Category: Equitablog

There can be no doubt the gender disparity upon entering PhD programs and the much greater gendered disparity later on in careers indicates collective sociological dysfunction at an extraordinarily great level. We have only 1/3 as many senior women in our profession as men–which means, given that our senior jobs don’t come with heavy gendered requirements or advantages, that 1/4 of the brains that ought to be filling those jobs are not, and 1/4 of the brains that are filling those jobs ought to be doing something else…

…is the fact that one of us felt the need to remain anonymous…. Many male economists underestimate the headwinds women face in economics… at every stage of a woman’s career… many forces both large and small that add up to a huge overall damper on the number of women who make it to the higher ranks…. And even when women do reach these higher levels—despite the difficulty of getting their work published in male-dominated journals and in getting promoted even when they do get their work published—their wages remain lower…. Sendhil Mullainathan argues that discrimination often operates at an unconscious level…. Here are a few of the issues women in economics face that their male colleagues might not be aware of:

New female economics PhD’s have to worry about what to wear… skirt too short vs. too long… nasty misogyny of many threads on http://econjobrumors.com. Students don’t give female professors the same respect as they do male professors…. Female assistant professors have to worry about whether they dare take advantage of tenure clock extensions to have a child, while male assistant professors have no worries about taking advantage of the tenure clock extensions they get when their wives have a child. For the men, it is a simple strategic choice; for the women, it is reminder to their colleagues that (with rare exceptions) they bear the heaviest burden of taking care of a young child… often inundated by students needing more “emotional” mentoring… get[ting] mistaken at social events for an economist’s spouse… how to deal with disrespectful comments or ‘jokes’ made by their senior colleagues. Fostering awareness of issues like these, and a hundred others… is one of the biggest things that can be done…. Greater gender equality in economics could also be fostered by a better power balance… male economists should find it hard or impossible to exert illegitimate, sexist power over their female colleagues. If this sounds obvious, it’s much harder than it seems. Today, women in economics face a Catch-22, where speaking up can easily make them look like a shrew, while not speaking up robs them of legitimate power…”

This is why I think that the winning strategy for America over the next ten years will be to figure out how to make homeownership in Blue States much more affordable–via a combination of anti-NIMBYism, investments in transportation and other infrastructure, and a reconfiguration of housing finance, with appropriate subsidies for those trying to buy and appropriate wealth taxes on those who have benefitted from antisocial NIMByist local-government policies. Our current situation is one in which relatively small amounts of induced migration from Red States to Blue States would bring with them enormous economic-growth benefits, after all…

Where I see Richard Koo’s principal value-added is that his analysis provides a handle you can use in thinking about how the IS curve is going to evolve over time: that in the short run only expansionary fiscal policy (government leveraging up to offset the drag produced by private-sector deleveraging) can shift the IS curve, and that in the medium and long runs the recovery of the IS curve is most likely to be driven not by things like summoning the Confidence Fairy but by the slow process of deleveraging.

But to the extent that you believe that expectational shifts can be important–either that balancing the government budget or performing other rituals can summon the Confidence Fairy, or that expansionary monetary policy can summon the Inflation-Expectations Imp–Koo’s analysis will look inadequate. And so it does look inadequate to Krugman, at least to the permanent-monetary-expansion-would-fix-the-problem side of Krugman…

Must- and Shall-Reads:

• Dylan Matthews:
  The Senate’s 46 Democrats got 20 million more votes than its 54 Republicans
• National Review (1957):
  Why the South Must Prevail
  
• Mark Thoma:
  Are happy days here again for the economy?
• Simon Wren-Lewis:
  The War with the Banks Has To Be Fought on Two Fronts

1. Marshall Steinbaum:
   The End of One Big Inflation and the Beginning of One Big Myth:
   “Tom Sargent’s… ‘The Ends of Four Big Inflations’… I called it ‘terrible history and questionable economics’… post-World-War-I monetary histories of Austria, Hungary, Poland, and Germany, which they all experienced hyperinflations, on the one hand, and Czechoslovakia, which did not, on the other… highly influential…. The titular Four Big Inflations were actually one big inflation… caused by the near-state-collapse embodied in the Treaties of Versailles, St. Germain-en-Laye, and Trianon… denuding the defeated… of… industrial capability… reparations…. Keynes’ argument is that the reparations… exceeded… the maximum amount of government revenue that can be extracted from the productive economy…. A particularly important aspect of Keynes’ argument is the tension between France and Poland’s abject public finances, only made paper-solvent by ambitious reparations schedules…. [The] hyperinflations ended when the vague commitment to reparations imposed on them was removed by the League of Nations…. The German hyperinflation was a consequence of the postwar settlement, and most importantly, the huge reparations it faced….

