Must-Read: Jonathan Kirshner (January 15, 2017): America, America

Posted on by Brad DeLong

Must-Read: “A new nation, conceived in Liberty, and dedicated to the proposition that all men are created equal. Now we are engaged in… testing whether that nation, or any nation so conceived and so dedicated, can long endure…” I have one big disagreement with Jonathan Kirshner. The America of Joe McCarthy, Massive Resistance, William F. Buckley, and George Wallace was the same public sphere as we see now in Facebook—don’t blame the Internet for echo chambers and motivated reasoning, for it simply makes what was always going on more visible. Do blame Rupert Murdoch, Robert Bartley, Paul Gigot, and Rush Limbaugh. And blame more the professional Republican establishment that fell in line—behind Donald Trump and behind Roy Moore. But Kirshner is right in saying that henceforth America will always be the nation that elected Donald Trump, and the damage from that cannot be reversed: Jonathan Kirshner (January 15, 2017): America, America: “Consider what it took in Germany to bring about a Hitler…

…two decades of world war, total ruin, national humiliation and widespread misery, the Nazi party was able to claim 33% of the vote in 1932, running on its promises to ferret out and crush enemies within and restore German greatness. As a nation we’ve never faced a test of our national character as daunting as that, but we have faced plenty worse than what we’ve got today, and until now had never thrown in our lot with the first demagogue that came along.

There is more going on here than resentment about tough economic times—especially because Trump’s economic policies, to the extent that they are comprehensible, are almost certain to leave the working class even worse off…. Not everyone who voted for Trump is a racist, but pretty much every racist did, and that mattered…. Scratch at the arguments of a Trump voter, and too often you’ll find white resentment close to the surface….

We are living in a post-fact, post-rationalist, post-deliberative society, in which people believe what they want to believe, as if they were selecting items from different columns of a take-out menu. This is an environment that plays to the strengths of a media-savvy celebrity demagogue, who, even when not purposefully trafficking in Orwellian lies, has shown an utter disregard for the known truth regarding events large and small, from claims of witnessing non-existent crowds of Muslims cheering the collapse of the twin towers to planting golf-course plaques commemorating imaginary civil war battlefields.

There is no happy ending to this story. It is not “just one election.” Yes, in theory, most domestic policy blunders can be reversed at a future date. But best case scenario, brace yourself for a horrifying interregnum. The fantasy that the Republican Congress might serve as a check on Trump’s power is just that—a fantasy. Congress does have considerable authority, but mostly regarding those things that they agree with Trump about: slashing taxes on the wealthy, gutting environmental regulations, pretending climate change doesn’t exist, overturning Obamacare, appointing very conservative judges.

Moreover, the internet culture is not going away, so don’t imagine that there is a silver lining to be gleaned from the looming policy disasters that we will all suffer through. If enough people enjoy watching the reality TV of the Trump Presidency, they will renew it for another four years. Nor should it be assumed that the Democratic Party, flat on its back, is poised for a comeback. The American left has its own deep divisions to tend to—largely along generational lines, as the young and the old articulate very different interpretations of the core principles of liberalism—which will not be easily papered over.

Worse still, even if we manage to endure the next four years and then oust him in the next election, from this point forward we will always be the country that elected Donald Trump as President. And as Albert Finney knew all too well in Under the Volcano, “some things, you just can’t apologize for.” This will be felt most acutely on the world stage. Keep in mind that in those areas where Trump departs from traditional Republican positions, such as those regarding trade and international security, Congressional power is much weaker. Trump can start a trade war or provoke an international crisis just by tweeting executive orders from the White House.

And that damage will prove irreversible.

Because from now on, and for a very long time, countries around the world will have to calculate their interests, expectations, and behavior with the understanding that this is America, or, at the very least, that this is what the American political system can plausibly produce. And so the election of Trump will come to mark the end of the international order that was built to avoid repeating the catastrophes of the first half the twentieth century, and which did so successfully—horrors that we like to imagine we have outgrown.

It will not serve us well.

