Should-Read: Andrew Carnegie (1889): Wealth: “The problem of our age is the proper administration of wealth…

…To-day the world obtains commodities of excellent quality at prices which even the generation preceding this would have deemed incredible… and the race is benefited thereby. The poor enjoy what the rich could not before afford. What were the luxuries have become the necessaries of life. The laborer has now more comforts than the landlord had a few generations ago….

The price we pay for this salutary change is, no doubt, great. We assemble thousands of operatives in the factory, in the mine, and in the counting-house, of whom the employer can know little or nothing, and to whom the employer is little better than a myth. All intercourse between them is at an end. Rigid Castes are formed, and, as usual, mutual ignorance breeds mutual distrust. Each Caste is without sympathy for the other, and ready to credit anything disparaging in regard to it. Under the law of competition, the employer of thousands is forced into the strictest economies, among which the rates paid to labor figure prominently, and often there is friction between the employer and the employed, between capital and labor, between rich and poor. Human society loses homogeneity.

The price which society pays for the law of competition… is also great…. It is here; we cannot evade it; no substitutes for it have been found; and while the law may be sometimes hard for the individual, it is best for the race, because it insures the survival of the fittest in every department.

We accept and welcome therefore, as conditions to which we must accommodate ourselves, great inequality of environment, the concentration of business, industrial and commercial, in the hands of a few, and the law of competition between these, as being not only beneficial, but essential…. The experienced in affairs always rate the MAN whose services can be obtained as a partner as not only the first consideration, but such as to render the question of his capital scarcely worth considering, for such men soon create capital; while, without the special talent required, capital soon takes wings…. It is inevitable that their income must exceed their expenditures, and that they must accumulate wealth. Nor is there any middle ground which such men can occupy, because the great manufacturing or commercial concern which does not earn at least interest upon its capital soon becomes bankrupt. It, must either go forward or fall behind: to stand still is impossible. It is a condition essential for its successful operation that it should be thus far profitable, and even that, in addition to interest on capital, it should make profit…. Objections to the foundations upon which society is based are not in order, because the condition of the race is better with these than it has been with any others which have been tried….

There are but three modes in which surplus wealth can be disposed of: It call be left to the families of the decedents; or it can be bequeathed for public purposes; or, finally, it can be administered during their lives by its possessors….

There are instances of millionaires’ sons unspoiled by wealth…. Unfortunately, they are rare…. It is not the exception, but the rule, that men must regard, and, looking at the usual result of enormous sums conferred upon legatees, the thoughtful man must shortly say, “I would as soon leave to my son a curse as the almighty dollar”….

As to the second mode, that of leaving wealth at death for public uses…. Men who leave vast sums in this way may fairly be thought men who would not have left it at all, had they been able to take it with them….The growing disposition to tax more and more heavily large estates left at death is a cheering indication of the growth of a salutary change in public opinion….

The true antidote for the temporary unequal distribution of wealth, the reconciliation of the rich and the poor–a reign of harmony–another ideal, differing, indeed, from that of the Communist in requiring only the further evolution of existing conditions, not the total overthrow of our civilization….

The surplus wealth of the few will become, in the best sense the property of the many, because administered for the common good, and this wealth, passing through the hands of the few, can be made a much more potent force for the elevation of our race….

This, then, is held to be the duty of the man of Wealth….

1. to set an example of modest, unostentatious living, shunning display or extravagance;

2. to provide moderately for the legitimate wants of those dependent upon him;
   and

3. after doing so to consider all surplus revenues which come to him simply as trust funds, which he is called upon to administer, and strictly bound as a matter of duty to administer in the manner which, in his judgment, is best calculated to produce the most beneficial results for the community–the man of wealth thus becoming the mere agent and trustee for his poorer brethren, bringing to their service his superior wisdom, experience and ability to administer…

Should-Read: Tim Duy: Fed Changing Its Tun: “Julia Coronado of Macropolicy Perspectives catches the topic of Federal Reserve Governor Lael Brainard’s speech next week…

…“Navigating Monetary Policy as Headwinds Shift to Tailwinds.”… That’s kind of hitting us over the heads to prepare ourselves for changes in the forecasts and the statement…. Yes, inflation is below the 2 percent target, so on this surface this change in tone seems ludicrous. But the median policy maker forecast in the most recent Summary of Economic Projections is also quite frankly ludicrous. Those forecasts indicate growth well above potential growth in 2018 yet only a small decline in the unemployment rate. And stabilizing unemployment in 2019 with yet another year of growth above potential. And the inflation rate only returns to 2 percent when the temporary factors lift, but by the Fed’s Phillips curve approach the beyond-full employment economy should be much more inflationary when those factors lift, well above the 2 percent target. It all screams for a faster than 3 rate hike pace in 2018, but that was the median policy maker forecast.

