Should-Read: Evan A. Feigenbaum: A Chinese Puzzle: Why Economic “Reform” in Xi’s China Has More Meanings than Market Liberalization: “What is going on that produces such a gaping disconnect between Beijing’s story about reform and the views of so many in the markets?…

…Or to put that point as bluntly as possible: are Chinese politicians and bureaucrats, as some international observers would have it, uniquely dissembling? I’d like to argue that a major part of this disconnect stems from a yawning gap in the definition of what actually constitutes “reform” in the Chinese political context of today. To put it as directly as I can, “reform” simply does not have the same meaning in China today that it does to many of us, and especially to a lot of market observers. Unsurprisingly, we tend to focus on market liberalization, to the exclusion of most else. But economic “reform” in Xi Jinping’s China has at least two additional meanings—and these can actually contradict and undermine market goals.

To Beijing, “reform” means:

• market liberalization;
• administrative measures to increase bureaucratic and operational efficiencies; and
• a rebalancing of authorities and decision powers among central and local levels of government.

Viewed in those broadened terms, there is actually quite a lot of “reform” happening in China today. But so much of that reform simply does not implicate the market. And even more important, these three distinct Xi-era “reform” goals can flatly contradict each other. That, in turn, leaves Beijing often trading off one kind of reform in pursuit of another. And more often than not, it is market liberalization that slips to a (distant) third priority between administrative reform and changes to Chinese-style “federalism.”… Xi Jinping has put a very clear premium on political aims, not economic goals…. Whatever [economic] rebalancing has taken place has mostly happened organically rather than by policy intervention or design. And this means that the Chinese president’s top three priorities—a cleaner CCP, a more disciplined CCP, and a stronger and more enduring CCP—have yielded a deeper connection between political goals and economic policy outcomes than China has witnessed in a generation. Inevitably, this leads to an overemphasis on the administrative aspects of reform….

Here are the three big things I take away from the fact that debates about “reform” in China are now much broader than the one we are having outside its borders: One takeaway is that reform is, quite simply, about Beijing’s priorities, not ours…. Second, Beijing is not nearly as attuned to foreign firms as it used to be. That means the reforms American and European multinationals want are just not going to happen without a lot of backstopping from their home governments…. Third, reform in China will, for at least the next five years, be viewed almost exclusively through a domestic lens.

When Xi Jinping and his colleagues toss and turn at night, I suspect their major policy nightmares and preoccupations are entirely homegrown: (1) how to stay in power and overcome dissent; (2) how to create some 12 million new jobs each year; (3) how to maintain sufficient growth to support those employment goals; (4) how to manage the demographic challenges of an aging country through welfare and “entitlement” reforms; and (5) how to mitigate pollution and environmental challenges. These five priority agendas implicate reform in all three of the senses I outlined above. But they do not all implicate market liberalization equally, and some of them not very much at all…. Xi Jinping is going be leading the country for a very long time to come. Like it or not, this is what I suspect “reform” is going to mean in China for a long time to come as well.

Should-Read: Paul Krugman: “This might be a good time to talk about the arithmetic of trade and manufacturing… why even a full-on trade war can’t restore the manufacturing-centered economy Trump wants back…

…Once upon a time manufacturing really was a third of employment; these days it’s well under 10 percent. But how much does trade have to do with this decline? The US used to run roughly balanced trade; now it runs a deficit of about 3 percent of GDP. If that deficit were closed, most of the shift would be in manufacturing. But a dollar of trade shift in manufacturing would add much less, maybe 60 cents, to manufacturing value-added, because manufacturing uses a lot of service inputs. So were talking about maybe 1.8% of GDP added to manufacturing—or about 15% more than now. First-pass estimate would be a comparable increase in employment. So we’d be talking about raising manufacturing from 8.5% of employment to maybe 9.8%. We’d still be overwhelmingly a service economy, nothing like we once were. Not saying that trade had no role; over shorter periods, like the surge in deficits under Bush, it was a big factor in absolute changes in manufacturing employment. But over the long run manufacturing decline reflects forces much bigger than trade. Which is why the European Union, which seems to be Trump’s current focus of enmity, has also seen a steady decline in manufacturing as a share of total employment…

Should-Read: Will Wilkinson: The DACA and immigration debates are about whether Latinos are “real Americans”: “Challenging the idea that Latino Americans can be truly American undercuts the very idea of America…

…The fact that there’s any question about affording legal status to a class of rooted young immigrants who grew up American among Americans is shameful. It’s a reflection of the disgraceful fact that so many of us are doggedly ignorant of the country we claim to revere, and deny the plain historical truth that America has always been multicultural…. It makes no more sense, culturally or ethnically, to call into question the Americanness of a young woman whose mom brought her from Hermosillo to Tucson at the age of 6 than it does to doubt that a white guy raised in Syracuse but born in Toronto can ever really belong there. Threatening to hang DREAMers out to dry—to arrest them, to uproot them, to jail them, to rip them from their families, to sever their bonds of loyalty and love, and to cast them into exile—threatens the equality and security of tens of millions of American citizens who are ethnically and culturally identical to them. And a threat to any subset of Americans is a threat to America—to us.

