Category: Equitablog

British Conservative-Liberal Democrat Austerity Data Bingo!

Posted on by Brad DeLong

Niall Ferguson: “In the vanguard of the Keynesian attack: was Paul Krugman of The New York Times…

…In August 2011 he denounced the ‘delusions’ of the chancellor whose ‘experiment in austerity’ was ‘going really, really badly’…. Mr Osborne was worrying needlessly about business confidence. ‘The confidence fairy’ was the term Mr Krugman coined to ridicule anyone who argued for fiscal restraint. Unfortunately for Mr Krugman, the more he talked about the confidence fairy, the more business confidence recovered in the UK. In fact, at no point after May 2010 did business confidence sink back to where it had been throughout the past two years of Gordon Brown’s premiership…. UK unemployment is now 5.6%, roughly half the rates in Italy and France…. Weekly earnings are up by more than 8%; in the private sector, the figure is above 10%. Inflation is below 2% and falling…

The graph that Ferguson is looking at as he writes this:

The Rise and Fall of Krugmania in the UK  Niall Ferguson

And so the Financial Times has issued a correction, retracting some of Ferguson’s claims:

Financial Times: Correction: UK business confidence: “An article by Niall Ferguson…incorrectly stated…

…that at no point after May 2010 did business confidence sink back to where it had been throughout the past two years of Gordon Brown’s premiership. Confidence had risen from the third quarter of 2009 until the end of 2010, according to the ICAEW/Grant Thornton UK Business Confidence Monitor. We also wish to clarify that Prof Ferguson’s statement that weekly earnings were up by more than 8 per cent referred to nominal earnings growth. Real wage growth was negative from 2010 until September 2014.

As Jonathan Portes expands:

Jonathan Portes: http://aboutus.ft.com/files/2010/09/Ferguson-Adjudication-with-PS.pdf: “There is no possible interpretation of Professor Ferguson’s statement…

…under which it is correct… (or even close to being correct). So not entirely sure what to do here. On the one hand, this is an (even more) obvious breach of the Code. Again, as with the earnings data, the FT should have spotted this and asked Professor Ferguson to provide source data to substantiate. On the other hand, I don’t want to unnecessarily prolong [this editorial complaints adjudication] process, which I’d hoped might be nearing a conclusion…

This goes to the core of Niall Ferguson’s argument. Fiscal austerity will shrink the government’s demand for currently-produced goods and services. In normal times this contractionary impact is partly offset by “crowding in”, as interest rates fall and that encourages private spending. Under the conditions that have prevailed since 2008, however, interest rates are already at their minimum: they cannot fall any further. The argument that Conservative fiscal austerity did not harm the British economy over 2010-2015 therefore hinges on the forlorn hope that fiscal austerity will somehow improve business confidence relative to the no-austerity baseline, and improve business confidence enough that increased investment spending relative to the no-austerity baseline will take up the slack.

Since business confidence is now lower and has been lower than it was at the end of Gordon Brown’s term for fifteen out of twenty quarters, there is indeed no way to honestly argue that: “the more [Krugman] talked about the confidence fairy, the more business confidence recovered in the UK…”

Greg Callus also wrote, apropos of Ferguson’s “Weekly earnings are up by more than 8%; in the private sector, the figure is above 10%. Inflation is below 2% and falling…”:

Prof. Ferguson’s reliance on nominal average weekly earnings… is not so strong or so obvious a point that I think it would have occurred to most informed readers of the Financial Times…. Inclusion of this statistic was not a distortion, but… given the context of lauding the Chancellor’s management of the economy, a boast of growth in average weekly earnings would ordinarily have been understood by a reasonable reader as a reference to real wage growth rates. My initial impression was firmly that way, such that I expected to be told the use of the nominal statistics was a mistake…. ‘Real wage growth’ is the more usual source of an economic boast in an OpEd than nominal growth that is overborne by high inflation. I am satisfied most readers would have read it as such…

(And that has been corrected in the Financial Times to: “Weekly earnings are up by more than 8 per cent in the period 2010-2014; in the private sector, the figure is above 10 per cent. Inflation is below 2 per cent (per annum in 2014) and falling…” Let me note that I am annoyed silent corrections rather than use of the strike tag.)