I tend to think, and have thought for a long time, that the forecast was essentially reverse engineered as much as possible to keep the rate forecast at three hikes in 2018. Now, with the additional tailwinds sustaining momentum in the economy, they can no longer maintain this façade. Hence the change to the threat of “overheating.” Bottom Line: I don’t think this is just about three or four hikes. It strikes me as something bigger, a more fundamental change in the policy objective…

Should-Read: John Maynard Keynes (1931): Essays in Persuasion: “Here are collected the croakings of twelve years—the croakings of a Cassandra who could never influence the course of events in time…

…The volume might have been entitled “Essays in Prophecy and Persuasion,” for the Prophecy, unfortunately, has been more successful than the Persuasion. But it was in a spirit of persuasion that most of these essays were written, in an attempt to influence opinion. They were regarded at the time, many of them, as extreme and reckless utterances. But I think that the reader, looking through them to-day, will admit that this was because they often ran directly counter to the overwhelming weight of contemporary sentiment and opinion, and not because of their character in themselves.

On the contrary, I feel—reading them again, though I am a prejudiced witness—that they contain more understatement than overstatement, as judged by after-events. That this should be their tendency, is a natural consequence of the circumstances in which they were written. For I wrote many of these essays painfully conscious that a cloud of witnesses would rise up against me and very few in my support, and that I must, therefore, be at great pains to say nothing which I could not substantiate. I was constantly on my guard—as I well remember, looking back—to be as moderate as my convictions and the argument would permit.

All this applies to the first three of the five books into which these essays naturally group themselves, rather than to the last two; that is to say, to the three great controversies of the past decade, into which I plunged myself without reserve,—the Treaty of Peace and the War Debts, the Policy of Deflation, and the Return to the Gold Standard, of which the last two, and indeed in some respects all three, were closely interconnected. In these essays the author was in a hurry, desperately anxious to convince his audience in time.

But in the last two books time’s chariots make a less disturbing noise. The author is looking into the more distant future, and is ruminating matters which need a slow course of evolution to determine them. He is more free to be leisurely and philosophical.

And here emerges more clearly what is in truth his central thesis throughout,—the profound conviction that the Economic Problem, as one may call it for short, the problem of want and poverty and the economic struggle between classes and nations, is nothing but a frightful muddle, a transitory and an unnecessary muddle. For the Western World already has the resources and the technique, if we could create the organisation to use them, capable of reducing the Economic Problem, which now absorbs our moral and material energies, to a position of secondary importance.

Thus the author of these essays, for all his croakings, still hopes and believes that the day is not far off when the Economic Problem will take the back seat where it belongs, and that the arena of the heart and head will be occupied, or re-occupied, by our real problems—the problems of life and of human relations, of creation and behaviour and religion. And it happens that there is a subtle reason drawn from economic analysis why, in this case, faith may work. For if we consistently act on the optimistic hypothesis, this hypothesis will tend to be realised; whilst by acting on the pessimistic hypothesis we can keep ourselves for ever in the pit of want…

Should-Read: If British politics were even a quarter rational, Brexit would now be quietly forgotten by everyone. But British politics—like U.S. politics—is less than a quarter rational. Brexit in name only—which means that Britain is to some degree ruled from but has no influence on Brussels—seems to be where both the Tories and current Labour are going: Simon Wren-Lewis: Labour’s embrace of a customs union could end the Brexit fantasy: “The UK was always going to stay in a customs union with the EU the moment that the EU put the Irish border as one of the three items to be settled at the first stage…

…The EU would not sign any trade agreement which resulted in a hard border. To avoid a hard border Northern Ireland has to be in a customs union with the EU and in the Single Market for goods. There is no wish in the UK to have a sea border between Northern Ireland and the rest of the UK. Parliament will not allow a No Deal Brexit. So any deal will have to involve the UK being in the Customs Union…. Labour triangulating over Brexit… support[ing] staying in a customs union….

Labour’s move could start to unravel Brexit…. The emphasis that Labour put on avoiding a hard Irish border requires staying in the single market for goods. If this is helpful for goods, why not services which are the UK’s comparative advantage? We need doctors and nurses from the EU to save our NHS. Each time we take a step further to BINO (Brexit in name only) it becomes clear it is better to have a seat at the table. This is the only way that Brexit can end…

Should-Read: A finding that robots are becoming important. And I would question whether increased disability is cause or effect here. They say “cause”: I am not sure why: Katharine G. Abraham and Melissa S. Kearney: Explaining the Decline in the U.S. Employment-to-Population Ratio: A Review of the Evidence: “Within-age-group declines in employment among young and prime age adults have been at least as important…

…Labor demand factors, in particular trade and the penetration of robots into the labor market, are the most important drivers of observed within-group declines in employment.

