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…

Should-Read: Originally dense populations had to be located in productive agricultural regions and on water trade routes. Then with the coming of the railroad and manufacturing we added raw material locations and transport routes to the mix. Now? Weather, local recreational amenities, density and amenities created by past cycles, and opportunity—opportunity for immigrations, both immigrants to the place and immigrants to the human capital-based economy—are where it is at. And the Trumpist Midwest looks as hosed as does Appalachians expecting the coal mining jobs to somehow come back: Noah Smith: A Road Map for Reviving the Midwest: “John Austin believes that there are ‘two Rust Belts’…

…languishing [regions] that have failed to find a strategy… [and] two… types of success stories—arge, economically diversified metropolises, and college towns… [plus] smaller cities that have found success through industrial policy… Kalamazoo… biotech; Warsaw, Indiana… medical-device manufacturing… Jasper, Indiana… advanced manufacturing. Austin also sees social, racial and political divergence between the successful towns and the lagging ones. Declining Midwestern areas are often white enclaves… once destinations for white flight… [now with] fewer immigrants, more stagnant economies and higher levels of support for the angry, nostalgia-tinged campaign of… Trump. But more ethnically diverse regions have flourished economically….

Two of Austin’s main suggestions for the Rust Belt include directing more resources to universities and being more welcoming to immigrants…. Education and immigration are important for Texas, Florida and California, too. But they hold special relevance for the upper Midwest, simply because there are so many other forces working against the region… the weather… economic geography… at a structural disadvantage relative to the West Coast…. Finally, existing development patterns…. Sprawling Sun Belt suburbs are cheaper and more attractive for families, while except for Chicago, the upper Midwest lacks the kind of fun, exciting metropolises that draw young talented people to the coasts…. Higher education and immigration look like the only realistic lifelines for the region….

Unfortunately, this ray of hope itself is clouded by threats from government policy and reactionary social attitudes…. Midwestern states… have been cutting back on… public universities… the region’s history of segregation…. States of the Great Lakes… can… harness the modernizing forces of universities and immigration… or… give in to… nativism… hostility to higher education, and… more decades of bitter, grinding decline…

Should-Read: Söhnke M. Bartram and Mark Grinblatt: Agnostic fundamental analysis works: “We take the view of a statistician with little knowledge of finance…

…[who] uses… least squares to estimate peer-implied fair values from the market values of replicating portfolios with the same accounting statements as the company being valued. Divergence of a company’s peer-implied value estimate from its market value represents mispricing, motivating a convergence trade that earns risk-adjusted returns of up to 10% per year and is economically significant for both large and small cap firms. The rate of convergence decays to zero over the subsequent 34 months…

Should-Read: Heather Boushey: The tax bill should’ve been called The Inequality Exacerbation Act: “Policymakers should reform the corporate tax system while maintaining or increasing the level of revenues it raises…

…In prior years, policymakers believed that corporate tax reform should be “revenue neutral.”… More money in the pockets of poor and middle-income taxpayers is what will drive companies to invest…. We should be acting to reduce inequality. We need to address America’s needs for investments in infrastructure, science, education and health care…. We need the best-educated workers…. We need a tax reform agenda that delivers the revenue our nation needs to succeed in the 21st century. We should not be under the illusion that this Congress and this president will reverse course. But those who believe the first priority should be to make our economy stronger and spread the benefits of growth more widely must be prepared to pursue those policies when we have the chance…

Must-Read: John Maynard Keynes (1924): Tract on Monetary Reform: “Inflation and Deflation… inflicted great injuries…

…Each as an effect in altering the distribution of wealth, Inflation in this respect being the worse…. Each has also an effect in overstimulating or retarding the production of wealth though here Deflation is the ore injurious…. How have the price changes of the past nine years affected the productivity of the community… and… the conflicting interests and mutual relations of its component classes? The answer to these questions will serve to establish the gravity of the evils….

If the depreciation of money is a source of gain to the business man [nominal debtor], it is also the occasion of opprobrium…. No man of spirit will consent to remain poor if he believes his betters to have gained their goods by lucky gambling. To convert the business man into the profiteer is to strike a blow at capitalism, because it destroys the psychological equilibrium which permits the perpetuance of unequal rewards…. If the fall in the value of money discourages investment, it also discredits enterprise….

