The behavior of the Federal Reserve remains a puzzle. They seem to be reacting month-to-month, and to be happy with their current policy stance of gradual raising until and unless something goes wrong. They do not seem to be thinking down the game tree very far—not taking account of how their current policy stance exposes them to huge downside risks should low r-star continue, should “secular stagnation” be the correct diagnosis, and should there be any kind of significant adverse demand shock to the economy: Tim Duy: Set To Stay On Current Path: “When is the economy at or beyond full employment?…

..>Will inflation accelerate?… How much inflation overshooting will the Fed tolerate?… Growing downside risks? Although activity remains consistent with the Fed’s forecast, there is always a risk that the current tailwinds revert again to headwinds. Supply chain disruptions stemming from international trade disputes, for example…. There is growing evidence of decelerating global activity…. Streaks of good luck eventually come to an end.

Bottom Line: I anticipate the Fed will continue to hike interest rates… 25bp a quarter for the rest of the year and into next…. Considering the resilience of very long rates to policy tightening, I anticipate that further upward pressure on rates remains concentrated on the short-end of the yield curve. I suspect the Fed continues to hike rates until they flatten out the yield curve–at that point policy makers will face some more significant challenges.

81%? Only 81% of “Initial Coin Offerings” created by “con artists, charlatans, and swindlers”? What are the other 19%? What of their own resources are the issuers putting on the line, and what is the path to long-run value? Not 81%: 100%, Nouriel!: Nouriel Roubini: Initial Coin Scams: “Initial coin offerings have become the most common way to finance cryptocurrency ventures, of which there are now nearly 1,600 and rising… Continue reading “Only 81% of “Initial Coin Offerings” created by “con artists, charlatans, and swindlers”? What are the other 19%?: Nouriel Roubini: Initial coin scams” →

The Brexiters never had a plan for what they would do if they won the referendum. And they still do not have a plan. I do not see a road other than “transitional” arrangements that keep things as they are without the UK having any voice in Brussels—”transitional” arrangements that will keep getting indefinitely extended: Robert Hutton: Stuck In the Middle: These Are Theresa May’s Four Brexit Options: “Her inner Brexit Cabinet has rejected her proposed customs relationship with the European Union…

…But the alternative would crash into the long-running Irish border issue. She has options… none of them are very good. 1. Delay: May’s survival strategy as leader of a party that simply can’t agree what it wants has been to keep putting decisions off…. 2. Call another election: An easy option to laugh at given how badly it went for May last time she tried this. However, one way for a prime minister to get past a divided Parliament is to take it to voters…. There’s a distinct possibility that voters might feel that a Tory Party calling an election for the third time in four years might really be asking to be put out of its misery…. 3. Go for a customs union: This has the huge advantage that the EU would definitely agree to it. Parliament probably would too…. The difficulty is that May has repeatedly and firmly ruled a customs union out. To go for one would be to find out whether Jacob Rees-Mogg’s ERG is serious about its threats to bring her down…. 4. Go for “no deal”: Make the “maximum facilitation” proposal to the EU. Announce loudly that there is no Irish problem. If they reject it, say there’s no prospect of an agreement, and walk away from the table…. Would May be able to win a confidence vote in Parliament?… It would take only a handful of Conservatives… to rebel…. Are there seven Tories who would do that? Probably. That gets you to an election that Corbyn could win…

Anecdotes trump data for what I wish were a surprisingly large proportion of male American economists: Economist: Barriers to entry: “In economics, men receive tenure at a rate 12 percentage points higher than women do, after controlling for family circumstances and publication records…

…Women who clear that hurdle are about half as likely as men to be named full professor within seven years. Just 4% of doctoral degrees in economics were awarded to African-Americans in 2011 (compared with about 8% across all academic fields). Something is broken within the market for economists, and the profession has moved only belatedly and partially to address it. A lack of inclusivity is not simply a problem in itself but a contributor to other troubles within the field.