Simon Wren-Lewis, I think, put it most concisely. If one is just reporting wage numbers, one reports real numbers. If one is reporting nominal wage numbers and inflation, and thus inviting people to calculate real wage numbers via subtraction, one reports annual nominal wage growth and annual inflation figures for the same time period. One does not report total cumulative wages for 2010-2014 and inflation for 2014 alone:

Simon Wren-Lewis: Blaming Keynes: “[Ferguson reports] earnings growth over the whole period is quoted (but without saying it is nominal growth), but only inflation over the last year! Presumably this is done to create the impression of real wage growth, when in reality this period has seen unprecedented falls in real wages…

Ferguson’s response has been in four parts:

First, Ferguson attacks the Financial Times: With respect to Greg Callus, stuck in the middle of this as an adjudicator tasked with writing a sixteen-page report, this:

the FT ‘complaints commissioner’ turned out to be a lawyer and, as lawyers will, opted to write 16 circumlocutory pages and split the difference…

God alone knows what those scare quotes are doing in there…

Second, Ferguson claims that his errors do not matter:

Niall Ferguson: Jonathan Portes, master of the political correction: “These days, when lefties are losing an argument, they nitpick until it looks as if they’ve won…

It used to be that the most annoying thing in academic life was political correctness. But a new irritant now threatens to supplant it: the scourge of correct politicalness. The essence of correct politicalness is to seek to undermine an irrefutable argument by claiming loudly and repetitively to have found an error in it…

This is, simply, a non-truth:

As Ferguson knows as well as I do, whether business confidence under Cameron-Osborne-Clegg has been higher or lower than under the continued-Gordon-Brown baseline is not a nitpick. It is of the essence of Ferguson’s argument. If Ferguson’s claim of better business confidence relative to the baseline is wrong (as it is), his argument as a whole falls.

Third, Ferguson moves the goalposts. He claims that the Cameron-Osborne-Clegg austerity program was necessary in order to keep business confidence in Britain from collapsing back down to the levels of the deepest panic in 2009. Ferguson wrote to adjudicator Greg Callus as follows:

Niall Ferguson: “On the issue of confidence I wrote…

…”Unfortunately for Mr Krugman, the more he talked about the confidence fairy, the more business confidence recovered in the UK. In fact, at no point after May 2010 did it sink back to where it had been throughout the past two years of Gordon Brown’s catastrophic premiership.”

The last sentence was erroneous and the result of an over-hasty rewrite. I should have written: “at no point after May 2010 did it sink back to where it had been at the nadir of Gordon Brown’s catastrophic premiership.”

I am quite content to have that corrected…. Of course, this is no way alters my point about Krugman. He did not begin talking about the “confidence fairy” until the 3rd quarter of 2010, after Cameron and Osborne were in Downing Street. And he kept talking about it even as confidence rallied…

Once again, a non-truth:

This in fact greatly alters Ferguson’s point against Krugman. For more than two and a half years after the advent of the Cameron-Osborne-Clegg government, the trend of business confidence was down. Ferguson’s claim that “the more [Krugman] talked about the confidence fairy, the more business confidence recovered” was simply false.

Fourth, Ferguson writes a 900-word profile of Jonathan Portes. As Jonathan writes:

New prize competition from @spectator. Spot the errors in @nfergus article (PhD not reqd) & win a full-page profile! http://www.spectator.co.uk/features/9555142/jonathan-portes-master-of-correct-politicalness/

A new attempt at measuring the value of health insurance

Posted on by Nick Bunker

The value of government-provided health insurance in the United States is surprisingly hard to calculate. Researchers can’t use market prices as a measurement of the value of health insurance to individual recipients because Medicare and Medicaid—the two main government health care programs—aren’t available on the open market. A new working paper, however, takes advantage of a unique experiment at the state level to expand Medicaid coverage to value Medicaid as a source of income. The results have broad and important implications for our measurements of income and its distribution.

The current methods for measuring the value of Medicaid as income are at two ends of a spectrum—either the value of the program is ignored when talking about income trends or the value of the program to each recipient is assumed to be its average overall cost to the federal government and state governments. (Medicaid is a joint federal-state program that provides health coverage to low-income and disabled Americans.) The Congressional Budget Office, for example, chooses the second option in its analysis of income trends.

