Category: Equitablog

A Reader’s Guide to the Secular Stagnation Debate: The Honest Broker for the Week of October 12, 2015

Posted on by Brad DeLong

The very sharp and energetic Peter Passell, who runs the Milken Institute Review these days, commissioned me to write a reader’s guide to the secular stagnation debate. I set it up as a four-corner cage match–Bernanke, Rogoff, Krugman, and Summers–and I am proud of it. (But I have to offer apologies to those–Koo, Blanchard, Feldstein come most immediately to mind, but there are others–who have their own serious positions that are not completely and satisfactorily understood as linear combinations of the four I chose to be my basis vectors.) It is out:

J. Bradford DeLong (2015): The Scary Debate Over Secular Stagnation, Milken Institute Review 2015:IV (October) pp. 34-51:

Bernanke… says we have entered an age of a “global savings glut.”… Rogoff… points to the emergence of global “debt supercycles.”… Krugman warns of the return of “Depression economics.” And… Summers calls for broad structural shifts in government policy to deal with “secular stagnation.” All… are expecting a future that will be very different than the second half of the 20th century, or even the so-far, not-so-good third millennium. But they… [differ on] optimism or pessimism… [and on whether] cautious repairs or an abrupt break with policy as usual [are needed. This] is, I believe, the most important policy-relevant debate in economics since John Maynard Keynes’s debate with himself… which transformed him from a monetarist to the apostle of active fiscal policy.

I think Summers is largely right, but then, I would, since I have been losing arguments with him since I was 20. What’s needed here, though, is not a referee’s decision, but a guide to the fight…

Briefly:

  • Bernanke sees anomalies in portfolio decisions by emerging-market central banks and plutocrats that have generated a global savings glut in the relatively short-run.
  • Rogoff sees overleverage as having created a medium-run period of stagnation that requires active debt-liquidation policies to shorten it.
  • Krugman sees the end of the era of moderate inflation as bringing about a return to “Keynesian” economic structures that require activist fiscal policy.
  • Summers sees deeper problems that call for more in the way of government’s acting as investment-spender, risk-bearer, safe asset-supplier, and bubble-preventer of last resort, and thus extend its proper role beyond that of Keynesian demand-management policies toward what Keynes called a “comprehensive socialization of investment”.

All are serious and live possibilities…

Must-Read: Rajiv Sethi: Threats Perceived When There Are None

Posted on by Brad DeLong

Must-Read: Mark Thoma sends us to Rajiv Sethi, who makes a convincing case that the very sharp Sendhil Mullainathan has gotten one wrong here:

Rajiv Sethi: Threats Perceived When There Are None: “He argues that ‘eliminating the biases of all police officers would do little…

…to materially reduce the total number of African-American killings…. 28.9 percent of arrestees were African-American… not very different from the 31.8 percent of police-shooting victims…. If police discrimination were a big factor in the actual killings, we would have expected a larger gap between the arrest rate and the police-killing rate….
 
A key assumption… is that encounters involving genuine (as opposed to perceived) threats to officer safety arise with equal frequency across groups…. A safe encounter might well be perceived as risky, as the following example of a traffic stop for a seat belt violation in South Carolina…. Sendhil is implicitly assuming that a white motorist who behaved in exactly the same manner as Levar Jones did in the above video would have been treated in… the same manner by the officer…. Think of the encounter involving Henry Louis Gates and Officer James Crowley back in 2009… a safe encounter… [that] may not have happened in the first place had Gates been white. If the very high incidence of encounters between police and black men is due… to encounters that ought not to have… a disproportionate share… will be safe, and one ought to expect fewer killings per encounter in the [presence of bias toward having an encounter and the] absence of bias [once the encounter begins]. Observing parity would then be suggestive of bias…. In justifying the termination of the officer in the video above, the director of the South Carolina Department of Public Safety stated that he ‘reacted to a perceived threat where there was none.’  Fear is a powerful motivator… even when there are strong incentives not to shoot…

Weekend reading

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 has published this week and the second is 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

The rate at which minimum-wage workers move to higher-paying jobs has declined quite a bit in recent years. This new analysis is important for debates about the proper level of the minimum wage, but it’s also a reminder of the larger problems in the U.S. labor market.

Princeton University economist Angus Deaton won this year’s Nobel Prize in economics. His noted work looks at how understanding the micro data, and not ignoring inequality, can help us better understand the larger macroeconomic phenomena of the world.