Though women in economics have long been aware of the discipline’s biases, a growing body of research is making the problem harder for men to ignore. When decisions are made about tenure, men are not penalised for having co-authored lots of papers, whereas women who co-author with men are, according to work by Heather Sarsons, of Harvard University. That suggests women’s contributions to such papers are discounted; in other fields, like sociology, this is not the case. Research by Erin Hengel of the University of Liverpool has shown that papers by women are better-written, on average, than those by men, but spend longer in peer review, suggesting that women are held to a higher standard. That makes female researchers less productive. The climate within economics can be hostile as well….

The profession’s failings in this regard almost certainly influence the quality and focus of economic research. Putting women off careers in academic economics, and undermining the productivity of those who persist, means excluding good minds and good ideas. It also means excluding different viewpoints….

A survey of a random sample of members of the AEA, by Ann Mari May and Mary McGarvey of the University of Nebraska and Robert Whaples of Wake Forest University, found that hardly any men believed professional opportunities for economics faculty are tilted against women. Remarkably, about a third believe there is bias in favour of women. Many male economists seem to reckon the meritocracy is functioning perfectly well, with no problems to fix; men presumably dominate because of superior ability…

This year, 2018, will be the 11th year after the 2007 business cycle peak that preceded what is generally called the “Great Recession“. This year American national income per capita will be about 7.5% above its 2007 level. If we are lucky we will hit 10% above 2007 in 2020. That is growth of 0.4% per year—compared to the yardstick of 2.0% per year that we were reasonably expecting back in 2007.

1940 was the 11th year after the 1929 business cycle peak that preceded the Great Depression. Output per capita then relative to 1929 was 10.5% higher. That is growth of 0.95% per year. And output per capita in the 12th year, 1941, was 29% higher than at the 1929 peak—growth of 2.5% per year.

Up until now the disastrous consequences of the financial crisis that started the Great Recession have been first far less dire and then less dire than the disastrous consequences of the financial crisis that started the Great Depression. But this is the year that changes. Now and looking forward, the Great Recession is going to cast a larger shadow on the American economy them the Great Depression did.

But isn’t this the result of the fact that the US government iin 1940 and 1941 found itself facing the Nazis and imperial Japan? In short, no. Subtract all world war two related spending from 1940 1941 and, relative to the previous business cycle peak, in its recovery the Great Depression-era United States would still outstrip us. Defense spending was 1.7% of national income in 1940 and 5.5% of national income in 1941. The true mobilization did not begin until after Pearl Harbor, which came in December 1941.

Reference: http://nbviewer.jupyter.org/github/braddelong/weblog-support/blob/master/2018-05-11_Recovery_from_GD%26GR.ipynb

Some very interesting thoughts from Ken Rogoff. But he does not seem to recognize that Shenzhen is now at least as much a global hub of hardware and manufacturing process innovation in small-scale high-tech devices as anywhere else in the world. World class communities of engineering practice are hard to build. But China looks to be building one. I would dearly love somebody to take a deep close look at Shenzhen and tell me to what extent it is already more than just “the great assembler”: Ken Rogoff: Will China Really Supplant US Economic Hegemony?: “Over the next 100 years, who takes over, Chinese workers or the robots?…

…If robots and AI are the dominant drivers of production in the coming century, perhaps having too large a population to care for–especially one that needs to be controlled through limits on Internet and information access–will turn out to be more of a hindrance for China. The rapid aging of China’s population exacerbates the challenge. As the rising importance of robotics and AI blunts China’s manufacturing edge, the ability to lead in technology will become more important. Here, the current trend toward higher concentration of power and control in the central government, as opposed to the private sector, could hamstring China as the global economy reaches higher stages of development…. The US needs to struggle with the problem of how to redistribute income internally, especially given highly concentrated ownership of new ideas and technology. But for China, there is the additional problem of how to extend its franchise as export superpower into the machine age….