But assuming that every dollar spent on the program is valuable to every recipient equally seems hasty without any evidence. Ignoring the value of the program altogether seems even more obviously unwise. Enter the new paper by economists Amy Finkelstein, Nathaniel Hendren, and Erzo F.P. Luttmer. The economists from the Massachusetts Institute of Technology, Harvard University, and Dartmouth College, respectively, use data from the Oregon Health Insurance Experiment to try to value Medicaid as a source of income.

This experiment grew out of the 2008 decision by Oregon to expand its Medicaid program, which the state couldn’t do for everyone who wanted coverage. So it held a lottery. The state gave data about the winners and losers of the lottery to several economists, including Finkelstein—access that enabled them to evaluate the income benefits of expanded Medicaid insurance.

Finkelstein, Hendren, and Luttmer used the data from the experiment to figure out how households that received insurance change their consumption and out-out-pocket spending on health care. By seeing how these behaviors change for households that received Medicaid through the lottery relative to those who did not, the economists derive estimates for the income value of Medicaid for the recipient families.

In every single estimate, they find that the benefit of Medicaid to one of the recipients is less than the government’s cost of providing the insurance. Specifically, they estimate that for every dollar that the federal government and Oregon spend on Medicaid, recipients receive $0.40 or $0.20, depending on the specific valuation method used, with those who would have provided health care the absence of insurance (an emergency room, for example) reaping the rest of every dollar.

In short, valuing Medicaid as income for individual recipients at the average cost of the program is very much off the mark.

These differences could have a significant impact on how incomes are measured by government agencies. Take the Congressional Budget Office. Remember, in the data used by CBO Medicaid is currently valued at average cost. Medicaid was about 8.7 percent of post-tax-and-transfer income for the average household in the bottom 20 percent of households in 2011. Using the estimates from Finkelstein, Hendren, and Luttmer, the average income of these households would drop by between 5.7 and 7.6 percent.

Moreover, this calculation assumes that Medicare, which was 9.4 percent of the average income for the bottom 20 percent of income earners in that year, is still valuated at average cost. If the value of Medicare is below average cost as well, which seems plausible, then the incomes for those at the bottom would be even lower.

This new paper will very likely start a broader debate about how to value Medicaid, Medicare, and other government health insurance programs. Resolving that debate is very much needed if we actually want to fully understand the U.S. distribution of income among many other important topics.

Must-Read: Ben Bernanke: The FOMC, the Board of Governors, and Fed Interest Rate Policy

Posted on by Brad DeLong

Must-Read: Ben Bernanke tries to clean up misinformation from Benn Steil.

No, I don’t know why Benn Steil writes what he writes. I never have.

Ben Bernanke: The FOMC, the Board of Governors, and Fed Interest Rate Policy: “Benn Steil argues that, for the purpose of predicting changes in the stance of monetary policy…

…Fed-watchers… instead of paying attention to the… FOMC… should focus on the Fed’s Board of Governors…. Steil’s argument… [is that] to raise the federal funds rate… the Fed will have to rely on novel tools, including changes in the rate of interest it chooses to pay on reserves…. Steil is correct that the interest rate paid on reserves will be one important tool…. Other important tools… such as the so-called reverse repo facility, are under the control of the FOMC. More fundamentally… he misunderstands… the Fed…. Fed policymakers know that the expectation of the Congress and the public is that monetary policy will be made by the FOMC… explicit both internally and externally about the primacy of the FOMC…. There is historical precedent for the Board having technical authorities that in practice were subordinated to FOMC decisions. The Board has long had the authority to set the discount rate… [used to] anchor the federal funds rate… at a level just below the target…. When the FOMC changed its fund rate target, the Board routinely and automatically adjusted the discount rate in tandem with the FOMC’s action…. The views of Board members are relevant… because Board members are also voters on the FOMC, not because… the Board will try to block implementation of an FOMC decision.

Why has the U.S. labor force participation rate declined?

Posted on by Nick Bunker

Interpreting movements in the unemployment rate amid the continuing recovery from the Great Recession can be tricky. The share of people with or looking for a job—a measure known as the labor force participation rate—was already declining when the financial crisis hit in 2007, which pushed even more workers out of the labor force. The pre-recession decline in the share of workers in U.S. labor force is primarily being driven by a major structural change—the retirement of the aging Baby Boom generation. But a new National Bureau of Economic Research working paper argues there’s another important long-term trend at work.

