OK, Ben: how do we write regulations that constrain aggregators that want to hack our brain and attention and empower platforms that enable us to accomplish what we prudently judge our purposes to be when we are in our best selves? How was it that printing managed to, eventually, generate a less-unhealthy public sphere? Young Habermas, where are you now that we need you?: Ben Thompson: Tech’s Two Philosophies: “Apple and Microsoft, the two ‘bicycle of the mind” companies’… had broadly similar business models… platforms.

…Google and Facebook, on the other hand, are products of the Internet, and the Internet leads not to platforms but to aggregators…. The business model follows from these fundamental differences: a platform provider has no room for ads, because the primary function of a platform is provide a stage for the applications that users actually need to shine. Aggregators, on the other hand, particularly Google and Facebook, deal in information, and ads are simply another type of information. Moreover, because the critical point of differentiation for aggregators is the number of users on their platform, advertising is the only possible business model; there is no more important feature when it comes to widespread adoption than being “free.”… Google and Facebook have always been predicated on doing things for the user, just as Microsoft and Apple have been built on enabling users and developers to make things completely unforeseen….

Google and Facebook are fundamentally more dangerous: collective action is traditionally the domain of governments, the best form of which is bounded by the popular will. Google and Facebook, on the other hand, are accountable to no one. Both deserve all of the recent scrutiny they have attracted, and arguably deserve more. That scrutiny, though, and whatever regulations that result, must keep in mind this philosophical divide: platforms that create new possibilities—and not just Apple and Microsoft!—are the single most important economic force when it comes to countering the oncoming wave of computers doing people’s jobs, and lazily written regulation that targets aggregators but constricts platforms will inevitably do more harm than good…. Companies like Apple and Amazon can, as I noted, win in the long run by offering a superior user experience, but more importantly…. Discontent is a greenfield of opportunities to build new businesses and new jobs alleviating that discontent. For that we need platforms on which to build those businesses, and yes, we will need artificial intelligence to do things for us so we have the time.

I agree with Noah Smith that a lot of interesting work is being done in academic economics—even in macro. I agree with the Economist that academic economists are more-or-less neutralized at best in the public sphere, with bad actors, bad methodology, and bad ideologues drowning out information. I agree that economics should do a much better job of policing its own internal community and standing within it via what my colleague Alan Auerbach calls “obloquy”. I agree that economics should do a much better job of managing its discursive modes, in both empirical and theoretical work. But I do wish the Economist would turn its microscope on what purports to be economic journalism more: Noah Smith: OK, so The Economist has an ongoing series of articles about the shortcomings of the economics profession: “https://www.economist.com/news/finance-and-economics/21740403-first-series-columns-professions-shortcomings-economists…

…I’m going to go ahead and write about it before it’s finished, so hopefully the later installments will be better than the first three! The Economist’s articles each contain some useful background knowledge about a field of econ, and they are better than the Standard British Econ Critique that gets repeatedly dished out (https://www.bloomberg.com/view/articles/2018-04-25/critics-of-economics-are-dwelling-in-the-past). But that’s about all I can say for them. Let’s take the first one, which is about economic growth (really, development). The thesis is that economists don’t understand the causes of long-run growth. That is true!! Most development and growth economists will cheerfully admit that they don’t know what makes countries go from poor to rich…. Most development economists are agnostic about the Big Question of what makes countries go from poor to rich, and spend their time researching relatively modest interventions that can be used to make countries a little bit less poor.

Nor does the article do justice to many of the theories it does mention.For example, its problem with the Solow model is that we don’t understand what the Solow residual is. If that were the only problem, the Solow model would still be incredibly powerful! Growth accounting is summarily dismissed, again because we don’t know what the residual is. Again, the implication seems to be that if a growth theory isn’t a Theory of Everything, it’s a failure. That explaining some aspects of growth, but not others, is useless…. The whole article assumes a self-assurance on the part of growth and development economists that, with a few exceptions, does not actually exist.

Yes, a few people like John Cochrane make wild promises about the growth effects of certain policies. They are rare.

