Category: Equitablog

Should-Read: Martin Wolf: Britain is incapable of managing Brexit and calamity will follow: “The UK once had a deserved reputation for pragmatic and stable politics… https://www.ft.com/content/bf0025aa-6720-11e7-8526-7b38dcaef614

…That will not survive the spectacular mess it is making of Brexit. Remember what has happened. In an unnecessary referendum, a small majority chose an option they could not understand, because it had not been worked out. Thereupon, a new prime minister, with no knowledge of the complexities, adopted the hardest possible interpretation of the outcome. She triggered the exit process in March 2017, before shaping a detailed negotiating position. Some 70 days later, in an unnecessary election, she lost both her majority and her authority…

Should-Read: Jeff Mackie-Mason: Scholarly Publishing Landscape: “We are optimistic about our ability to collaborate and partner to achieve a sustainable open publishing universe… http://www.lib.berkeley.edu/scholarly-communication/publishing/landscape

…one in which all scholarly outputs—research data, visualizations, articles, books, and more—are accessible, discoverable, and preserved.  We invite you to learn about the challenges and successes that we share with the entire scholarly community…

Should-Read: IGM Forum seems to me to be asking some of the wrong questions.

IGM Forum: Inflation Target http://www.igmchicago.org/surveys/inflation-target:

First, they are not questions the respondents are asked to answer: they are statements with which the respondents are asked to agree or disagree.

Second, the first question should be: “If the Fed changed its inflation target from 2% to 4%, the long-run costs of inflation for households would not rise by an amount significant when weighed in the balance against the costs of the Fed’s being unable to lower interest rates to Wicksellian neutral in a recession.”

Jacob Levy: The Sovereign Myth: “The sense of control that is often attributed to voters in the olden days was really a sense of satisfaction with outcomes… https://niskanencenter.org/blog/sovereign-myth/

…Long years of economic growth in the West, broadly shared in, and in excess of the expectations of people who had lived through wars and economic collapse, propelled this satisfaction. In retrospect, though, it’s easy to flatter ourselves that, if things went well, it’s because we made such good decisions. Things look rather different when expectations are suddenly, sharply disappointed, as in the 2008 financial crisis and its aftermath…. The simple versions of the “economic anxiety” explanations for who supports such political movements have been widely debunked. But I think it is part of what makes fertile ground for such holist and fear-based political movements. The loss of the feeling of control can, moreover, go past economic questions; the demagogue can promise a restoration of control to the real people on social and cultural matters, too.

But in all these domains, the promise of control will be disappointed.

To the demagogue, the disappointment is a feature, not a bug. A perpetually frustrated and perpetually fearful populace is one that will continue to lend support to demagoguery. The policies adopted by an Erdogan or a Duterte are not meant to solve problems, but to keep the fear of them alive. Those of us hoping to see decent liberal democratic constitutionalism in the future have to proceed differently. Yes, there has to be hope for a better future; but hope is not the same as autarkic, nationalist, or democratic sovereign control…. We need to think of politics itself as a result of human action but not human design and decision, which even those who understand spontaneous and emergent orders in economics and society have been reluctant to do. It’s difficult to come to terms with. But however we are to manage the difficult psychological task of navigating currents that we didn’t decide into being, the first step will be understanding and admitting that we didn’t decide them.

I discuss some of these issues in greater depth in two recent academic pieces: Contra politanism, Against solidarity: Democracy without fraternity

Should-Read: Salvatore Morelli: Is growing inequality hurting our economies?: “The recent 2007–2008 collapse of the global financial system naturally acted as a catalyst for growing concerns around the increasing dispersion of economic resources within most advanced economies… https://equitablegrowth.org/research-analysis/is-growing-inequality-hurting-our-economies/

…Subsequently, the landmark book by Thomas Piketty, Capital in the Twenty-First Century, underlined very clearly the risk of the rising importance of inherited intergenerational advantages in transforming our societies into patrimonial capitalistic economies dominated by wealthy dynasties…. The reverse direction of inquiry—how macroeconomic performance may be affected by the extent of inequality—rests instead outside the scope of Piketty’s analysis and modeling…. In fact, the investigation of the (fairly complex) relationship between inequality and economic growth has been featured prominently in the empirical literature on inequality, with disparate findings and hypotheses pointing in different directions….

Economic theory provides different anchors as to why the so-called equity-efficiency trade-off may fall apart…. If most of the dispersion of economic outcomes of individuals results from inequality of opportunities… opportunities are not necessarily given to the most talented but to individuals with predetermined circumstances, and economic growth may in turn be weakened…. High levels of income and wealth inequality… may be detrimental to the level of economic activity as only those who inherit sufficiently high wealth may be able to pay the fixed cost of entrepreneurial activity or education…. Investments in productive capital and risky activities themselves can also be discouraged by highly unequal distribution of resources as a result of increasing rent-seeking behavior and other expropriation actions…. Does wealth inequality really promote rent-seeking behavior?… Bonica and Rosenthal documented the U.S. campaign contributions of the Forbes 400 wealthiest individuals between 1982 and 2012. Their figures imply an average individual donation of $10,000 for each $1 million increase in wealth—presumably a relatively easy achievement for a billionaire…