We have lost, we are lost. Not an election, but a civilization. Where does that leave us? I think the metaphor is one of (political) resistance. They resisted in occupied France, they resisted in Franco’s Spain. Even in the twilight years of the 1930s, times considerably darker than today, regular men and women stood up against much graver dangers and longer odds than those we now face. They did not resist, necessarily, because they thought they would win, they resisted because they simply could not imagine collaborating, even passively. And for us, even now there are oases of hope in our sea of despair—Trump did indeed lose the popular vote by a wide margin, and there are powerful states and municipalities that might protect many of the most vulnerable from the coming federal onslaught. But we will face a great moment of crisis, after the next major terrorist attack in the U.S. (something no American President could prevent), which will present something like a perfect storm: a thin-skinned, impulsive leader with authoritarian instincts, a frightened public, an environment of permissive racism, and a post-fact information environment. In such a moment basic civil liberties will be at risk: due process will be assailed as “protecting terrorists”; free speech will be challenged as “giving aid and comfort to the enemy.” And that will be the moment when each of us must stand up and be counted, and never forget Tolstoy’s admonition: “There are no conditions to which a man may not become accustomed, particularly if he sees that they are accepted by those about him.” Our portion is to make sure that never comes to pass…

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Should-Read: Nick Rowe: Don’t even try to “Normalise” interest rates

Posted on by Brad DeLong

Should-Read: Nick Rowe gets this right. The astonishing thing is that so many people at the Federal Reserve get this wrong, and wrong, and wrong: Nick Rowe: Don’t even try to “Normalise” interest rates: “If you think that the rest of the economy is normalised, so it is time to normalise interest rates too, you are wrong…

…If the rest of the economy is normalised, then interest rates must already be normalised…. We’ve got “normal” both in the sense of an average over time, and in the sense of a desirable norm that central banks should aim for. But when I hear the words “The Bank of Canada (or some other central bank) needs to normalise interest rates soon” I reach for my shovel. If you want to argue against some view, as I am doing here, it is usually a good strategy to try to state what that view is. This is my best guess:

The economy was humming along normally, with the Bank of Canada setting the actual rate of interest roughly equal to the natural rate of interest, so the output gap was roughly zero, and inflation was roughly at the 2% target. Then the financial crisis happened, so the output gap turned negative (a recession), and inflation started to fall below target. So the Bank of Canada needed to cut the actual interest rate below the natural rate temporarily to offset the recession. But now the economy has recovered, with the output gap back to roughly zero, and inflation roughly on target, it is time for the Bank of Canada to normalise interest rates, by raising them back up to the natural rate again…

I don’t want to quibble with … whether the output gap really is zero… inflation really… back to target…. I want to attack the idea of “normalisation” itself…. What is really wrong with the “normalisation” view: “So the Bank of Canada needed to cut the actual interest rate below the natural rate temporarily to offset the recession.”… Now that the economy has recovered from the recession, with the output gap roughly zero, and inflation roughly at target, this means that the actual rate of interest is roughly equal to the natural rate of interest. Normalisation of interest rates has already (roughly) happened. The new normal is not the same as the old normal….If you think that the rest of the economy is normalised, so it is time to normalise interest rates too, you are wrong. If the rest of the economy is normalised, then interest rates must already be normalised.

Must-Read: Paul Krugman: The Gambler’s Ruin of Small Cities

Posted on by Brad DeLong

Must-Read: Once upon a time in the past the size and location of cities was underpinned by fundamentals in the sense first of agricultural resources and transport, and then of agricultural plus manufacturing resources and transport, on top of which was built, agglomeration economy, increasing returns, and congestion layer of determination. In the future it looks as though it will be not production but consumption suitability: the fundamentals underpinning cities will be where people find it pleasant to live, on top of which there will be a congestion layer, plus a three-fold path dependence increasing returns layer of determination: the consumption culture, the production culture, and the infrastructure left from the past. Will we all live in one million population mile-long thousand foot-wide thousand-foot high arcologies in Greater San Diego? Not all. But a lot of us may: Paul Krugman: The Gambler’s Ruin of Small Cities: “Once… towns and small cities… served as central places serving a mainly rural population engaged in agriculture and other natural resource-based activities…

…Over time… agriculture has become ever less important…. Nonetheless, many small cities survived and grew by becoming industrial centers, generally specialized in some cluster of industries held together by the Marshallian trinity of information exchange, specialized suppliers, and a pool of labor with specialized skills. What determined which industries a small city developed?… Location… nearby resources… random chance… then a sequence in which one industry created conditions that favored another…. Rochester, New York… started as a flour milling center, benefitting from the Erie Canal, then as a center for nurseries and seeds…. Then, in 1853, John Jacob Bausch… optics… creating the preconditions for the rise of Eastman Kodak, and much later Xerox…. Typical…. Even if what a city was doing in, say, 1970 seemed very different from what it was doing in 1880, there was usually a sort of chain of external economies creating the conditions that allowed the city to take advantage of particular new technological and market opportunities when they arose… a chancy process…. When a city starts out fairly small and specialized, over a long period there will be a substantial chance that it will lose enough coin flips that it effectively loses any reason to exist.