Regis Barnichon and Andrew Figura argue that a significant decline in individuals that actually want to work has contributed to the decreasing labor force participation rate. In fact, Barnichon and Figura’s results show this trend is about as important as the aging of the population to the decline in participation. Using data from the Bureau of Labor Statistics’ Current Population Survey, the two authors from CREI and Universitat Pompeu Fabra, and the Federal Reserve Board split non-participants into two groups: those who want to work and those who don’t (they can do this because the CPS asks individuals not in the labor force about their desire to work and records it in the survey). They find a stark rise in the share of non-participating workers that don’t want to work at all since the mid-1990s. That increase is because those individuals out of the labor force are less likely to decide they want a job, and those that do want a job are increasingly joining the ranks of those who do not want a job.

Why would this new composition of non-job seekers matter? This is the tricky part. Barnichon and Figura show that non-participants in the labor force who actually do want a job are, unsurprisingly, more likely to look for work. Yet the increasing number of non-participants who really don’t want a job means that the reserve of workers who are likely to enter the work force has declined over the past two decades.

The two authors point to differing reactions by participants in the labor force to federal government programs such as Aid for Family with Dependent Children and the Earned Income Tax Credit as the reason for the continuing decline in the labor force participation rate. These programs encourage people to work by increasing their income through tax credits if they are working, placing time limits on government assistance, and requiring them to look for work if they don’t have a job. But Barnichon and Figura argue that for some people these work requirements discourage them from remaining in the labor force. The two authors suggest that people who don’t want to work are instead applying and receiving disability insurance through the Social Security system.

But other causes are conceivable. Perhaps workers who lost their jobs over the past several decades amid often wrenching economic dislocation—think about the dislocations due to massive job losses across the Rust Belt or in specific industries like, say, bricks-and-mortar travel agencies or book stores—were more likely to be knocked out of the labor force permanently. Or consider another finding in the new working paper by Barnichon and Figura—that the decline in the labor force participation rate since the mid-1990s was particularly strong among women—which may be explained by women choosing to concentrate full time on family and housework instead of job hunting or working outside the home.

The reasons for the rise in the number of people not looking for work aren’t entirely clear or well researched. Hopefully that will change.

Republican Ex-Members of Congress Still Only Willing to Complain About “Congress”

Posted on by Brad DeLong

I found myself debating Tom Davis–a very smart and well-trained professional–on Bloomberg TV last Friday, on the occasion of the monthly employment report. I did better than I had expected, probably because we are both on the same side of the technocratic “we badly need to do more for infrastructure” issue:

The conversation:

Matt Miller: Tom, let me start with you. Weren’t you impressed with this month’s job report? We added 280,000 jobs. That is much higher than the average of the past twelve months. We boosted hourly pay.

Tom Davis: Yes. It was a good report.

Matt Miller: And, Brad, do you find it to be a good report as well?

Brad DeLong: Yes. It was a good report. But combine it with the past two reports. We are about where we were three months ago. Whatever you thought about the state of the economy three months ago, you should think it now. The last quarter has not been one in which there has been a great deal of news to lead anyone to change their mind.

Matt Miller: Tom, are you more positive about this report than Brad? He’s got a lot more “buts” and “ifs” in there.

Tom Davis: Well, there are a lot of “buts” and “ifs”. I think lower gas prices have given a tax cut to everybody. I think they have created a lot of optimism. But there is still a lot of uncertainty. And there are still a number of international factors that come into this that nobody can control. I think some times we give the government too much credit for what goes well and too much blame for what goes badly.

Matt Miller: So what should we do, Tom, to make things better here? What is your prescription? Or what is the Republican prescription, I should say?

Tom Davis: Look: Our prescription has always been that higher taxes and needless regulations–and there are a lot hanging around. You need to be looking at them so that businesses can operate more efficiently. One of the biggest problems right now is that we have a political system that is not operating very efficiently on issues from the Export-Import Bank; to getting a long-term transportation bill which has been on life-support for six months–for six years; to just getting the Appropriations bills out on time. We just have a political system that is not functioning very efficiently. And that has, I think, a drag on the economy. We’re not getting out of the government what we ought to be.