2. Nouriel Roubini:
   Where Will All the Workers Go?:
   “Recent technological advances… capital-intensive… skill-intensive… labor-saving…. The factory of the future may be 1,000 robots and one worker manning them… no guarantee… [of] gains in service-sector employment…. Foxconn… plans to replace much of its Chinese workforce of more than 1.2 million with robots…. Voice recognition software will replace the call centers of Bangalore…. And, of course technological innovation… together with the related winner-take-all effects [are] driving the rise in income and wealth inequality…. The gains from technology must be channeled to a broader base… a major educational component… permanent income support to those whose jobs are displaced by software and machines…”
   

3. Simon Wren-Lewis:
   In Defence of NGDP Targets:
   “Tony Yates… [is] slamming the idea of NGDP targets…. I want to stay close to the academic literature, at least as a starting point…. Tony should be very worried that one of the supporters of NGDP targets is Michael Woodford, who literally wrote the book on modern monetary theory. He rightly focuses on the big plus for any levels based target, which is that it can mimic the optimal but time-inconsistent policy…. The welfare gains from following the optimal time inconsistent policy are large… so to wave those away as ‘difficult to communicate’ seems–if I may say so–terribly old school central banking…. One final argument Tony uses… is that simple models show that inflation variability is about twenty times more important than output variability in assessing welfare, and therefore NGDP targets give too great a weight to output…. Having said all this, it is great that Tony is opening up the discussion on the correct level, so we can get away from what often seem like faith-based arguments for NGDP targets…. My one last plea is that arguments make clear whether a NGDP targeting regime is being compared to some form of optimal policy, or policy as currently practiced: as I suggest here these are (unfortunately) different things.”
   

Should Be Aware of:

• Economist:
  “The collapse in the rouble is caused by Vladimir Putin’s belligerence, greed and paranoia…”
• Michael Schiavo: “If you want a government that’s gonna intrude on your life, enforce their personal views on you, then I guess Jeb Bush is your man,” Schiavo explained, adding, “We really don’t need another Bush in office.”
• MOAR American Enterprise Institute Quality Thought https://twitter.com/delong/status/543038648653193217
• Agent Carter#Premise)

1. Mu-Jeung Yang: I was planning on posting merry pictures from Dubai tonight. Instead, I have to report that I was attacked by a pack of white people in the middle of Capitol Hill, Seattle. I was choked, while three (white) people kept on punching me. I was kept paralyzed on the ground. Seattle police did nothing. They got my version of the story while confirming with six other people that it happened another way. Three of which kept on beating me while I was chocked on the ground by a fourth person. I do not write this because I want pity. I am upset! What is wrong here?!? I lived 22 years in Germany, a country that supposedly has Neo-Nazis. I was never treated this way there.”

2. “Some reacted to Chris Hughes’s hiring of Gabriel Snyder and firing of Franklin Foer and Leon Wieseltier by writing things like: ‘The [Old] New Republic has been the flagship and forum of American liberalism. Its reporting and commentary on politics, society, and arts and letters have nurtured a broad liberal spirit in our national life. The magazine’s present owner and managers… seem determined to strip it of the intellectual, literary, and political commitments that have been its essence and meaning. Their pronouncements suggest that they hold those commitments in contempt…’ Others think that that Old New Republic was long dead. Some of them say it died in 1975, when Marty Peretz fired Gilbert Harrison. Others of them say it died 1991, when Marty Peretz fired Hendrik Hertzberg. Since then there had been only a shambling zombie, populated by various writers–some very good, others very bad, whose principal distinguishing characteristic is their willingness to go the extra mile to suck up to the racial and religious bigotry of Martin Peretz. As Fellow Travelers of the Juice-Box Mafia, we cannot see why anyone would think that Chris Hughes’s money is likely to be less-well deployed by Gabriel Snyder than by Franklin Foer. Cf.: Max Fisher: The New Republic and the Beltway Media’s Race Problem. Spencer Ackerman: Best of toohotfortnr“

One of the nice things about economics as an intellectual discipline is that you can effectively score intellectual-reputation points by taking on the work of giants a generation older than you–something that, IMHO, too-rarely happens in other disciplines. Here smart young whippersnapper Marshall Steinbaum takes on the very sharp Tom Sargent’s “The End of Four Big Inflations” account of Europe’s post-WWI hyperinflations.