Should-Read: Martin Sandbu: Globalisation goes on without those who want to get off: “The EU, Japan and Canada keep the economic openness show on the road… https://www.ft.com/content/97582468-5fc7-11e7-8814-0ac7eb84e5f1

…The significance of this imminent accomplishment is only matched by the degree to which it is ignored by the public…. The EU, flanked by Japan and Canada, has taken on the leadership mantle of economic globalisation. Even more importantly, if implemented, the two deals show that Europe is capable of leading successfully…. For countries such as the US and the UK, which behave as if they have been victimised by globalisation, the new European trade deals show the wrong-headedness of their self-pity…. The US and the UK can hurt themselves by throwing up barriers to trade between themselves and their trading partners. But that is all they will achieve; there will not be a reorientation of “better” or “fairer” trade that will somehow improve on the status quo ante. (Of course there are plenty of domestic policies that these countries can improve, but there is no need to deglobalise to make those changes.) Meanwhile the countries that have stuck to their senses will simply move ahead shaping the global economy…

Should-Read: Koichi Hamada: The Rebirth of the TPP: “Jagdish Bhagwati said… ‘the TPP was a bit like allowing people to play golf in a club, but only if they also attended a particular church’… https://www.project-syndicate.org/commentary/tpp-revival-japan-us-by-koichi-hamada-2017-06

…The deal’s signatories were in it for the golf–that is, the expanded trade and investment flows. But they couldn’t avoid the obligation to accept rules that would benefit the US…. The US… had a strong national interest in both the golf and the church. Now it will get neither. And when the new TPP, excluding the US, begins to flourish, US businesses will be wishing Trump had not canceled their tee time…

Should-Read: Doug Campbell: Douglas L. Campbell: In the Idiocy of Kevin Warsh: More Evidence for the ‘Self-Induced Paralysis’ Thesis: “I believe it is clear that the main reason the economy has been growing slowly since the financial crisis is overly tight monetary policy… http://douglaslcampbell.blogspot.ru/2017/07/in-idiocy-of-kevin-warsh-more-evidence.html

…In particular, look at… 2009, when the Fed adopted no new stimulus despite headline deflation and mass job losses, on net (in terms of rates or asset purchases, forward guidance was done), or in 2010, when the Fed raised the discount rate. What on Earth could they have been thinking?… Part of the answer might be that Ben Bernanke, ever a consensus builder, would have liked to do more, but was also constrained by other members of the FOMC. Sam Bell provides some evidence for this in a can’t miss article on Kevin Warsh, who now appears to be a front-runner for the Fed Chair job, who was still worried about inflation pressures even after Lehman Brothers failed in 2008…. Warsh is a lawyer by training… appointed to the Fed at age 35 with a light resume after his father-in-law, Ronald Lauder… likely influenced his selection with donations. Even as the economy was tanking in 2008 and 2009, Bell writes that “Warsh adopted a skeptical and increasingly oppositional posture. He doubted the Fed could do much good without creating much bigger problems.”

Much bigger problems? What could be a bigger problem than letting the economy burn in a financial crisis?

“In March 2009 he told his Fed colleagues that he was “quite uncomfortable with the idea of purchasing long-term Treasuries in size” because ‘if the Fed is perceived to be monetizing debt and serving as a buyer of last resort in the name of lowering risk-free rates, we could end up with higher rates and less credibility as a central bank.'” The Fed should hold off on more stimulus in the worst recession in 75 years because it might actually end up with higher rates and lose credibility? Why wouldn’t the Fed lose credibility if it was perceived as not fighting the recession? Warsh continued to warn about the dangers of both monetary and fiscal stimulus in 2010. Warsh was also far and away not the only crazy one at the Fed at that time. In 2011… Daniel Tarullo… told me he believed that Jean-Claude Trichet’s interest rate hikes in 2010–which are widely seen to have been premature and to have helped ignite the European Debt Crisis–were justified. These comments suggested to me that Tarullo was somewhere to the right of Genghis Khan on monetary policy. Then, there were also worthies like Richard Fisher, Often Wrong but Seldom Boring, who “warned throughout most of 2008 that inflation was the primary danger to the economy”.

And that, my friends, is how the Tea Party was born….

The FOMC is that it’s a job most people seem to not want to do for very long. It’s a revolving door. Most people will do it for 4-5 years, and then quit for greener pastures, as it is not a job that pays that much, particularly by the pornographic standards of finance and banking…. In part because it is a revolving door the Obama administration never took its appointments seriously. They left in place an FOMC made up mostly of Republicans, including staunch white male MBA-holding Republicans raised in the south in the 1960s. Obama’s economic advisors apparently did not see this as potentially problematic.

And, then we had Bernanke, who apparently still holds the view that economic growth in the US economy is still more-or-less OK. In 2011, I also had a conversation with Ben Bernanke…. He was actually surprised when I asked him why he wasn’t doing more, given that core inflation at the time was running around 1.4%. His response is that higher inflation wasn’t costless. But I didn’t see how inflation of 2% vs. 1.4% would be as costly as millions of people out of work. It seems, few people at the Fed were trying to influence him in the direction of doing more. What all of this evidence does is make the thesis of “Self-Induced Paralysis”, that the major problem with the US economy is overly tight monetary policy, more plausible…