate it precisely, even in retrospect, let along in prospect:

Tim Duy: Fed Turns Hawkish: “The FOMC raised the… federal funds rate by 25bp today, as expected…

…But the tone of the press conference and the summary of economic projections were more hawkish than I anticipated…. Rather than showing up in a declining estimate of the natural rate, the unemployment drop showed up as a rise in the rate forecast. This is important. It is almost as if the Fed is drawing a line in the sand with an increased confidence that they have the correct natural rate estimate. Their tolerance for further declines below that line is wearing thin…. You should anticipate that further declines in unemployment will be met with a more aggressive Fed in 2017….

Federal Reserve Chair Janet Yellen exuded confidence in the economic outlook during the press conference…. She repeatedly argued that her run a “high-pressure” economy comments from October were misinterpreted. She was recommending a research program, not a policy path. If you were expecting otherwise, time to get over it. She did not dismiss the possibility of staying on as a board member after her term as Chair ends…

Must- and Should-Reads: December 18, 2016

Posted on by Brad DeLong

Interesting Reads:

(Early) Monday DeLong Smackdown Watch: Has Macroeconomics Gone Right?

Posted on by Brad DeLong
U.S. Real GDP since 2009

After three years, how is this working out?…

Paul Krugman (2013): The Neopaleo-Keynesian Counter-counter-Counterrevolution: “OK, I can’t resist this one — and I think it’s actually important…

…Brad DeLong reacts to Binyamin Appelbaum’s piece on Young Frankenstein Stan Fischer by quoting from his own 2000 piece on New Keynesian ideas in macroeconomics, a piece in which he argued that New Keynesian thought was, in important respects, a descendant of old-fashioned monetarism. There’s a lot to that view. But I’m surprised that Brad stopped there, for two reasons. One is that it’s worth remembering that Fischer staked out that position at a time when freshwater macro was turning sharply to the right, abandoning all that was pragmatic in Milton Friedman’s ideas. The other is that the world of macroeconomics now looks quite different from the world in 2000.

Specifically, when Brad lists five key propositions of New Keynesian macro and declares that prominent Keynesians in the 60s and early 70s by and large didn’t agree with these propositions, he should now note that prominent Keynesians–by which I mean people like Oliver Blanchard, Larry Summers, and Janet Yellen–in late 2013 don’t agree with these propositions either.

In important ways our understanding of macro has altered in ways that amount to a counter-counter-counterrevolution (I think I have the right number of counters), giving new legitimacy to what we might call Paleo-Keynesian concerns. Or to put it another way, James Tobin is looking pretty good right now. (Incidentally, this was the point made by Bloomberg almost five years ago, inducing John Cochrane to demonstrate his ignorance of what had been going on macroeconomics outside his circle.)

Consider Brad’s five points:

  1. Price stickiness causes business cycle fluctuations: You clearly need price stickiness to make sense of the data. However, there is now widespread acceptance of the point that making prices more flexible can actually worsen a slump, a favorite point of Tobin’s.

  2. Monetary policy > fiscal policy: Not when you face the zero lower bound — and that’s no longer an abstract or remote consideration, it’s the world we’ve been living in for five years. And Tobin, who defended the relevance of fiscal policy, is vindicated.

  3. Business cycles are fluctuations around a trend, not declines below some level of potential output: This view comes out of the natural rate hypothesis, and the notion of a vertical long-run Phillips curve. At this point, however, there is wide acceptance of the idea that for a variety of reasons, but especially downward nominal wage rigidity, the Phillips curve is not vertical at low inflation. Again, a very Tobinesque notion, as Daly and Hobijn explain.

  4. Policy rules: Not so easy when once in a while you face Great Depression-sized shocks.

  5. ‘Low multipliers associated with fiscal policy’: Ahem. Not when you’re in a liquidity trap.

I do think this is important. Among economists who are actually looking at recent events, not doing a see-no-Keynes, hear-no-Keynes, speak-no-Keynes act, there has been a strong revival of some old ideas in macroeconomics. It’s not just new classical macroeconomics that’s in retreat; we’re also seeing, within the Keynesian camp, a distinct if polite rise of Neopaleo-Keynesianism.

I must say I find myself distinctly less optimistic than Paul here. After three years:

  • We seem to me to have had no influence on policy: IS-LM says that if the Federal Reserve wants to be able to respond to the next adverse macroeconomic shock we need a looser fiscal policy in order to normalize interest rates during this expansion. The Federal Reserve is ignoring IS-LM.

  • While it is true you no longer hear people outside of what I call “Chicago” talking about how DSGE is a progressive research program, you do hear nearly everybody still talking about it as if it were a harmless fetish and a useful neutral ground to frame the discussion.

  • As far as actual serious work as to what emergent properties we can expect from what characteristics of our really-existing structure of markets? We have made no progress…