Must-Read: The Republican House caucus led by mainstream media-acclaimed “policy wonk” Paul Ryan are best thought of as a bunch of 19 year old college frat boys who didn’t do the reading winging it in a Model Budget Simulation course:

David Kamin: How a Tax Cut Turns Into a Tax Increase: “In rolling out their plan, House Republicans focused on an example family…

…a married couple making $59,000 per year and with two kids… a tax cut of over $1,182 in 2018…. [But] that… family making $59,000 would face a tax increase by 2024 relative… potentially rising to $500 by 2027.. even as tax cuts for those at the top are maintained….”

Should-Read: Mark Thoma: Federal Reserve Independence: “After the FOMC cut interest rates to almost nil during the Great Recession, the committee took advantage of its independence to boldly go where no Fed had gone before…

…With its “quantitative easing” program, the Fed purchased vast quantities of securities other than Treasury bonds, flooding banks with loanable deposits. President Obama respected the Fed’s independence, probably because it was pursuing policies that his advisers found appealing in light of their own frustrations with being unable to use more fiscal stimulus to speed the recovery. But the reaction from Republicans in Congress was a familiar one: threats to intervene.

This was partly inspired by genuine fears that the magnitude of the quantitative easing initiative would unleash inflation, and partly by a partisan inclination to attack an institution seen as allied with the Obama administration. It’s hard to know the extent to which pressure from Congress constrained the Fed’s actions. But the threats to audit the Fed, monitor policy decisions and strip it of its regulatory powers, combined with the public’s anger at policies that served the interests of Wall Street, certainly motivated Bernanke to mount an unusually public campaign defending the Fed’s independence…

Should-Read: Elhanan Helpman, Oleg Itskhoki, Marc-Andreas Muendler, and Stephen J. Redding: From Theory to Estimation: “Trade and Inequality: While neoclassical theory emphasizes the impact of trade on wage inequality between occupations and sectors…

…more recent theories of firm heterogeneity point to the impact of trade on wage dispersion within occupations and sectors…. [In] Brazil… much… overall wage inequality arises within sector–occupations and for workers with similar observable characteristics; this within component is driven by wage dispersion between firms; and wage dispersion between firms is related to firm employment size and trade participation. We then extend the heterogenous-firm model
of trade and inequality from Helpman et al. (2010) and estimate it with Brazilian data. We show that the
estimated model provides a close approximation to the observed distribution of wages and employment.
We use the estimated m…

Should-Read: Paul Krugman: Paul Ryan Is Choking On His Own Mystery Meat: “A cynic might have expected Republicans to go for full-on cynicism…

…“What, you took it seriously when we talked about fiscal responsibility? The joke’s one you! Ha ha ha!” And to a certain extent that is what they’ve done: after all the deficit-hawk posturing, they’re openly admitting that their intention is to increase the deficit by $1.5 trillion.

But they apparently didn’t feel free to cut completely loose: they did set a deficit target, and as I understand the mechanics of reconciliation, the budgets passed by the House and Senate, while they don’t actually set policy, kind of leave them stuck with an upper limit on just how much they can blow up the deficit.

And they have no idea how to get there. Try to cut one set of deductions, and the homebuilders get mad at you. Try to cut another, and upper-middle-class suburbanites in blue states who still vote GOP get mad. And so on.

The point is that these problems were always predictable, which is why the Ryan budgets were always obviously fraudulent. Ryan’s fakery may have fooled his naive constituents — by which I mean practically the whole Beltway pundit class — but never fooled anyone who could do the math.

So will the GOP pass something? Probably — but it’s more likely to be a miniature Christmas tree of handouts to the wealthy than the grand tax reform they’ve been promising.

?And let’s hope that whatever happens gets reported as the failure it is. Ryan and company promised big stuff, but never had any way to deliver. When it comes to big lies, Donald Trump is actually a very good, very normal Republican…

Must-Read: Martin Wolf: The challenge of Xi Jinping’s Leninist autocracy: “Xi Jinping[‘s]… claims… are bold: ‘Socialism with Chinese characteristics has crossed the threshold into a new era,’…

…’It offers a new option for other countries and nations who want to speed up their development while preserving their independence’. The Leninist political system is… yet again, a model…. Yet how has the system that failed in Moscow succeeded in Beijing?… Deng Xiaoping… freeing the economy… maintain[ing] party control…. Whether the Soviet Union could have followed such a path is open to debate. But it did not. As a result, today’s Russia does not know how to mark the October revolution…. Xi is… an autocrat… but… also an heir to the Leninist tradition. His legitimacy rests on the party’s….