I’m not saying that there weren’t patterns… miserable winters… college towns… destinations for immigrants. Still… a random process… in which small cities face a relatively high likelihood of experiencing gambler’s ruin. Again, it was not always thus: once upon a time dispersed agriculture ensured that small cities serving rural hinterlands would survive. But for generations we have lived in an economy in which smaller cities have nothing going for them except historical luck, which eventually tends to run out…. Are there policy implications from this diagnosis? Maybe. There are arguably social costs involved in letting small cities implode…. But it’s going to be an uphill struggle. In the modern economy… any particular small city exists only because of historical contingency that sooner or later loses its relevance…

Jeffrey Friedman: Public Choice Theory and the Politics of Good and Evil: “So now we finally know. Libertarians aren’t the ditzy bumblers exemplified by 2016 presidential candidate Gary (“What is a leppo?”) Johnson…

Posted on by Brad DeLong

Should-Read: One very good line here is that Nancy MacLean’s book is true about Murray Rothbard even though (largely) false about James Buchanan. But I have considerably more sympathy for MacLean than Friedman does: Just how is MacLean supposed to read “The Public Choice Theory of John C. Calhoun” anyway? The disjunction between the public statements and the private correspondence of, say, a James J. Kilpatrick makes her—makes one—confident that a bunch of Southern white herrenvolk discourse in the second half of the twentieth century was profoundly Aesopian: “liberty” in large part did mean “our power over Blacks”—and that was what the bulk of conservative Virginians from the 1950s to, well, very recently thought a good political system should preserve. It is hard to find American libertarians for whom liberty-as-power-over-minorities is not in the mix: everyone who draws a distinction between state action and state funding, or between state funding and public accommodation, does so: Jeffrey Friedman: Public Choice Theory and the Politics of Good and Evil: “So now we finally know. Libertarians aren’t the ditzy bumblers exemplified by 2016 presidential candidate Gary (“What is a leppo?”) Johnson…

…Nor are they ideological extremists, like the proprietor of the Ayn Rand School for Tots. In reality, the libertarian movement is a cabal of racist plutocrats engaged in “a fifth-column assault on American democratic governance” at the behest of their billionaire paymasters, the Koch brothers.

Or so Nancy MacLean, the William H. Chafe Professor of History and Public Policy at Duke University, tells us in her widely discussed book, Democracy in Chains: The Deep History of the Radical Right’s Stealth Plan for America. As a long-time critic of both libertarianism and the branch of economics, public-choice theory, on which MacLean focuses most of her attention, I was open to being persuaded by her dark musings. Yet, as a small army of aggrieved libertarian bloggers has pointed out, MacLean presents no evidence for her sensationalistic accusations. Instead what she presents are quotations taken out of context or so mangled by ellipses that they suggest the opposite of the quoted libertarians’ intentions (some examples can be found here, and here, and here, and here, and here, and here, and here, and here). As a work of history, this book is a fiasco.

Nevertheless, it is worth reading. Libertarians can benefit from it if they put aside the author’s conspiracy theorizing and think about how their movement is perceived by those outside it. Non-libertarians can take the occasion to wonder if MacLean’s Manichean view of politics is not uncomfortably similar to their own. Theorists of democracy can think about how close public-choice theory is to one of the most common forms of political criticism in mass democracies: the very form of criticism MacLean directs at libertarians. In short, everyone can profit from the chance to reflect on why MacLean, who in previous work showed herself to be a fine historian, was able to call forth no interpretive charity in attempting to understand libertarians in general and, in particular, her bête noir, James Buchanan, the 1986 Nobel laureate in economics and founder of the public-choice school…

Michael Jordan: On Computational Thinking, Inferential Thinking and Data Science

Posted on by Brad DeLong

Should-Read: We are moving from a statistical culture that focused on the taming of sampling variation to a different statistical culture that… what? Guarding against overfitting and computational economy seem to be the most important goals, and they are linked And behind everything lurks the problem of induction: in what ways are we justified in assuming that the future will be like the past, and in what ways are we not? For if we assume the future will be like the past in ways that it will not, we are simply hosed: Michael Jordan: On Computational Thinking, Inferential Thinking and Data Science: “The rapid growth in the size and scope of datasets in science and technology has created a need for novel foundational perspectives on data analysis…