While short-term interest rates in the United States have been at zero for almost seven years, long-term rates have been on the decline for several decades now. The interplay between lower long-term rates and extremely low short-term rates has important ramifications for monetary policy.

Links from around the web

Federal Reserve Board governors aren’t known for airing their disagreements with Fed chairs in public. Governor Lael Brainard gave a speech this week, however, saying interest rates might not be hiked this year—contrary to recent statements by Fed Chair Janet Yellen and Vice Chair Stanley Fischer. University of Oregon economist Tim Duy explains the importance of Governor Brainard doing this. [fed watch]

Is the “gig economy” all hype or an actually important trend in the labor market? It’s hard to tell with the existing data we have for the United States. But the Department of Labor and other parts of the federal government are starting to rectify this problem, Lydia DePillis reports. [wonkblog]

One of the many ideas for decreasing health care spending in the United States has been to increase people’s exposure to prices. A new paper shows that this has reduced spending, but not the wasteful kind. Sarah Kliff writes about how this could prompt a rethink of how to reduce health care costs. [vox]

Even though it was passed more than 80 years ago and repealed more than 15 years ago, the Glass-Steagall Act continues to come up in conversations about regulation of the finance industry. Should reinstating a divide between commercial and investment banks be central for regulating finance? Mike Konczal says no. [rortybomb]

Analysts of the global oil market have long had key assumptions about the economics of the commodity stuck in their brains. But perhaps those assumptions are no longer the case. Martin Sandbu discusses a new paper that details how much the oil market has changed. [free lunch]

Friday figure

Figure from “The pernicious effects of growing student debt on the economic security of young workers” by Kavya Vaghul

Must-Read: Jason Furman and Peter Orszag: A Firm-Level Perspective on the Role of Rents in the Rise in Inequality

Posted on by Brad DeLong

Must-Read: Jason Furman and Peter Orszag: A Firm-Level Perspective on the Role of Rents in the Rise in Inequality: “In Joe [Stiglitz]’s honor, we thought it appropriate to collaborate on a paper…

…that explores two of his core interests: the rise in inequality and how the assumption of a perfectly competitive marketplace is often misguided. Joe has been a leading advocate of the hypothesis that the rising prevalence of economic rents—-payments to factors of production above what is required to keep them in the market—and the shift of those rents away from labor and towards capital has played a critical role in the rise in inequality (Stiglitz 2012). The aggregate data are directionally consistent…. But this aggregate story does not fully explain the timing and magnitude of the increase in inequality…. This paper… argue[s] that there has been a trend of increased dispersion of returns to capital across firms, with an increasingly large fraction of firms getting returns over 10, 20 or 30 percent annually–a trend that somewhat precedes the shift in the profit share.

Longstanding evidence (e.g. Krueger and Summers 1988) has documented substantial inter-industry differentials in pay–a mid-level analyst may have the same marginal product wherever he or she works but is paid more at a high-return company than at a low-return company. Newer evidence (Barth et al. 2014 and Song et al. 2015) suggests that much of the rise in earnings inequality represents the increased dispersion of earnings between firms rather than within firms. This is consistent with the combination of a rising dispersion of returns at the firm level and the inter-industry pay differential model, as well as with the notion that firms are wage setters rather than wage takers in a less-than-perfectly-competitive marketplace…

Must-Read: Heidi Roizen: How to Build a Unicorn From Scratch–and Walk Away with Nothing

Posted on by Brad DeLong

Live from Silicon Valley: Heidi Roizen: How to Build a Unicorn From Scratch–and Walk Away with Nothing: “Liquidation preferences, participation, ratchets…

…even the very term preferred shares (they are called ‘preferred’ for a reason) are things every entrepreneur needs to understand. Most terms are there because venture capitalists have created them, and they have created them because over time they have learned that terms are valuable ways to recover capital in downside outcomes and improve their share of the returns in moderate outcomes–which more than half the deals they do in normal markets will turn out to be. There is nothing inherently evil… standard procedure for high risk investing.  But for you the entrepreneur to be surprised after the fact about what the terms entitle the venture firm to is just bad business–on your part. For any private company with different classes of stock, the capitalization table is not-at-all the full picture of who gets what in an outcome…

Must-Read: Stephen Breyer (2010): NLRB v. Canning

Posted on by Brad DeLong

Must-Read: Stephen Breyer (2014): NLRB v. Canning: “Ordinarily the President must obtain “the Advice and Consent of the Senate”…

…before appointing an “Office[r] of the United States.” U. S. Const., Art. II, §2, cl. 2. But the Recess Appointments Clause creates an exception. It gives the President alone the power “to fill up all Vacan cies that may happen during the Recess of the Senate, by granting Commissions which shall expire at the End of their next Session.” Art. II, §2, cl. 3. We here consider three questions about the application of this Clause.