Trump’s unilateral act of political hostage-taking was, from the beginning, an act of violent division, an assault on the integrity of the actual, existing, real-world American people. The ethnically purified fantasy of the populist imagination is a seditious force that obscures our higher loyalties, shatters the peace of liberal equality, and splits Americans into warring tribes ready to abuse people whom patriotic decency would otherwise compel us to defend…

Should-Read: Dahlia K. Remler et al.: Estimating The Effects Of Health Insurance And Other Social Programs On Poverty Under The Affordable Care Act: “The effects of health insurance on poverty have been difficult to ascertain…

…We estimated the direct effects of health insurance benefits on health-inclusive poverty for people younger than age sixty-five, comparing the impacts of different health insurance programs and of nonhealth means-tested cash and in-kind benefits, refundable tax credits, and nonhealth social insurance programs. Private health insurance benefits reduced poverty by 3.7 percentage points. Public health insurance benefits (from Medicare, Medicaid, and Affordable Care Act premium subsidies) accounted for nearly one-third of the overall poverty reduction from public benefits. Poor adults with neither children nor a disability experienced little poverty relief from public programs, and what relief they did receive came mostly from premium subsidies and other public health insurance benefits. Medicaid had a larger effect on child poverty than all nonhealth means-tested benefits combined…

Should-Read: Robert Shackleton: Estimating and Projecting Potential Output Using CBO’s Forecasting Growth Model: “CBO regularly produces estimates and projections of potential output…

…The projection… serves as a key input to CBO’s macroeconomic forecasts and budget projections, helping the agency maintain consistency between its projections of labor supply and capital accumulation and its projections of taxes on income from labor and capital, of federal expenditures, and of the accumulation of public debt. This paper updates the agency’s description of the data sources, analytic methods, and modeling framework that it uses both to estimate historical values of the components of potential output and to project those values into the future. It describes the major changes that CBO has introduced in its approach since it last published a methodological description in 2001, outlines the linkages between its analysis of potential output and other elements of its economic and policy analysis, and discusses some of the major challenges associated with understanding and projecting recent trends in fundamental components of the economy…

Should-Read: Very sharp from Robert Waldmann on many things, one of them the difference between “credible” in a game-theoretic sense and “credited” in an economic-actor sense—and on the smoking ruin left of macroeconomics for a generation by economists who devoted their careers to fuzzing the distinction. And Ima gonna start using “it is a relephant” for “it is irrelevant” all the time. Just saying: Robert Waldmann: A Comment on the Return of “It’s Baaaack”: “Twenty years ago, Paul Krugman warned that the liquidity trap was not just an issue in the economic history of the 30s…

… Extremely excellent and very much worth reading…. [A] claim was that if the price level fell enough, the real value of money holdings (real balances) would be a significant part of wealth and this would cause high consumption (this is called the Pigou effect)…. Krugman notes that formal math says if real balances are huge because of a liquidity trap, people know that their apparent wealth will be consumed by inflation tax (or by taxes needed to retire money if the monetary authority doesn’t accept inflation)….

My first point… is actually Larry Summers’s point. In 1998, Krugman assumed that Japan would, sooner or later, exit the liquidity trap…. 20 years later, it seems that the trap might be permanent. This would invalidate Krugman’s argument that… a credible (that is credited — believed) promise to cause high inflation when the economy is out of the liquidity trap will be effective. What if this is a promise about policy on the 8th of never?…

…I claim a second problem is the abuse of “credible” which is used to mean “sincerely and honestly asserted” and “believed by others, that is credited”. The rational expectations assumption sneaks in and asserts that if people should believe, then they will believe. It makes private agents beliefs seem to be part of the policy…. Non-standard monetary policy works by changing expectations, and it is assumed policy makers can do that (or rather the implications of the assumption are studied by people who regularly warn that they don’t know if this will happen & say therefore fiscal stimulus should be used). There is also an equivocation in “regime shift” which is used to refer to a major permanent change in policy and the belief that a change in policy is major and permanent. With the equivocal definitions, unconventional monetary policy can’t fail, it can only be failed.

And (finally) I get to the bit of Krugman’s post with which I disagree. He assesses the effects of unconventional policy (as proposed by Krugman) and says the evidence is mixed. I actually became almost known as a skeptic of unconventional monetary policy and I think the evidence strongly suggests it doesn’t work…. The regime shift (if any) was Kuroda’s promise to do whatever it took to get to 2%. From November 2916 to November 2017 (the most recent 12 month period on FRED) Japanese consumer prices increased 0.5%. I conclude that it can’t be done (I don’t think anyone could use the communications channel much more vigorously that Kuroda)….