Labor supply factors, most notably increased participation in disability insurance programs, have played a less important but not inconsequential role. Increases in the real value of the minimum wage and in the share of individuals with prison records also have contributed modestly to the decline in the aggregate employment rate.

In addition to these factors, whose effects we roughly quantify, we also identify a set of potentially important factors about which the evidence is too preliminary to draw any clear conclusion. These include improvements in leisure technology, changing social norms, increased drug use, growth in occupational licensing, and the costs and challenges associated with child care. Our evidence-driven ranking of factors should be useful for guiding future discussions about the sources of decline in the aggregate employment-to-population ratio and consequently the likely efficacy of alternative policy approaches to increasing employment rates…

Should-Read: But where in the Republican coalition is there a faction that wants to learn from history? If they learned from monetary history, they would presumably have to learn from other kinds of history as well. And would that not require that they learn inconvenient things?: Ramesh Ponnuru and David Beckworth: Federal Reserve’s Monetary Policy & Economic Reaction: “In practice, the Fed’s current inflation target is asymmetric: The Fed is less concerned about undershooting it than overshooting it…

…A commitment to stabilize spending growth should in contrast be symmetric. Achieving symmetry would require an abandonment of the Fed’s current policy of paying banks more for holding excess reserves than they could earn from lending and buying Treasuries…. The Fed is unlikely to take any of these steps, however, unless it first jettisons the conventional wisdom about our allegedly hyperstimulative policies over the last decade. It should get our recent history right, lest it condemn us to repeat it…

Should-Read: I could not enthusiastically support—I could barely support—the old TPP: it charged poor countries too much through the nose to use U.S.-located intellectual property, for little if not negative benefit to the median U.S. citizen and for substantial harm to world economic growth. This new CPTPP is significantly better, and I can enthusiastically endorse the U.S.’s joining it on its present terms: Zachary Torrey: TPP 2.0: The Deal Without the US: “What’s new about the CPTPP and what do the changes mean?…

…The new Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) is still a powerful pact in its own right… includes all the original members of the TPP except the United States: Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, and Vietnam. The total combined gross domestic product of the CPTPP would be $13.5 trillion or 13.4 percent of global GDP… one of the biggest trade agreements in the world…. When Trump withdrew from the TPP he also withdrew two of the most controversial provisions for which the United States had been advocating. One of the most ridiculed provisions in the TPP, the investor-state dispute settlement (ISDS) provision, has been scaled back while a government’s right to regulate its markets has been afforded increased protections. This was only possible after the United States withdrew…. Another key provision the United States pushed for that has fallen to the side is the extension of copyright, or intellectual property, protections. Washington had negotiated for copyright to exist for the author’s lifetime plus an additional 70 years…. The removal of these two provisions highlights what happens when the United States is not involved in regional affairs: the region moves on without it….

Washington could rejoin the agreement…. Far from being dead, the CPTPP perhaps signals a new chapter in global trade, one without the United States…

Should-Read: Once again: I believe this fundamentally misconceives the origins and the utility of New Keynesian models. There are things that they are good for. But there are things that they are not good for. Getting a sensitivity of aggregate demand to the real interest rate via an Euler equation is not a good thing. Calvo pricing is not a good thing. Technology shocks as putting the residual from a production function on the right hand side and claiming it as a primitive shock is not a good thing. And what else is there in a New Keynesian model? A money demand function (or an interest rate rule). That is not very much that is useful. The things that make New Keynesian models different from VARs are, pretty much, things that make them less accurate and valuable. Do a VAR. And then argue about what the underlying shocks behind the VAR shocks really are, and how the VAR impulse response coefficients constrain the underlying structural shock ones: David Vines and Samuel Wills: rebuilding macroeconomic theory project: an analytical assessment: “We asked a number of leading macroeconomists to describe how the benchmark New Keynesian model might be rebuilt…

…The need to change macroeconomic theory is similar to the situation in the 1930s, at the time of the Great Depression, and in the 1970s, when inflationary pressures were unsustainable. Four main changes to the core model are recommended: to emphasize financial frictions, to place a limit on the operation of rational expectations, to include heterogeneous agents, and to devise more appropriate microfoundations. Achieving these objectives requires changes to all of the behavioural equations in the model governing consumption, investment, and price setting, and also the insertion of a wedge between the interest rate set by policy-makers and that facing consumers and investors. In our view, the result will not be a paradigm shift, but an evolution towards a more pluralist discipline…