The first concerns the scope of the words “recess of the Senate.” Does that phrase refer only to an inter-session recess (i.e., a break between formal sessions of Congress), or does it also include an intra-session recess, such as a summer recess in the midst of a session? We conclude that the Clause applies to both kinds of recess.
The second question concerns the scope of the words “vacancies that may happen.” Does that phrase refer only to vacancies that first come into existence during a recess, or does it also include vacancies that arise prior to a recess but continue to exist during the recess? We conclude that the Clause applies to both kinds of vacancy.

The third question concerns calculation of the length of a “recess.” The President made the appointments here at issue on January 4, 2012. At that time the Senate was in recess pursuant to a December 17, 2011, resolution providing for a series of brief recesses punctuated by “pro forma session[s],” with “no business… transacted,” every Tuesday and Friday through January 20, 2012. S. J., 112th Cong., 1st Sess., 923 (2011) (hereinafter 2011 S. J.). In calculating the length of a recess are we to ignore the pro forma sessions, thereby treating the series of brief recesses as a single, month-long recess? We conclude that we cannot ignore these pro forma sessions.

Our answer to the third question means that, when the appointments before us took place, the Senate was in the midst of a 3-day recess. Three days is too short a time to bring a recess within the scope of the Clause. Thus we conclude that the President lacked the power to make the recess appointments here at issue…

An intersession recess on January 3, 2016, no? Seems to me that there should be some hard bargaining going on right now between Obama and McConnell on getting appointments done under threat of inter-session recess appointments at noon next January 3. For example, Obama should be offering McConnell a Romer-Clarida deal on Fed Governors, under threat of inter-session recess Romer-Gagnon…

Must-Read: Martin Sandbu: Mutiny at the Fed

Posted on by Brad DeLong

Martin Sandbu: Mutiny at the Fed: “Two governors, Lael Brainard and Daniel Tarullo…

…have publicly spoken out against the rush to raise US interest rates. This is significant for a number of reasons. First, because most noises from individual Fed interest-rate setters have been in the hawkish direction. Chair Janet Yellen herself, while not a hawk, has unwisely tied herself to the calendar…. Tim Duy, the most perceptive Fed-watcher out there….On his reading, Brainard lays down a clear marker….Jared Bernstein, too, annotates the key parts of Brainard’s speech…. She judges the risks of things going worse than expected as more weighty than the chance of things going better…. She takes seriously that it is easier to wait too long and then tighten sharply if necessary, than to make up for the damage caused by a premature rate rise. That is because with very low interest rates it is challenging to make policy much looser…. This ‘option value of waiting’ argument is explained by Brad DeLong in a recent comment on Brainard and Duy…. Tarullo relied on the same two points….

Brainard and Tarullo now echo the dovish arguments of outsiders from the left such as Lawrence Summers, when those arguments have seemingly fallen on deaf ears in the rest of the FOMC…. Both the grumbling governors hail from that political milieu… of the Obama administration. Duy’s explanation is… that Yellen’s professional formative years were the high-inflation period of the 1970s (the same is true for vice-chair Stanley Fischer); Brainard’s experience, meanwhile, ‘is dominated by the Great Moderation’…. Paul Krugman offers a nuance: rather than the Great Moderation, he suggests what most shapes Brainard’s economic world view is… ‘internationally oriented macro types were aware earlier than most that Depression-type issues never went away’…. Hawks are now encountering more determined opposition at the Fed. That is a good thing.

Noted for the Morning of October 16, 2015

Posted on by Brad DeLong

Must- and Should-Reads:

Might Like to Be Aware of:

Must-Read: Ben Thompson: Venture Capital and the Internet’s Impact

Posted on by Brad DeLong

Ben Thompson: Venture Capital and the Internet’s Impact: “Because a company pays for AWS resources as they use them…

…it is possible to create an entirely new app for basically $0 in your spare time. Or, alternately, if you want to make a real go of it, a founder’s only costs are his or her forgone salary and the cost of hiring whomever he or she deems necessary to get a minimum viable product out the door. In dollar terms that means the cost of building a new idea has plummeted from the millions to the (low) hundreds of thousands…