Category: Equitablog

As Reifschneider et al. politely put it:

Endogeneity of [long-run potential aggregate] supply with respect to [short-run] demand [shortfalls] provides a strong motivation for a vigorous policy response to a weakening in aggregate demand…

And, boy, do they find a very strong endogeneity of long-run potential aggregate supply–roughly three times as strong as the numbers I have been using for finger exercises over the past two years. And, boy, does the arithmetic then tell us that this then calls for a “vigorous” policy response…

Let me give the mike to Ryan McCarthy to explain the issues:

Continue reading “Implications of Reifschneider, Wascher, and Wilcox’s Estimates on the Immediate Need for Lots of Expansionary Policy: Tuesday Focus” →

Musings on the Three Tasks Required of New Berkeley Chancellor Nicholas Dirks…

So how is new UC Berkeley Chancellor Nicholas Dirks doing, anyway?

As you may or may not remember, I think that the historic tasks of a UC Berkeley Chancellor today are three: two financial (with concomitant implications for the deployment of Berkeley's resources) and the third technological.

The financial tasks are:

• to rebalance Berkeley's finances in this post-Clark Kerr era by (partially) transforming it into a finishing school for the superrich of Asia.
• to rebalance Berkeley's enrollment by creating a system and which nobody who should be going to Berkeley feels that they cannot afford it or cannot risk it, and yet in which it is rich Berkeley graduates rather than the poorer median taxpayers of California who bear the financial burden of supporting the public university.

The technological task is:

• to figure out how to use, rather than to misuse, abuse, or not use the new educational technologies made feasible by our ongoing revolutions in information and telecommunications.

And, of course, the chancellor must make progress via the Sisyphean process of bureaucratic persuasion and marginal budget reallocation…

Continue reading “Does America’s Future Contain Elite Public Universities?” →

Must-Reads:

1. Mark Thoma: sends us to John Cassidy: By George, Britain’s Austerity Experiment Didn’t Work! :”George Osborne, the patron saint of austerity enthusiasts on both sides of the Atlantic, was in the House of Commons on Thursday, reveling in the fact that the U.K.’s economy is finally growing again…. For Britons who have been laboring through more than five years of recession, or near recession, that is welcome news…. It’s a clever political line… it appears to be having an impact… caught by surprise most forecasters…. But from an economic perspective, Osborne’s argument is hogwash. His effort to cure the patient by subjecting it to the equivalent of leeching—big cuts in government spending and higher taxes—a return to pre-Keynesian policies watched closely the world over, failed abysmally…. It produced a dearth of public-sector and private-sector investment that will hobble Britain for years to come. It even failed to meet its own targets of drastically reducing the budget deficit and bringing down Britain’s over-all debt burden…. The problem… is that the ‘hard work’ hasn’t paid off. After three and a half years of austerity, the outlook for the government’s finances doesn’t look any better than it did when Osborne entered office. In fact, it looks worse…”

2. Paul Krugman: Robert Gordon vs. the Androids: I think I have a new way to explain why my gut feeling is that Bob [Gordon], while making a persuasive case (pdf), is probably wrong. Bob’s key point… is that the digital revolution really just doesn’t match up to the major innovations of the Second Industrial Revolution of the late 19th century…. But… suppose that we learned to build true androids… that would be transformative… end diminishing returns to capital accumulation… raising GDP per capita would simply be a matter of multiplying the androids. So how are things going on the android front? A decade ago I would have said “very badly”…. But something has happened—things that were widely regarded as jokes not long ago, like speech recognition, machine translation, self-driving cars, and so on, have suddenly become more-or-less working reality…. They’re using big data and correlations and so on to implement algorithms–mindless algorithms, you might say. But if they can take people’s place, does it matter?

   “The anti-Gordon case, then, would be that something like my android revolution is underway. If you buy that case, you can become a technological optimist…. You might also be a pessimist in the sense that you wonder what happens to wages once androids can do most human work. Also, Skynet will kill us all. But that, anyway, is where I would place the issue.”