The second article is about business cycle theory. There’s really not much in this one, besides a short, informal history of Keynesian, New Classical, and New Keynesian models that won’t enlighten anyone who isn’t already acquainted with the subject. Macroeconomics is trying a lot of new things – finance-based models, heterogeneous-agent models, search-based models, behavioral models, and quite a lot more. The article does not mention these. Nor does the article suggest a way forward, other than to briefly name-check Minsky and Kindleberger and saying that macroeconomists must “sort out their disagreements” and “come to grips” with their “epistemological woes”. There is so much about macro to critique that I’m frankly kind of astonished that this article didn’t do much actual critiquing!

The third article, my least favorite of the bunch, is about applied micro. Which the authors seem to think is in a parlous state…. I do appreciate this name-check (though @jamesykwak deserved it more), and it’s good that the article talks about the empirical turn in microeconomics…. I’m also glad that this article, unlike the others, actually takes the time to explain a bit about how the research in question actually works! That’s great! Though the example of Levitt’s abortion-crime study (which turned out to have major problems) isn’t the best.

So why does the article say that applied micro is unreliable? Because of the same general critiques of empirical science that are everywhere nowadays: Publication bias, low power, and replication. These critiques are good and useful… in the academic literature. In the public sphere, though, they are often misused. A general attitude of “Don’t trust empirical research” has taken hold in some quarters that is lazy, anti-intellectual, and just plain wrong. Publication bias is a problem. BUT, any result will be followed up on by other researchers. Most empirical questions have not ONE paper investigating the question, but MANY….

The article then makes one of the most annoying arguments in journalism, which is to find two conflicting results and conclude that the entire literature is full of conflicting results: Studies finding small or no short-term effects of minimum wage on employment vastly outnumber studies finding big effects, but the article does not mention meta-analysis or the relative quality of the methodologies in question. Waving around papers on publication bias and doing he-said-she-said cherry-picking of empirical results is a GREAT way to get the public not to trust whole literatures full of good, valuable, careful, highly informative research. This kind of thing is not good for anyone. It doesn’t help improve the academic literature, and it doesn’t help policymakers or the public extract information from the academic literature….

I guess I’m being too nitpicky about these Economist articles. They really are more informed, and more informative, than the average Econ Critique piece coming out of British newspapers. The real problem here is the need to structure every article about the econ profession as a critique. Is there something in British politics that makes it necessary to bash economists to prove you’re Very Serious these days? Something about Brexit? Or Corbyn?… Enough grumping…

Will the Trump Fed be “normal”? I will give Ken Randy Quarles. I grant Rich Clarida. But Marvin Goodfriend does not seem to me to be a particularly normal Federal Reserve appointment. He’s one of the “debasement” crowd who had no respect for Ben Bernanke’s judgment and tried as hard as they could to limit his freedom of action. If that’s “normal”, “normal” is not a good thing. And otherwise… a lot of unfilled seats. I told Jason Furman he needed to fill up the Fed Board on January 4, 2017. He did not do so: Ken Rogoff: Donald Trump’s Normal Fed : “Unfortunately, the battle for the Fed’s independence is far from over…

…Trump may just be keeping his powder dry until a real conflict erupts. Right now, the Fed’s planned interest-rate hikes are largely prophylactic. Inflation is rising only very slowly, even as the economy seems to be running red-hot. But the moment of reckoning could still come. And, assuming that Trump stays healthy, avoids impeachment, and runs again, the last thing he would want in 2019 and 2020 is sharply higher interest rates, an untimely rise in unemployment, and a likely price collapse in his beautiful stock market. In a crunch, the Fed’s much-vaunted independence could prove more fragile than most people realize. It is not enshrined in the US Constitution, and the president and Congress maintain several levers of control. An act of Congress created the Fed in 1913, and in principle Congress could revamp it, say, by greatly increasing congressional oversight, or by starving it of funding. Indeed, from time to time bills have floated around Congress that would have done just that.

For now, Fed appointees have been treated almost as well as generals in the Trump universe. True, with ballooning deficits and the approach of the 2020 election campaign, testing times lie ahead. But for now, let’s acknowledge that this is one area where the Trump presidency has been almost normal–so far…

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…