Matt Miller: Brad, Democrats and even President Obama would agree with that. They would like to see lower taxes and fewer regulations, but also more spending. Right?

Brad DeLong: Well, I don’t think it is just Democrats who would like to see more spending. Back in the 1970s Milton Friedman looked back at the Great Depression. He talked about what his teachers had recommended as policies and what he would have advocated in the Great Depression. He called for, in situations like that, and, I think, in situations like this, for coordinated monetary and fiscal expansion. With interest rates at their extraordinarily low levels, now, as in the 1930s, is a once-in-a-century opportunity to pull all the infrastructure spending we will be doing over the next generation forward in time and do it over the next five years, when the government can finance it at such extraordinarily good terms.

Matt Miller: We have a national infrastructure crisis, right? Roads and bridges, ports and airports are at levels that are critical and certainly not worthy of a first-world country. Tom, don’t you agree we need to fix that up quickly?

Tom Davis: I agree with that. Look, I think that with the stimulus package that was passed in 2009 they blew an opportunity to do more for infrastructure. We should have had something to show at the end of that. With the money, maybe we got a short-term stimulus, but we should have gotten something long-term.

Brad DeLong: They had to get it through with only Democratic votes. Why weren’t there any Republicans willing to deal? We could have gotten a larger and much better-crafted program.

Matt Miller: There was a lot of money there. There was a lot of money there, Brad.

Brad: Yep.

Tom Davis: Let me interject. I know something about politics. I think the President’s inclination was to deal with Republicans, but Democrat leaders said: “No: We are in charge. You have to go through us.” And I think that hampered his ability. It wasn’t just Republicans. You offer us a bad deal, don’t expect us to take it.

Matt Miller: That doesn’t change the fact that we still have crumbling infrastructure in this country.

Tom Davis: No, I agree.

Matt Miller: It needs to be, somehow, brought up to snuff. How would you do that?

Tom Davis: You need a massive transportation bill at this point. And you need continuity. Right now this thing is on life support. So long-term projects are not moving through. States are taking some initiative in some cases. But this is the time to do it.

Matt Miller: Brad, it sounds like…

Brad DeLong: When Larry Summers was in the White House, he spent two years trying to assemble a centrist bipartisan coalition for a large-scale long-lasting infrastructure bank, and got no Republican bites at all.

Tom Davis: Well, the Democrats controlled both houses. They could have done it. That is all I am saying. We have to look ahead at this point. But I think they blew the opportunity with that bill when they controlled everything. I think bipartisan government right now has just crumbled. We have turned almost into a parliamentary system in our behavior, and unfortunately with our system of government that just does not work very well.

Matt Miller: It sounds like we are all in agreement that something needs to be done. Hopefully that can happen. Maybe the two of you can get together after this program.

I got out-talked: word count:

  • Miller: 220
  • Davis: 430
  • DeLong: 250

I suffered from professor disease: my “Milton Friedman” paragraph was easily twice as long as it should have been.

Tom Davis, however, seemed to me to be less effective because he allowed himself to be pulled in two directions. He could not decide to present himself as a Republican partisan–which he is–mindlessly hitting the talking points that poll well. And he could have. He was a seven-term member of the House of Representatives (1995-2008) from northern Virginia’s 11th District. He was swept into office on the Gingrich 1994 partisan election wave. He was NRCC chair over 1998-2002. He chaired the House Government Reform Committee over 2003-2008, and under his tenure the committee issued only three subpoenas to the executive branch. And–for some reason–he was anxious to subpoena the comatose and brain-dead Terri Schiavo as a witness to appear before his government reform committee. And, indeed, he hit a bunch of the talking points:

  • lowering gas prices as a tax cut.
  • tax cuts
  • Obama as a creator of “uncertainty”
  • “Giv[ing] the government [Obama] too much credit for what goes well”
  • “Giv[ing] the government [George W. Bush]… too much blame for what goes badly.
  • Cut “higher taxes and needless regulations
  • Obama in the 2009 “stimulus package… blew an opportunity to do more for infrastructure”
  • Obama’s “inclination was to deal with Republicans, but Democrat leaders said: ‘No’.”