Inflation redistributes wealth…. Its most striking consequence is its injustice to those who in good faith have committed their savings to titles to money rather than to things…. Injustice on such a scale has further consequences…. Inflation has… destroyed the atmosphere of confidence which is a condition of the willingness to save….

We see, therefore, that rising prices and falling prices each have their characteristic disadvantage. The Inflation which causes the former means Injustice to individuals and to classes, particularly to investors; and is therefore unfavourable to saving. The Deflation which causes falling prices means Impoverishment to labour and to enterprise by leading entrepreneurs to restrict production, in their endeavour to avoid loss to themselves; and is therefore disastrous to employment.

The counterparts are, of course, also true,—namely that Deflation means Injustice to borrowers, and that Inflation leads to the over-stimulation of industrial activity. But these results are not so marked as those emphasized above, because borrowers are in a better position to protect themselves from the worst effects of Deflation than lenders are to protect themselves from those of Inflation, and because labour is in a better position to protect itself from over-exertion in good times than from under-employment in bad times.

Thus Inflation is unjust and Deflation is inexpedient. Of the two perhaps Deflation is, if we rule out exaggerated inflations such as that of German, the worse; because it is worse, in an impoverished world, to provoke unemployment than to disappoint the rentier. But it is not necessary that weigh one evil against the other. It is easier to agree that both are evils to be shunned.

Individualistic Capitalism of to-day, precisely because it entrusts saving to the individual investor and production to the individual employer, presumes a stable measuring-rod of value, and cannot be efficient—perhaps cannot survive—without one.

For these grave causes we must free ourselves from the deep distrust which exists against allowing the regulation of the standard of value to be the subject of deliberate decision. We can no longer afford to leave it in the category of which the distinguishing characteristics are possessed in different degrees by the weather, the birth-rate, and the Constitution,—matters which are settled by natural causes, or are the resultant of the separate action of many individuals acting independently, or require a Revolution to change them…

Should-Read: WTF?! Real economic outcomes are not invariant to the monetary policy rule. A gold standard, a silver standard, adoption or non-adoption of Bagehot’s Rule, a constant stock of high-powered money rule, a constant broad money stock rule, a k% growth rate rule, a k% growth rate rule with base drift, a k% growth rate rule with catchup after unexpected shortfalls, inflation targeting, price level targeting, inflation targeting switching to price level targeting with catchup at the ZLB—to claim that “real outcomes are invariant to the monetary policy rule, not just to the trend in inflation” is to ignore most of monetary economics. Why are these people writing this?: Robert E. Hall and Thomas J. Sargent Short-Run and Long-Run Effects of Milton Friedman’s Presidential Address: “The immediate effect of Friedman’s 1968 AEA presidential address on the economics profession was the introduction of an adaptive term in the Phillips curve…

…that shifted the curve, as Friedman proposed, based on expected inflation. Initial formulations suggested that the shift was less than point-for-point, but later thinking, based on the emerging idea of rational expectations, together with the experience of the 1970s, came to agree with Friedman that the shift was by the full amount. The profession also recognized that Friedman’s point was deeper—real outcomes are invariant to the monetary policy rule, not just to the trend in inflation. The presidential address made an important contribution to the conduct of monetary policy around the world. It ushered in low and stable inflation rates in all advanced countries, and in many less advanced ones…

Much, much better would have been to simply parrot John Maynard Keynes (1924): Tract on Monetary Reform: “Inflation and Deflation… inflicted great injuries…

…Each as an effect in altering the distribution of wealth, Inflation in this respect being the worse…. Each has also an effect in overstimulating or retarding the production of wealth though here Deflation is the ore injurious…. How have the price changes of the past nine years affected the productivity of the community… and… the conflicting interests and mutual relations of its component classes? The answer to these questions will serve to establish the gravity of the evils….

If the depreciation of money is a source of gain to the business man [nominal debtor], it is also the occasion of opprobrium…. No man of spirit will consent to remain poor if he believes his betters to have gained their goods by lucky gambling. To convert the business man into the profiteer is to strike a blow at capitalism, because it destroys the psychological equilibrium which permits the perpetuance of unequal rewards…. If the fall in the value of money discourages investment, it also discredits enterprise….