…I called it ‘terrible history and questionable economics’… post-World-War-I monetary histories of Austria, Hungary, Poland, and Germany, which they all experienced hyperinflations, on the one hand, and Czechoslovakia, which did not, on the other… highly influential…. The titular Four Big Inflations were actually one big inflation… caused by the near-state-collapse embodied in the Treaties of Versailles, St. Germain-en-Laye, and Trianon… denuding the defeated… of… industrial capability… reparations…. Keynes’ argument is that the reparations… exceeded… the maximum amount of government revenue that can be extracted from the productive economy…. A particularly important aspect of Keynes’ argument is the tension between France and Poland’s abject public finances, only made paper-solvent by ambitious reparations schedules…. [The] hyperinflations ended when the vague commitment to reparations imposed on them was removed by the League of Nations…. The German hyperinflation was a consequence of the postwar settlement, and most importantly, the huge reparations it faced….

Sargent tells a very different story. Each of his four hyperinflations ends when a central bank is reorganized to be politically independent of a national treasury. Thereafter, although the circulation of national currency continued to increase, inflation was kept under control because newly-independent central banks adhered to reserve requirements and only purchased securities on the open market, rather than accepting worthless government bonds from the Treasury. At the same time, national treasuries were disciplined by their lack of access to the money-printing presses to enforce fiscal austerity. That combination of institutional changes constitutes what Sargent calls a ‘regime shift.’… The notion of a regime change might be helpful, but Sargent… mis-deploys it…. There was a regime shift… the US and Britain… prevailed over France and abandoned the most onerous aspects of the postwar settlement.

Before turning to the later intellectual history following Sargent, let’s consider his ‘control’ case of Czechoslovakia… also created at the Treaty of [Saint-Germain-en-Laye], but… well-endowed with the most productive territory of the former Austria-Hungary… a perceived victim… never had to pay reparations….

So what’s the harm in Sargent’s paper?… As I see it, two things: 1. The conflation of inflation and hyperinflation. Sargent seeks economic lessons in the cost to output and employment from ending the sort of stagflation that characterized the 1970s in developed economies…. [But] hyperinflation happens because of state collapse or near-collapse. That’s fundamentally different…. 2. More importantly, ‘The Ends of Four Big Inflations’ propagates the myth that monetary policy is easy to get right, once it’s in the hands of a superman central banker whose force of discipline cows disorderly workers into accepting at least a restraint in wage increases…. Thanks to the Maastricht Treaty, [this] is enshrined in the mandate of the European Central Bank, to devastating effect….

When I TAed undergraduate macroeconomics at the University of Chicago, there was a problem set with the following scenario, presented as a factual historical statement: in order to win the 1980 general election, the government of Brazil decided to fool voters into thinking their wages had gone up by printing money at a greater rate. What is the time path of nominal and real wages? Then, in 1985, a new government decided to tame inflation by appointing a central banker from the University of Chicago. What happens to inflation then?

In 1980 (and until the late 80s-early 90s), Brazil was governed by a US-backed military junta. Needless to say, there was no general election in 1980…. If it suffered from high inflation, that wasn’t because its democratically-elected regime was too spineless to give the voters a dose of UChicago patent medicine. Nonetheless, this idea of the craven politicians and the savior economists/central bankers has been a persistent but useful myth. The actual treatment can start with a dose of historical reality.

Marshall’s central points are:

1. Sargent uses a conventional monetarist model–the price level rises with the central bank-determined stock of money–to analyze a situation to which the fiscal theory of the price level–the price level rises until the real value of the government’s debt falls to a level that can be paid by the taxes that can be collected–applies.
2. As a result he mistakes the “régime change” that brought an end to the post-WWI hyperinflation.
3. The key régime change was not the appointment of a tough, independent central banker, but rather the abandonment of the reparations demands that had made the hyperinflationary countries’ public finances unsustainable.
4. Sargent’s paper played a big and destructive role in the development of the Curse of the Eurozone–the cult of the tough, independent, inflation-averse central banker.