The evidence of monetary regime shifts (as the phrase is used which includes the assumption that people believe the policy has changed and that this matters a lot) is, I think, reduced to countries going off the gold standard in the 1930s. I’m going to focus on 1933 and not just FDR (YOU KNOW WHO else went off the gold standard in 1933?). Here in two big cases there were other “regime shifts”: either a major partisan realignment or, uh, you know, a literal regime shift.

I now have returned to thinking that “credibly promising to be irresponsible” that is “achieving a monetery policy regime shift” can’t be done (which doesn’t mean it isn’t worth trying if the economy is in a liquidity trap and fiscal policy makers are austerian)…

Should-Read: David E. Broockman et al.: The Political Behavior of Wealthy Americans: Evidence from Technology Entrepreneurs: “American politics overrepresents the wealthy. But what policies do the wealthy support?…

…Many accounts implicitly assume the wealthy are monolithically conservative and that increases in their political power will increase inequality. Instead, we argue there is substantial heterogeneity by industry, wherein the wealthy from an industry can share a distinctive set of political preferences. Consequently, how increases in the wealthy’s influence affect inequality depends on which industries’ rich are gaining influence and which issues are at stake. We demonstrate our argument with three original surveys, including the two largest surveys of wealthy Americans to date: one of technology entrepreneurs—a burgeoning wealthy demographic— and another of political campaign donors. We show that technology entrepreneurs support liberal redistributive, social, and globalistic policies but conservative regulatory policies—a bundle of preferences rare among other wealthy individuals. Consistent with our theoretical argument, we also present evidence that suggests these differences arise from their distinctive predispositions…

Should-Read: Thomas Piketty (2015): Putting Distribution Back at the Center of Economics: Reflections on Capital in the Twenty-First Century: “until 1914, the French elite often justified its strong opposition to the creation of a progressive income tax by referring to the principles of the French Revolution…

…France had become equal after 1789 thanks to the end of aristocratic privileges and the development of well-protected property rights for the entire population. Because everybody had been made equal in their ability to hold property, there was no need for progressive taxation (which would be suitable for aristocratic Britain, the story went, but not for republican France). What I find particularly striking in this pre-1914 debate is the combination of strong beliefs in property-rights-centered institutions and an equally strong denial of high inequality. In my book, I try to understand what we can learn from the fact that wealth inequality was as large in France in 1914 as in 1789, and also from the fact that much of the elite was trying to deny this. I believe there are important implications for the current rise in wealth and income inequality and the current attempts to minimize or deny that they are occurring…

Should-Read: Cory Doctorow: Let’s Get Better at Demanding Better from Tech: “In 2018, companies from John Deere to GM to Johnson & Johnson use digital locks and abusive license agreements to force you to submit to surveillance and control how you use their products…

…It’s true that if you don’t pay for the product, you’re the product–but if you’re a farmer who’s just shelled out $500,000 for a new tractor, you’re still the product. The “original sin of advertising” story says that if only microtransactions had been technologically viable and commercially attractive, we could have had an attention-respecting, artist-compensating online world, but in a world of mass inequality, financializing culture and discourse means excluding huge swaths of the population from the modern public sphere. If the Supreme Court’s Citizens United decision has you convinced that money has had a corrupting influence on who gets to speak, imagine how corrupting the situation would be if you also had to pay to listen…. I’ve argued before that the reason we’re still talking about decades-old SF movies like The Matrix and The Terminator–the reason smart people keep issuing foolish warnings about our primitive AIs making great leaps and becoming our overlords–is that these AI-apocalypses resonate with our current corporate situation. Corporations–artificial persons under the law–are colony life-forms that use us like gut-flora, maneuvering us to help them thrive and reproduce, jettisoning us or crushing us if we cease to serve their needs.

There is a key difference between the actual gut-flora that’s filling your non-metaphorical intestine right now and the metaphorical gut-flora that we humans constitute in the bowels of the Fortune 100: gut flora can’t be persuaded by moral argument, and people can. The long-delayed techlash…. Early “techno-utopians” were keenly aware of these risks. They founded organizations like the Electronic Frontier Foundation, and the Free Software Foundation, not because they were convinced that everything was going to be great–but because they were worried that everything could be terrible, and also because they saw the potential for things to be better. The motto of these pioneers wasn’t, “This is going to be so great.” It was, “This could be great–if we don’t screw it up.”…

Our technology can make our lives better, can give us more control, can give us more privacy–but only if we force it to live up to its promise. Any path to that better future will involve technologists, because no group of people on earth is better equipped to understand how important it is to get there…