…That classical perspectives from these fields are not adequate to address emerging problems in Data Science is apparent from their sharply divergent nature at an elementary level—in computer science, the growth of the number of data points is a source of “complexity” that must be tamed via algorithms or hardware, whereas in statistics, the growth of the number of data points is a source of “simplicity” in that inferences are generally stronger and asymptotic results can be invoked. On a formal level, the gap is made evident by the lack of a role for computational concepts such as “runtime” in core statistical theory and the lack of a role for statistical concepts such as “risk” in core computational theory. I present several research vignettes aimed at bridging computation and statistics, including the problem of inference under privacy and communication constraints, and including a surprising cameo role for symplectic geometry…

Dan Morain: California congressional Republicans seek gas tax repeal

Posted on by Brad DeLong

Should-Read: This seems likely to be profoundly counterproductive: the people who would be triggered to go to the polls to vote to repeal the state gasoline tax hike are also people who would like more of their SALT deduction back. They would seem eager to punish McCarthy and company for taking that away. Does the California Republican House delegation have any polling indicating otherwise?: Dan Morain: California congressional Republicans seek gas tax repeal: “Now that most of California’s House Republicans have voted for a tax overhaul that will raise taxes for many of their constituents, you have to wonder what more good cheer they’ll bring…. I’m thinking roads and other infrastructure…

…November 2018 ballot… repeal the 12-cent per gallon gasoline tax increase… to pay for road repairs, bridge maintenance and some public transit…. Potholes don’t fill themselves. That’s not stopping House Majority Leader Kevin McCarthy, R-Bakersfield, and most of California’s Republican congressional delegation from backing that repeal–with a notable exception, Rep. Jeff Denham, R-Turlock. McCarthy, a guy who knows politics, dumped $100,000 into the initiative to repeal the gas tax. Rep. Mimi Walters, an Orange County Republican, and Rep. Ken Calvert, R-Corona, chipped in $50,000 each, recent campaign finance reports show. “This is politics at its worst,” California Transportation Secretary Brian Kelly told me. “They’re trying to make sure Republicans get to the polls in California. It’s not much other than that, in a year that looks pretty shaky for them.”

California Republicans will be facing a bleak reality in 2018…. 66 percent of us disapprove of the Republican Party’s leader, President Donald Trump, and 57 percent strongly disapprove…. Any Republican politician who thinks he or she has a future in the Golden State ought to be especially alarmed by… 77 percent of people between ages 18 and 39 disapprove of Trump. An entire generation in the nation’s largest state has turned against the GOP’s standard bearer, roughly the reverse of numbers recorded at the end of Barack Obama’s first year in office. “I’ve never seen the depth of disapproval so strongly held,” said pollster Mark DiCa…

And:

Dan Morain: California congressional Republicans seek gas tax repeal: “Building trade unions, major road builders, engineering firms and Los Angeles, Orange County and Bay Area business groups–many of them Republican donors – sent letters urging California’s congressional Republicans to stand down and not push to repeal the gas tax hike…

…We appreciate that your primary goal is to protect all incumbent Republicans and increase the number of Republicans in the House as well as other elected bodies. However, a strategy to use an initiative to repeal SB 1 to reach your goal may be counterproductive to your objectives. Fundamentally, any attack on SB 1 amounts to an attack on improving our badly deficient transportation system, endangering our economic growth and competitiveness, and increasing unemployment…

[Representative] McCarthy pointedly pushed back:

If Democrats in Sacramento are rewarded with a gas tax bailout now, what is to stop them from looking at the industries represented in your coalition to pay for the next fiscal crisis? These are principles we should stand shoulder-to-shoulder to defend…

McCarthy and 10 other House Republicans from California signed the letter. Denham was among the absentees. His office offered no explanation for his failure to stand “shoulder-to-shoulder” with fellow Republicans. But… the Central Valley Republican would be in line to become chairman of the committee that oversees transportation and infrastructure. Denham would be dealing with construction companies, engineering firms and unions that represent the building trades, the very same ones who will be spending millions to defeat the initiative that McCarthy is funding. Politics aside, they understand the hard reality that decent roads come at a cost. And, evidently, so does Denham…

And Josh Marshall comments:

Josh Marshall: Saving the California GOP House Delegation: “California is one of the states hardest hit by the end of most deductions for SALT taxes…

…Altogether it could crush what remains of the still sizable Republican House delegation from California (39-D, 14-R). How to survive? Led by House Majority Leader Kevin McCarthy, they plan to hitch their fates to a proposition to repeal a new gas tax dedicated to roads and infrastructure spending. The aim seems less to change minds as simply to make certain Republicans turnout. They need every angle they can get. Not surprisingly, the new tax is not terribly popular, certainly not among Republicans. But it actually has a fair degree of support among business groups who are major GOP donors but yet realize that a decrepit infrastructure is bad for business…