I think Marshall’s (1), (2), and (4) are completely correct. But I think that there is more to be said for Tom on (3) than Marshall allows. Yes, you cannot stop hyperinflation until you have changed the fiscal regime so that it is possible to collect enough taxes to amortize the government’s debt at the current price level. But there is nothing that says that the hyperinflation has to stop then. You also need–after the fiscal régime change–a monetary régime change that both (a) steps up the pace of printing money, but (b) removes the ability of the government to finance its ongoing expenditures via seigniorage, and (c) creates a central bank credibly committed to price stability. Hjalmar Horace Greeley Schacht’s and the other stabilizations could not have been accomplished earlier, before the abandonment of largest-scale reparations demands. But they did require a monetary régime change to put into effect after they were possible.

IIRC, Stanley Fischer essentially made Marshall’s criticism of Tom’s paper when it was presented, and Tom wrote a follow-up–“Stopping Moderate Inflation: the Methods of Poincare and Thatcher” contrasting the French cold-turkey régime change stabilization of 1926-1927 with Thatcherite British gradualist monetary growth rules in the 1980s, to the discredit of the latter. IIRC, it was a little too optimistic on how painlessly the French stabilization was accomplished…

…Today the US is not strong enough to lift the rest of the world out of a downturn. But it is robust enough to continue to motor ahead even if Europe and Japan stall…. The stock market boom has helped revive the housing market and pension valuations…. By historic standards, the US equity markets are not yet in bubble territory. US corporate balance sheets are also strong….

Why, then, are so few people popping the champagne? The answer is simple. Most Americans are worse off than they were at the beginning of the 21st century, while the top sliver are dramatically richer…. The US system still has the wherewithal to generate growth…. But it is neither your parents’ recovery, nor your grandparents’. This coming year will be America’s best in a decade. It will nevertheless elude most Americans.

I ought to write a response to the very sharp Bill Gale’s response to my questions in response to hist paper for Brink Lindsey’s Cato Economic Growth Forum:
William Gale:
Response to DeLong on the Fiscal Sitch….

And it would probably be good if I kept it relatively brief.

Given the extraordinary global demand for the debt of the US federal government as a safe and secure store of value in today’s economy, right now the financing of the expenditures of the federal government should be pushed off, as far into the future as intergenerational equity, to allow us to take advantage of this extraordinary sale price on repayment duration that the world economy’s individual rich, public sovereign wealth funds, and central banks seeking dollar reserves are offering us.

Given the extraordinary gap, as evidenced by a remarkably low employment-to-population ratio and remarkably subdued inflation, between America’s current level of production and potential output, right now is the time for the federal government to spend to soak up this output gap–spend on infrastructure, spend on education, spend on research and development, spend on other things that accelerate economic growth, and, to the extent that intergenerational equity allows, on enhancing the societal welfare of America today.

But as long as interest rates and the output gap remain in their current configuration, sober technocratic fiscal policy would involve substantial increases in the debt-to-annual-GDP ratio and then, after the macroeconomic configuration has changed, debt paydown in the form of a gradual return to the normal-time target debt-to-annual-GDP ratio.

What that normal-time target debt-to-annual-GDP ratio will be and what will be the appropriate share of GDP and mix of federal government expenditures once the macroeconomic configuration has changed will be for future voters to choose legislators and president who will then decide. We cannot dictate to them.

What we can do is assume that they will do their job, in which case we should do our job–which the elementary math says would involve federal government spending and deficits considerably larger than those we have today.

Alternatively, we can assume that they will not do their job, in which case we should try to do their jobs for them. We should pass a long-run slowly-increasing carbon tax. We should preserve the health insurance Cadillac tax against attempts to around it. We should pass symmetric standby tax increases and sequesters to force the future to make in a timely fashion the decisions it faces rather than to delay them further. But do we need to cut Medicare’s spending growth path? Not unless we are confident that Medicare expenditures a generation hence will have low benefits at the margin. Do we need to cut Social Security’s spending growth path? Not unless we are confident that Americans in generations hence will have ample retirement security.

As I see it, calls to “first, put our long-run fiscal house in order!” are calls for us to do what we are already doing (preserve the Cadillac tax), to do what we will not do until the Republican Party as we currently know it vanishes from the page of time (carbon tax and symmetric standbys), to do what we should not do (Medicare and Social Security cuts), and not to do what we should be doing–i.e., running higher deficits with more federal government spending until the macroeconomic configuration changes.

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