3. Noah Smith: Noahpinion: Seven principles for arguing with economists: “1: Credentials are not an argument…. Suggested Retort: Loud, barking laughter. 2: ‘All theories are wrong’ is false…. Suggested Retort: Empty an entire can of Silly String onto anyone who says this…. 3: ‘We have theories for that’ is not good enough…. Suggested Retort: ‘Then how come no one was paying attention to those theories before Phenomenon X emerged and slapped us upside the head?’…. 4: Argument by accounting identity almost never works…. Suggested Retort: ‘If my theory violates an accounting identity, wouldn’t people have noticed that before? Wouldn’t this fact be common knowledge?’… 5: The Efficient Markets Hypothesis does not automatically render all models useless…. Suggested Retort: ‘By your logic, astrophysics can never predict when an asteroid is going to hit the Earth.’… 6: Models that only fit one piece of the data are not very good models…. Suggested Retort: ‘Nope!’… 7: The message is not the messenger…. Suggested Retort: ‘Well, now it’s me making the argument! So what are you going to say about me?’…”

Continue reading “Things to Read on the Afternoon of December 9, 2013” →

What David Beckworth misses is that if quantitative easing is used to fund expansionary fiscal policy–if the government buys not long-term Treasury bonds but, rather, bridges and NIH research and the human capital of twelve-year olds–then those asset purchases are going to be permanent: you cannot unwind those transactions. Hence, by Beckworth’s logic, that policy will be effective.

Or, at least, it might be:

Continue reading “Why I Am More Optimistic About Money-Financed Expansionary Fiscal Policy than About Quantative Easing” →

But the rest of his column leaves me puzzled…

Martin Feldstein calls for the U.S. to fight deficient aggregate demand by spending an extra trillion dollars on infrastructure over the next five years–and then to keep that program from worsening the government debt-to-GDP ratio by also enacting tax increases and spending cuts that would bring the debt down to its baseline level between, say, years five and fifteen, by, say, 2028.

Continue reading “I Am Pleased to See Martin Feldstein Wisely Calling for Large, Immediate Fiscal Stimulus to Boost Employment!” →

Barack Obama should be glad that Robert Waldmann was over in Italy rather than in the audience during his “inequality” speech last week. Just saying:

Robert Waldmann: Obama, AFDC, TANF, EITC, and facts which are stubborn things:

I want to stress that I do no mean to criticize Obama’s speech or even suggest that it could possibly have been better. However, I do wish to note the facts that it contains a gross contradiction….

some programs in the past, like welfare before it was reformed… poorly designed, created disincentives to work, but… every citizen of this country deserved a basic measure of security, a floor through which they could not fall, we helped millions of Americans live in dignity…

The reform of welfare was changing it from a program which established a floor through which families with dependent children could not fall, to a program in which some families with dependent children have zero cash income.

Continue reading “Robert Waldmann: Facts (About AFDC, TANF, etc.) Are Stubborn Things…” →

Paul Krugman: Robert Gordon vs. the Androids:

I think I have a new way to explain why my gut feeling is that Bob [Gordon], while making a persuasive case (pdf), is probably wrong. Bob’s key point… is that the digital revolution really just doesn’t match up to the major innovations of the Second Industrial Revolution of the late 19th century, which he contends drove growth well into the 20th century.. indoor plumbing beats iPads.

But… what would a digital revolution that lived up to the past look like?… Suppose that we learned to build true androids… that would be transformative… end diminishing returns to capital accumulation… raising GDP per capita would simply be a matter of multiplying the androids. So how are things going on the android front? A decade ago I would have said “very badly”…. But something has happened—things that were widely regarded as jokes not long ago, like speech recognition, machine translation, self-driving cars, and so on, have suddenly become more-or-less working reality…. They’re using big data and correlations and so on to implement algorithms–mindless algorithms, you might say. But if they can take people’s place, does it matter?

The anti-Gordon case, then, would be that something like my android revolution is underway. If you buy that case, you can become a technological optimist….

You might also be a pessimist in the sense that you wonder what happens to wages once androids can do most human work.

Also, Skynet will kill us all.

But that, anyway, is where I would place the issue.

Mark Thoma: sends us to John Cassidy: By George, Britain’s Austerity Experiment Didn’t Work!

George Osborne, the patron saint of austerity enthusiasts on both sides of the Atlantic, was in the House of Commons on Thursday, reveling in the fact that the U.K.’s economy is finally growing again…. For Britons who have been laboring through more than five years of recession, or near recession, that is welcome news…. It’s a clever political line… it appears to be having an impact… caught by surprise most forecasters….

But from an economic perspective, Osborne’s argument is hogwash. His effort to cure the patient by subjecting it to the equivalent of leeching—big cuts in government spending and higher taxes—a return to pre-Keynesian policies watched closely the world over, failed abysmally…. It produced a dearth of public-sector and private-sector investment that will hobble Britain for years to come. It even failed to meet its own targets of drastically reducing the budget deficit and bringing down Britain’s over-all debt burden….