China has indeed learnt from the west in economics. But it rejects modern western politics…. China has an ostensibly modern template for its ancient system of imperial sovereignty and meritocratic bureaucracy. But the party is now emperor…. Will this combination of Leninist politics with market economics go on working?… We do not know…. The system has worked spectacularly so far. Yet… the party… always above the law… makes power ultimately lawless… corruption… sap[ping] economic dynamism… as the economy and… education advance, the desire for a say in politics will become overwhelming….

All this is for the long run. The immediate position is quite clear. China is emerging as an economic superpower under a Leninist autocracy, controlled by one man. The rest of the world has no choice but to co-operate peacefully…. Those of us who believe in liberal democracy… need to recognise that China not only is, but sees itself, as a significant ideological rival. First, the west has to keep a margin of technological and economic superiority, without developing an unduly adversarial relationship with Mr Xi’s China. China is our partner. It is not our friend. Second and far more important, the west (fragile as it is today) has to recognise—and learn from—the fact that management of its economy and politics has been unsatisfactory for years, if not decades… financial crisis… under-invested in its future… yawning gulf… between economic winners and the losers… let lies and hatred consume its politics…. The west needs rejuvenation, too…. Autocracy is the age-old human norm. It must not have the last word.

Should-Read: Paul De Grauwe and Yuemei Ji: Behavioural economics is also useful in macroeconomics: “Concepts from behavioural economics… [help] develop macroeconomic models with endogenous business cycle fluctuations…

…Application of the models highlights how the trade-off between output and inflation is moderated by the flexibility of the economy… [and] help to explain… international transmission…. Assuming that agents experience cognitive limitations… [and] use simple forecasting rules (heuristics) and evaluate the forecasting performances of these rules ex post. This evaluation leads them to switch to the rules that perform best…. This adaptive learning assumption… produces endogenous waves of optimism and pessimism (animal spirits) that drive the business cycle in a self-fulfilling way. This also leads to a two-way causality. That is, optimism (pessimism) leads to an increase (decline) in output, and the increase (decline) in output in term intensifies optimism (pessimism). An important feature of this dynamics of animal spirits is that the movements of the output gap are characterised by periods of tranquility alternating in an unpredictable way with periods of intense movements reflecting booms and busts…

Should-Read: This from the very sharp Dani Rodrik seems to me to be largely wrong. The 1990s did not see dislocated workers fall into poverty: the 1990s saw, for the most part, workers pulled into higher-paying jobs and occupations by the then high-pressure economy. It was the Reagan deficits of the 1980s that started the midwest on its decline—but the idea was to blame the Japanese rather than St. Ronnie and his feckless policymakers. The China shock of the 2000s was a big deal. But the crash of 2007-2009 and the slow recovery since an even bigger one. And the long, slow decline of manufacturing and other traditionally male blue-collar jobs—a decline overwhelmingly independent of globalization—that was the biggest deal of all. I write about this. But here is Dani:

Dani Rodrik: The Trouble With Globalization: “The United States, too, could have moved aggressively to compensate dislocated workers in the 1990s, when it opened its economy to imports from Mexico, China…

…and other low-income countries in a major way. Instead, under the sway of market fundamentalists, the United States let the chips (and workers) fall where they may. By now, the compensation approach has been tarred as “burial insurance.” The trade adjustment assistance programs that are habitually tacked on to trade agreements have provided inadequate aid — and to just a sliver of the affected population. That is partly by design: politicians have little incentive to implement strong compensation programs once trade agreements are approved.

American workers have been the weak party in the bargain all along — if they’d had enough clout to obtain a robust safety net, they would have had the clout to reshape trade agreements in worker-friendly ways in the first place…

Must-Read: Jason Furman and Greg Leiserson: The real cost of the Republican tax cuts: “The House Republican plan will itself be incomplete…

…Sending cuts or tax increases will almost certainly still be required to pay for it. Analyses that do not account for those spending cuts or tax increases, whether they occur in the near term or in the longer term, obscure…