Must- and Should-Reads: December 28, 2017

Posted on by Brad DeLong

Yes: this feature fell by the wayside during the overly-busy and chaotic month of December. Why do you ask? But now it is time to catch up:

Must-Reads:

Should-Reads:

Links:

Should-Read: Kai Stinchcombe: Ten years in, nobody has come up with a use for blockchain

Posted on by Brad DeLong

Should-Read: The Winklevii’s line is that BitCoin disrupts gold: that BitCoin is currently undervalued by a factor of two if only one-fifth of the world’s gold bugs decide that it is appropriate to move half of their hoard into gold. And since the goldbugs of the world ain’t too tightly wrapped, it could happen. That it could happen is why there has not been a crash yet. But his is nuts—there is still no compelling use for a blockchain, ingenious as it is, and no compelling reason why BitCoin would be the and they only blockchain in whatever blockchain future might emerge: Kai Stinchcombe: Ten years in, nobody has come up with a use for blockchain: “For the person paying for a product, the key feature of a new payment system…

…think of PayPal in its early days—is the confidence that if the goods aren’t as described you’ll get your money back. And for the person accepting payment, basically the key feature is that their customer has it, and is willing to use it. Add in points, credit lines, and a free checked bag on any United flight and you have something that consumers choose and merchants accept. Nobody actually wants to pay with bitcoin, which is why it hasn’t taken off. Plus, it’s not actually that good a payment system — Visa can handle sixty thousand transactions per second, while Bitcoin historically taps out at seven… for those seven transactions a second Bitcoin is already estimated to use 35 times as much energy as Visa…

Heather Boushey: SiriusXM Radio interview about economic inequality and the new tax law

Posted on by David Evans

On December 20, Equitable Growth Executive Director and Chief Economist Heather Boushey appeared on the Dean Obeidallah Show on SiriusXM Radio. Listen for a lively and informative discussion of economic inequality, mobility, the recently enacted tax bill, and the kinds of policies that are needed to reduce inequality in the United States.

Greg Ip: A Tech-Driven Boom Is Coming; Please Be Patient

Posted on by Brad DeLong

Should-Read: When I consider how much time people spend on their smartphones—and how incredibly expensive it would have been in any previous decade to actually produce what the smartphone does—I do wonder about the math behind slow measured economic growth. The pessimists must die on the hill that everything smartphones do are close substitutes for things that were done cheaply in the past. But is that really the case? I want to see a sample of representative daily smartphone use patterns to assess this. And, of course, the very sharp Greg Ip thinks we ain’t seen nothin yet: Greg Ip: A Tech-Driven Boom Is Coming; Please Be Patient: “There isn’t a paradox: automation hasn’t advanced nearly as far as evangelists claim, and where it has, it’s often created more jobs than it’s destroyed…

…But that’s the past; what about the future?… History shows that technological breakthroughs commonly take decades to move the needle on economic growth. Blame it on false starts, costly implementation, human resistance, and simple math…. Lags… the cost and time it takes for businesses to adapt to new technologies, obstacles they see at work today. Online shopping came along in the 1990s but retailers struggled to adapt business processes to the internet. They needed to build complementary infrastructure such as fulfillment centers, and, the authors note, customers had to adapt their habits, as well….

What about AI? Banks first used machine learning—a type of artificial intelligence that spots patterns in massive data sets—to spot credit-card fraud in 1987. But to gain widespread acceptance first computing power had to get a lot cheaper, datasets a lot bigger, and lots of people had to spend lots of hours deciding what questions to ask and then training algorithms to answer them. Hype always runs well ahead of reality, bringing failure and dashed expectations.

Jeffrey Funk, an independent researcher, studied the predictions of breakthrough technologies made by MIT Technology Review…. Of 40 predictions it made between 2001 and 2005, most never became a market worth more than $5 billion by 2015, and only one—data mining—become a market worth more than $100 billion. Meanwhile, the magazine completely missed smartphones ($400 billion), cloud computing ($175 billion), social networking, e-books, fintech and wearable computing. Mr. Funk says the lists better reflected ​the hottest trends in scientific laboratories whereas commercial breakthroughs are more often extrapolations of existing technology….

A third of the rise in the S&P 500 stock market index this year is attributable to Apple Inc., Amazon.com Inc., Google parent Alphabet Inc., Facebook Inc. and Microsoft…. Perhaps the U.S. is at a point when technology and an economy growing solidly with low unemployment become mutually reinforcing. “Entrepreneurs are more willing to take risks, including investments in new technologies and new business models when the economy is running hotter,” says Mr. Brynjolfsson…