But he also wanted to make some good-government points:

  • The failure of the Republican leadership in congress “to just getting the Appropriations bills out on time”
  • “A political system that is not functioning very efficiently.
  • “Bipartisan government right now has just crumbled… almost… a parliamentary… with our system of government that just does not work very well”
  • The failure of the Republican leadership in congress to get the Export-Import Bank onto Obama’s desk
  • The failure of the Republican leadership in congress to get “a long-term transportation bill which has been on life-support for six months–for six years”
  • “The Democrats controlled both houses…. They blew the opportunity with that bill when they controlled everything”

In which he was greatly handicapped by his unwillingness to ascribe any responsibility to people with names like “Boehner” and “McConnell” and “Republican Tea Party Caucus”.

The most interesting thing to me was his refusal to blame the (now relatively popular) Obama–it’s always the “Democratic leadership” and “congress” that are the problem…

The Permanent News About the 2009 Stimulus Bill

Posted on by Brad DeLong

Also: time to more-or-less set in stone the explainer about the 2009 stimulus bill–the ARRA, the Recovery Act:

What about the 2009 stimulus package, anyway?

Ah. The 2009 Recovery Act. Christie Romer’s original calculations suggested we needed a fiscal stimulus program of $1.8 trillion over three years, even with all of the banking-support and monetary policy moves the Treasury and the Federal Reserve were making. Her forecasts–like almost every forecast in December and January 2009–were optimistic. We needed not $1.8 trillion over three years, but rather more like $4 trillion over 5 years (which could be pruned back or offset by tighter monetary policy if recovery came rapidly.

The judgment of the National Economic Council–Larry Summers–however, was that the NEC could not show up with a recommended stimulus program even as large as $1.8 trillion. Obama’s inner circle and his political advisors would reject that as non-serious. So Christie Romer proposed a $900 billion three-year stimulus to close half of the gap between where the economyy was projected to be and where it ought to be, and hoped Obama would do the math. He didn’t.

Then the Recovery Act had to shrink in order to get over the 60-vote filibuster hurdle in the Senate. The three Republicans willing to vote for it–plus about ten Democrats–required that they be seen to be fiscally responsible, and thus to be cutting whatever Obama sent up to Capitol Hill. They did not have views themselves as to how large the program should be. They just wanted to be seen as cutting what Obama had originally proposed.

Thus we wound up with a $600-billion two-and-a-half-year program.

That program was, roughly, one-third infrastructure, one-third direct aid to states, and one-third tax cuts and cyclical benefit expansions. That seemed a reasonable division of what turned out, in retrospect, to be a much too-small and much too-brief pot of money.

The Permanent News About the Transitory Monthly Employment Report: June 2015 Snapshot

Posted on by Brad DeLong

It seems that every month people ask me for my view on the current month’s job report. And every month what I have to say is very close to what I said the previous month. Thus it seems to me it would be a good idea to set out a document that will have a larger shelf-life than a month. While hardcore data junkies want to know what is new in the job report, hardcore data junkies are few. What everyone else really wants to know is what is important about the job market report:

What about the most recent employment report, anyway?

  • This month’s employment report–in fact, the last few months’ employment reports–should not lead us to change our minds about anything. What did you think three months ago? You should think the same thing now. Information about the changing destiny of the economy drips out only slowly. And so your view should change only slowly

  • What should you have thought three months ago? Eight things:

  • First, for the past 50 years the unemployment rate and other indicators of the health of the labor market–ease of getting a job, business willingness to build more to fill vacancies, employment the population adjusted for demographics and sociology–have all pointed in the same direction.

    • Not anymore.
    • Today the unemployment rate suggest that we have had a full recovery, while other labor market indicators suggest a very partial and very incomplete recovery.
    • The Federal Reserve is still mostly looking at the unemployment rate.
    • They are smart, and they know all the arguments, but when I look at all the evidence I cannot agree

  • Thus, second, it looks to me like we are still far short of anything that might be called a normal or neutral business-cycle level of employment.

    • So it is not time to start cooling off the economy.

  • Third, it will not be time to start cooling off the economy until either we get different signals:

    • Either from the employment share numbers.
    • Or from the wage growth numbers.