The US has the potential to expand the size of its manufacturing base… in terms of output if not jobs. After all, today’s high-tech factory floors produce far more with far fewer workers. And the robots and AI are coming not just in manufacturing and driverless cars. Robo-doctors, robo-financial advisors, and robo-lawyers are just the tip of the iceberg…. China’s rapid growth has been driven mostly by technology catch-up and investment…. While China, unlike the Soviet Union, has shown vastly more competence in homegrown innovation… China’s gains still come largely from adoption of Western technology, and in some cases, appropriation of intellectual property….

In the economy of the twenty-first century, other factors, including rule of law, as well as access to energy, arable land, and clean water may also become increasingly important. China is following its own path and may yet prove that centralized systems can push development further and faster than anyone had imagined, far beyond simply being a growing middle-income country. But China’s global dominance is hardly the predetermined certainty that so many experts seem to assume…. The coming machine age could be a game changer in the battle for hegemony…

Noah Smith: Remember Karl Marx for the many things he got wrong: “Marx didn’t make it to 200, but the ideas he injected into the global conversation and the ideologies that bear his name far outlasted the German economist and philosopher…

…Respect for Marx is enjoying a bit of a resurgence…. But something about this celebration of Marx sits uneasily…. It’s hard to forget the tens of millions of people who starved to death under Mao Zedong; the tens of millions purged, starved or sent to gulags by Joseph Stalin; or the millions slaughtered in Cambodia’s killing fields. Even if Marx himself never advocated genocide, these stupendous atrocities and catastrophic economic blunders were all done in the name of Marxism. From North Korea to Vietnam, 20th century communism always seem to result in either crimes against humanity, grinding poverty or both…. Defenders of Marx will say that Stalin, Mao and Pol Pot exemplified only a perverted caricature of Marxism, and that the real thing hasn’t yet been tried…. Excuses ring hollow. There must be inherent flaws in the ideas that continue to lead countries like Venezuela over economic cliffs. The best way to look for those flaws is to follow Cooper’s advice and read Marx with judicious detachment.

My favorite example of this is a 2013 post in which University of California-Berkeley economic historian Brad DeLong tried to boil Marx’s big ideas down to their essentials, and evaluate each one…. [His] mistakes alone would be enough to hobble an economy and send any economic doctrine to the rubbish heap. Collectivization of agriculture seems to have been particularly disastrous for farm-based societies…. But they can’t explain why communism was so often accompanied by atrocities, or why leaders like Mao and Stalin persisted in failed policies long past the time when wise, benevolent leaders would have changed course. The brutality and insanity of communist leaders might have been a historical fluke, but it also could have been rooted in another of what DeLong sees as Marx’s mistake: the preference for revolution over evolution…

Alex Bell et al.: Who becomes an inventor in America? The importance of exposure to innovation: “Using deidentified data on 1.2 million inventors from patent records linked to tax records…

…Children from high-income (top 1%) families are ten times as likely to become inventors as those from below-median income families. There are similarly large gaps by race and gender. Data on test scores in early childhood suggest that differences in innate ability explain relatively little of these gaps…. Exposure to innovation during childhood has significant causal effects on children’s propensities to become inventors. Growing up in a neighborhood or family with a high innovation rate in a specific technology class leads to a higher probability of patenting in exactly the same technology class. These exposure effects are gender-specific: girls are more likely to become inventors in a particular technology class if they grow up in an area with more female inventors in that technology class….

The financial returns to inventions are extremely skewed and highly correlated with their scientific impact, as measured by citations. Consistent with the importance of exposure effects and contrary to standard models of career selection, women and disadvantaged youth are as under-represented among high-impact inventors as they are among inventors as a whole. We develop a simple model of inventors’ careers that matches these empirical results. The model implies that increasing exposure to innovation in childhood may have larger impacts on innovation than increasing the financial incentives to innovate, for instance by reducing tax rates. In particular, there are many “lost Einsteins”–individuals who would have had highly impactful inventions had they been exposed to innovation…