Inflation redistributes wealth…. Its most striking consequence is its injustice to those who in good faith have committed their savings to titles to money rather than to things…. Injustice on such a scale has further consequences…. Inflation has… destroyed the atmosphere of confidence which is a condition of the willingness to save….

We see, therefore, that rising prices and falling prices each have their characteristic disadvantage. The Inflation which causes the former means Injustice to individuals and to classes, particularly to investors; and is therefore unfavourable to saving. The Deflation which causes falling prices means Impoverishment to labour and to enterprise by leading entrepreneurs to restrict production, in their endeavour to avoid loss to themselves; and is therefore disastrous to employment.

The counterparts are, of course, also true,—namely that Deflation means Injustice to borrowers, and that Inflation leads to the over-stimulation of industrial activity. But these results are not so marked as those emphasized above, because borrowers are in a better position to protect themselves from the worst effects of Deflation than lenders are to protect themselves from those of Inflation, and because labour is in a better position to protect itself from over-exertion in good times than from under-employment in bad times.

Thus Inflation is unjust and Deflation is inexpedient. Of the two perhaps Deflation is, if we rule out exaggerated inflations such as that of German, the worse; because it is worse, in an impoverished world, to provoke unemployment than to disappoint the rentier. But it is not necessary that weigh one evil against the other. It is easier to agree that both are evils to be shunned.

Individualistic Capitalism of to-day, precisely because it entrusts saving to the individual investor and production to the individual employer, presumes a stable measuring-rod of value, and cannot be efficient—perhaps cannot survive—without one.

For these grave causes we must free ourselves from the deep distrust which exists against allowing the regulation of the standard of value to be the subject of deliberate decision. We can no longer afford to leave it in the category of which the distinguishing characteristics are possessed in different degrees by the weather, the birth-rate, and the Constitution,—matters which are settled by natural causes, or are the resultant of the separate action of many individuals acting independently, or require a Revolution to change them…

Should-Read: BitCoin has no good endgame: Charlie Stross: Unforeseen Consequences and that 1929 vibe: “We’re going to run out of new BTC to mine… [then] the incentive for mining (a process essential for reconciling the public ledgers) will disappear…

…and the currency will… will what? The people most heavily invested in it will do their best to patch it up and keep it going, because what BTC most resembles (to my eye, and that of Jamie Dimon, CEO of JP Morgan Chase) is a distributed Ponzi scheme. But when a Ponzi scheme blows out, it’s the people at the bottom who lose. The longer BTC persists, the worse the eventual blowout—and the more angry people there are going to be. Angry people who are currently being recruited and radicalized by neo-Nazis…

Should-Read: José Azar, Ioana Marinescu, Marshall I. Steinbaum: Labor Market Concentration: “A product market is concentrated when a few firms dominate the market…

…Similarly, a labor market is concentrated when a few firms dominate hiring in the market. Using data from… http://CareerBuilder.com, we calculate labor market concentration for over 8,000 geographic-occupational labor markets in the US. Based on the DOJ-FTC horizontal merger guidelines, the average market is highly concentrated. Using a panel IV regression, we show that going from the 25th percentile to the 75th percentile in concentration is associated with a 15-25% decline in posted wages, suggesting that concentration increases labor market power…

Should-Read: Nouriel Roubini: The Mystery of the Missing Inflation: “The recent growth acceleration in the advanced economies would be expected to bring with it a pickup in inflation…

…Yet core inflation has fallen in the US this year and remains stubbornly low in Europe and Japan…. One possible explanation… is… developed economies have been experiencing positive supply shocks…. Globalization… weaker unions and workers’ reduced bargaining power… oil and commodity prices are low or declining… technological innovations…. If… the shock is permanent, central banks should ease monetary conditions…. [But] the Fed has justified its decision to start normalizing rates… by arguing that the inflation-weakening supply-side shocks are temporary…. Central banks aren’t willing to give up on their formal 2% inflation target, [but] they are willing to prolong the timeline for achieving it…. This central bank patience risks de-anchoring inflation expectations downward…