Category: Equitablog

Must-Read: Gregory Clark, Kevin Hjortshøj O’Rourke, and Alan M. Taylor: The Growing Dependence of Britain on Trade During the Industrial Revolution: “Many previous studies of… the British Industrial Revolution have found little or no role for trade…

…We construct a three-region model of the world in which Britain trades with North America and the rest of the world, and calibrate the model to data from the 1760s and 1850s. We find that while trade had only a small impact on British welfare in the 1760s, it had a very large impact in the 1850s. This contrast is robust to a large range of parameter perturbations. Biased technological change and population growth were key in explaining Britain’s growing dependence on trade during the Industrial Revolution.

Must-Read: Noah Smith: Conservatism Failed: “The Republican presidential candidate was usually a gray, bland figure, a stalwart conservative but not a fire-breathing one…

…who had worked his way up the ranks. Romney, McCain, Bush II, Dole, and Bush I all fit this description[, and even] Reagan… did not deviate too far from this model. As a conservative, the Republican nominee would support tax cuts, a business-friendly attitude, a tough-guy attitude toward America’s enemies and rivals, and traditional family values based on Christianity. That’s what conservatism was.

But in the past fifteen years, the three pillars of conservatism–economic, foreign-policy, and social conservatism–have all had huge, dramatic failures…. The Bush tax cuts failed to reverse [middle-class] income stagnation… [and] a lax regulatory climate appeared to give rise to a financial crisis that devastated the job market…. The formula of ‘cut taxes[, deregulate,] and let businesses do as they see fit’ is now pretty discredited…. Older intellectuals [who] continue to fight doggedly for this economic program… are rightfully ignored….

Foreign policy conservatism… failed… when Bush turned bellicose rhetoric into bellicose reality with the disastrous Iraq War…. A more minor failure was the seeming emptiness of Bush’s bellicose rhetoric when it came to actual threats. Under Bush’s watch, Putin’s power grew inexorably, and North Korea got nukes, while Bush barked impotently…. Finally, social conservatism… [which] promised to restore family values by promoting Christianity and resisting things like gay marriage. But… Americans have resoundingly rejected the values pushed on them by Christian conservatives in the 80s, 90s, and 00s…. Add all this up, and what do you get? A massive, total failure of all three pillars of modern conservatism within a 15-year period….

The collapse of the conservative ideology… is what inevitably happens to an ideology when it succumbs to overreach, dogmatism, and an echo chamber. I hope I don’t ever have to watch the same thing happen to the American left.

Must-Read: Danny Blanchflower: “UK Headed to Recession…”:

clear now UK headed to recession unclear how deep question is how much the drop can be dissipated by action of BOE & Treasury who can't wait

— Danny Blanchflower (@D_Blanchflower) July 22, 2016

Must-Read: The very sharp Dan Wang sends me to the several-screws-loose Peter Thiel. He has, apparently, not marked his beliefs to market over the past eight years. He has not drawn the lesson that Ben Bernanke and company might know more than he does about some things:

Peter Thiel (2008): The Optimistic Thought Experiment: “In every possible future, all of today ’s bubbles will burst…

…their ideological scaffolding will prove to be but lint in the winds of history…. Bubbles have begun to implode across the globe, laying bare the fraudulence of ‘China,’ ‘technology,’ ‘hedge funds,’ and their like. As the world’s economy weakens, so will support for the globalist orthodoxy, the political tenability of which rests heavily on the ability of the doctrine to literally deliver the goods. Some policymakers seem to sense this already, with the most immediately obvious of these being the Fed…. [But] the Fed’s morally hazardous accommodations are best understood not as a perplexing and facile sop to bankrupt homeowners but as a desperate effort to stave off a recession that will end the debate on globalization for years to come…. The Fed’s gambit entails several potentially catastrophic trade-offs, chief among them the revival of inflation. Whatever may be said of the soundness of the Fed’s policy in the faltering United States, loose monetary conditions are not appropriate for the near-runaway economies of other nations with dollar-linked economies, notably China and much of the Middle East. The Fed’s iatrogenic policies have already caused considerable inflation in these economies and, especially disturbing for students of history, a massive spike in the price of oil. At some point, the tensions caused by wild inflation, collapsing currency accords, and expensive oil will resolve…

Must-Read: As I say: labor is actually six dimensions: (1) backs, (2) fingers, (3) brains as routine cybernetic controls for mechanisms, (4) brains as routine cybernetic mechanisms for accounting operations, (5) smiles, and (6) creative ideas. (1) has been–slowly–becoming less valuable since the domestication of the horse. (2) has been–more rapidly–becoming less valuable since the start of the British Industrial Revolution. But diminished value in (1) and (2) has, so far, always, within a generation, been offset by greatly increased value in (3), (4), (5), and (6) as capital complements those other dimensions of labor. Now (3) is falling to the robots and (4) is falling to the ‘bots–leaving us with only (5) and (6). This is qualitatively different from previous episodes of technological change. Will it have different consequences for overall capital-labor complementarity? How can anyone know yet?

Nick Bunker: Technological change and Future Labor Demand: “How concerned should we humans be about the impact of future technological change on our economy and society?…

…A few more robots might be a good thing for the economy… insofar as more artificial intelligence would boost productivity…. Yet most of the concerns about the rise of the robots are… distributional…. Will they displace large swaths of workers? Maybe permanently?… Imagine an economy-wide version of robots on factory floors. Past experience with technological change, Furman argues, shows that new technologies don’t reduce demand for all labor, but rather shift the composition…. David Autor agrees… that commentators overstate the ability of robots to substitute for labor and forget how capital acts as a complement to labor…. Yet advances in artificial intelligence definitely change the kind of  skills that labor needs…. Deep technological change could reduce demand for, say, middle-skilled workers while boosting demand for less-skilled workers and more highly-skilled workers…

Maury Obstfeld: A Spanner in the Works: An Update to the World Economic Outlook: “Because the future effects of Brexit are exceptionally uncertain…

…the World Economic Outlook Update presents two model-based illustrations of alternative scenarios to the baseline–one that is moderately worse, and another that is much worse. These scenarios are driven by the uncertainty Brexit introduces about the U.K.’s ultimate trade relationship with the remainder of the European Union and the wider world; the length and contentiousness of the negotiations; markets’ difficulty in gauging the resulting depressing effects on demand; and resulting financial tightening leading to widespread banking-sector stress in the euro area…. A main reason we place less weight on these alternative scenarios, especially the more severe one, is that financial markets have proven resilient in the weeks after the referendum, repricing in an orderly fashion to absorb the news. This benign result owes importantly to the market perception–and the reality–of major central banks’ readiness to provide liquidity to markets. But vulnerabilities persist, not least in some of Europe’s banks…