The problem… is that the ‘hard work’ hasn’t paid off. After three and a half years of austerity, the outlook for the government’s finances doesn’t look any better than it did when Osborne entered office. In fact, it looks worse…”

Must-Reads:

1. Sherry Glied and Stephanie Ma: How States Stand to Gain or Lose Federal Funds by Opting In or Out of the Medicaid Expansion: “The Supreme Court ruled to allow states to choose whether to participate in the expansion. Many of the states declining to participate have pointed to a potential negative impact on their budgets…. We compare the expected flow of Medicaid expansion-related federal funds in 2022… to payments to state governments through federal highway subsidies and payments to state businesses through defense procurement… to taxes raised by the federal government to fund the program… the state’s share of the cost of the Medicaid expansion in 2022—the match needed to draw these federal funds—to state expenditures that aim to draw private investments to states. We find that the Medicaid expansion will be a relatively large source of federal revenue… 2.35 times as great as expected federal highway funds… over one-quarter as large as expected defense procurement… No state would experience a positive flow of funds by choosing to reject the Medicaid expansion… taxpayers in non-participating states will nonetheless bear a significant share of the overall cost of the expansion… and not enjoy any of the benefits. Most states’ budget costs of expanding Medicaid each year will be, on average, less than one-sixth the amount they pay to attract private businesses…”

2. Paul Krugman: Secular Stagnation Arithmetic: “The key point is NOT to focus on events since crisis struck; this is not a case of taking a business-cycle slump and imagining that it will last forever. Instead, the argument is that the sources of demand during the good years-the Great Moderation from 1985-2007–are not going to be available even when the aftereffects of crisis have faded away…. Underneath the apparent stability of the Great Moderation… debt… rising by around 2 percent of GDP annually; that’s not going to happen in future… a reduction in demand… of around 2 percent of GDP…. Slowdown in the rate of growth of potential output, mainly… demography… perhaps… slowing productivity…. CBO thinks… 1 percentage point…. The [investment] ‘accelerator’… is somewhat above 2[:]… a 1 percentage point drop in potential growth would reduce investment spending by 2 percent of GDP…. We seem to be depressing aggregate demand by 4 percentage points…. Now, this effect can be offset to some degree by reducing interest rates. But can this be enough?… The average real rate during the GM years was 1.9 percent… hard to avoid the conclusion that the average real rate looking forward will have to be negative. If inflation stays relatively low, e.g. 2 percent, this would mean an economy that often, perhaps usually, finds itself in a liquidity trap…”

3. Ezra Klein: Should the FDA stop you from scaring yourself with 23andMe’s DNA test?: “Let’s agree that 23andMe Inc., the Google-backed company marketing a $99 genetics test that assesses your risk for more than 240 health conditions, didn’t manage its relationship with the Food and Drug Administration well…. The public humiliation of 23andMe shows how dangerous it is for any company to cross regulators. But there’s a benefit derived from upstarts such as 23andMe bristling at creaky, old rules: They force a re-examination…. The FDA, in its letter to 23andMe, cites potential harms from genetic testing; all are bank shots. After all, swabbing your saliva carries very little risk. So the FDA focuses instead on the possibility that a test will lead consumers to do something else that actually harms them…. Don Taylor, a health researcher at Duke University, delivers the obvious rebuttal…. Is preventing patients from making bad decisions the FDA’s mandate?… Investors in 23andMe should be furious that the company handled its relationship with the FDA so badly. But for the rest of us, there’s upside to seeing this spat play out in public.”

Continue reading “Things to Read on the Afternoon of December 8, 2013” →

Sherry Glied and Stephanie Ma: How States Stand to Gain or Lose Federal Funds by Opting In or Out of the Medicaid Expansion:

The Supreme Court ruled to allow states to choose whether to participate in the expansion. Many of the states declining to participate have pointed to a potential negative impact on their budgets…. We compare the expected flow of Medicaid expansion-related federal funds in 2022… to payments to state governments through federal highway subsidies and payments to state businesses through defense procurement… to taxes raised by the federal government to fund the program… the state’s share of the cost of the Medicaid expansion in 2022—the match needed to draw these federal funds—to state expenditures that aim to draw private investments to states.

We find that the Medicaid expansion will be a relatively large source of federal revenue… 2.35 times as great as expected federal highway funds… over one-quarter as large as expected defense procurement… No state would experience a positive flow of funds by choosing to reject the Medicaid expansion… taxpayers in non-participating states will nonetheless bear a significant share of the overall cost of the expansion… and not enjoy any of the benefits. Most states’ budget costs of expanding Medicaid each year will be, on average, less than one-sixth the amount they pay to attract private businesses…”