  • Fourth we never recovered to the pre-2007 trend.

    • It was not that the pre-2007 trend was unsustainable.
    • In 2007 we were buying the wrong things: too many imports and too much housing.
    • But the economy as a whole was not overheated.
    • Why haven’t we had a full recovery to the pre-2007 trend? Two reasons:
      • First, Republican economists have failed to properly brief Republican members of Congress that what is needed now are the policies that Milton Friedman’s teachers, people like Jacob Viner, recommended for the 1930s–not austerity and not shrinking the Federal Reserve balance sheet shrinkage, but rather coordinated monetary and fiscal policy expansion.
      • Second, because in late 2009 Ben Bernanke overestimated the economy’s self-generated recuperative powers, and so failed to understand the seriousness of the situation.
      • Third, to be fair, because Tim Geithner thought the same as Bernanke–that the economy was going to recover on its own–and Obama believed him.

  • Fifth, it is still not too late to turn the macroeconomic policy ship around:

    • Global investors are willing to lend the US government money at unbelievably low terms.
    • Every reasonable calculation I have seen tell us the benefits of borrowing up to $1 trillion a year more and spending it on infrastructure and education are huge.
    • It is definitely worth doing, unless and until interest rates return to normal levels.

  • Sixth, there are also important structural issues:

    • Growing inequality.
    • The rise of the robots.
    • Globalization, etc.
    • But these are roughly in the same state today that they were in 2007 or indeed 2000.
    • Changes since then or overwhelmingly due to short-run macroeconomic events and problems:
      • The housing bubble.
      • The Wall Street crash.
      • The deep depression.
      • The anemic half-recovery.

  • Seventh, Obama… Taking a broad view, under Obama the American economy has done worse than it has done under any Democratic president since the Civil War

    • Save perhaps Carter.
    • Of course, that also means the economy has done better than under any Republican president since Coolidge
      • Save Eisenhower.
      • But these days the Democrats are claiming Eisenhower as his. Certainly today’s Republicans don’t want that RINO.
      • In fact, these days Democrats are also posthumously baptizing Lincoln as a Democrat, kind of like the Mormons do, when you think about it…

  • Eighth, things could have been much better:

    • We would have had to switch out of housing and into exports and investment between 2006 and 2009.
    • We were well on the way–about halfway–through making that switch at full employment.
    • But then Wall Street mashed up and caused the crash.
    • We did not need a depression.
      • Especially not a depression this long.
    • What we needed–and could have had–was an expenditure switch. We still could have one–to education, to business investment, to infrastructure, to exports.

Things to Read on the Afternoon of June 9, 2015

Posted on by Brad DeLong

Noted for Your Nighttime Procrastination for June 9, 2015##

Grand To Do List

Screenshot 10 3 14 6 17 PM

Must- and Should-Reads:

Over at Equitable Growth—The Equitablog

Might Like to Be Aware of:

Must-Read: John Schmitt: OECD: Income Inequality Hampers Growth

Posted on by Brad DeLong

Must-Read: John Schmitt: OECD: Income Inequality Hampers Growth: “‘Econometric analysis suggests that income inequality has…

…a sizeable and statistically significant negative impact on growth.’… Between 1990 and 2010 gross domestic product per person in 19 core OECD countries grew by a total of 28 percent, but would have grown by 33 percent over the same period if inequality had not increased…. Lowering inequality by just one ‘Gini-point’ (a standard measure of inequality used by economists) would raise the annual growth rate of GDP by 0.15 percentage points. In a world where policies that boost growth rates by one or two tenths of a percent per year are a big deal, these kinds of outcomes are at the high end of what we can reasonably hope from most policy interventions…. The OECD believes that inequalities in access to education are the most important factor behind the connection between inequality and growth…

Must-Read: Gavyn Davies: China: Serious About Reflation

Posted on by Brad DeLong

Must-Read: Gavyn Davies: China: Serious About Reflation: “Amid further signs of a weakening economy…

…there is no longer any doubt that a major policy easing is clicking into gear in China. For the first time since 2008, the government has accepted that the economy has hit a patch of serious trouble, and the most recent policy statement by the politburo adopts a much more urgent tone than anything that has preceded it under President Xi Jinping.