Should-Read: Gillian Tett: Donald Trump’s tariffs would do little for American workers: “Robots will be the real winners if US president goes ahead with curbs on steel imports… https://www.ft.com/content/cd7df564-5c15-11e7-b553-e2df1b0c3220

…Another week, another wave of sabre-rattling from the Trump administration over trade…. Now the focus is on steel…. Tariffs would hurt American-based companies in direct and indirect ways. The transport equipment sector would suffer most, followed by the leather, petroleum, textiles, machinery and electrical equipment sectors…. If transport companies, such as carmakers, wanted to absorb the cost of these putative tariffs to keep their products competitive, they would have to cut wage costs by 6 per cent; for other industrial groups, a reduction of 2 and 4 per cent is needed. This might imply lower wages. But the more likely response is that companies would just replace workers with more robots…. Laura Tyson calculates… that robots have displaced 400,000 US manufacturing jobs each year in the past couple of decades—which has resulted in the manufacturing workforce falling by a third since 1997, even though output is at record high levels…

Must-Read: As I say, repeatedly, calling it “populism” is not a good thing—it does not lead to clear thinking. Hitherto “populism” has meant one to two things:

• The rather sensible political program of first the American prairie populists of the late nineteenth century and their successors like Huey Long: attack monopolies—railroad monopolies, energy monopolies, streetcar monopolies, and the gold-standard banking monopoly—and share the wealth, and in order to get that done “nail ’em up!!”
• the less-sensible price-control and macroeconomic expansion programs of left-of-center Latin American governments in the post-WWII era: policies that produced rapid growth and more income inequality in the short run at the price of storing up massive macroeconomic trouble and reducing incentives to invest to boost productivity in the long run.

We have neither here. I think thought is better aided by embracing the historical parallels: call it neo-fascism. And while economic stagnation may have been an element contributing to its rise, economic growth—especially growth that flows to the wrong people, people who are not real Hungarians, real Poles, real Englishmen—is unlikely to tame it. Economic globalization seems to me to be a cause only in the sense of a trigger, a butterfly wing-flap. The real causes lie elsewhere, IMHO at least:

Dani Rodrik: Economics of the populist backlash: The populist backlash to globalisation should not have come as a surprise, in light of economic history and economic theory… http://voxeu.org/article/economics-populist-backlash

…The world’s economic-political order appears to be at an inflection point, with its future direction hanging very much in balance…. The workhorse models with which international economists work tend to have strong redistributive implications… the Stolper-Samuelson theorem…. Economic theory has an additional implication, which is less well recognised. In relative terms, the redistributive effects of liberalisation get larger and tend to swamp the net gains as the trade barriers in question become smaller….

I suggest that these different reactions are related to the forms in which globalisation shocks make themselves felt…. It is easier for populist politicians to mobilise along ethno-national/cultural cleavages when the globalisation shock becomes salient in the form of immigration and refugees…. The relative salience of available cleavages and the narratives provided by populist leaders are what provides direction and content to the grievances. Overlooking this distinction can obscure the respective roles of economic and cultural factors in driving populist politics…

Must-Read: “We don’t need no education…. We don’t need no thought control…. All in all we’re just another brick in the wall…”:

Matthew Yglesias: On Twitter: “Nostalgia-drenched anti-intellectual populism can be a cause rather than a consequence of community economic decline” https://twitter.com/mattyglesias/status/884438584467521537:

Pew Research Center: Sharp Partisan Divisions in Views of National Institutions: “While a majority of the public (55%) continues to say that colleges and universities have a positive effect on the way things are going in the country these days… http://www.people-press.org/2017/07/10/sharp-partisan-divisions-in-views-of-national-institutions/

…Republicans express increasingly negative views. A majority of Republicans and Republican-leaning independents (58%) now say that colleges and universities have a negative effect on the country, up from 45% last year. By contrast, most Democrats and Democratic leaners (72%) say colleges and universities have a positive effect, which is little changed from recent years….”

Should-Read: Explain to me, please? What is a BIS that thinks the inflation target should be zero thinking? What are central banks that are not desperately striving to gain more sea room right now thinking?

Nouriel Roubini: The New Abnormal in Monetary Policy: “Financial markets are starting to get rattled by the winding down of unconventional monetary policies in many advanced economies… <https://www.project-syndicate.org/commentary/unconventional-monetary-policy-new-normal-by-nouriel-roubini-2017-07>

All of these central banks will have to reintroduce unconventional monetary policies if another recession or financial crisis occurs…. Even if the Fed can get the equilibrium rate back to 3% before the next recession hits, it still will not have enough room to maneuver effectively. Interest-rate cuts will run into the zero lower bound before they can have a meaningful impact on the economy. And when that happens, the Fed and other major central banks… first could restore quantitative- or credit-easing policies… second… could return to negative policy rates… third… could change their target rate of inflation from 2% to, say, 4%….

The last option for central banks is to lower the inflation target from 2% to, say, 0%, as the Bank for International Settlements has advised. A lower inflation target would alleviate the need for unconventional policies when rates are close to 0% and inflation is still below 2%. But… zero inflation and persistent periods of deflation–when the target is 0% and inflation is below target–may lead to debt deflation… debtors could fall into bankruptcy…

Must-Read: I wish to broadly concur with Paul Krugman’s judgments here, but I do wish to dissent in part.

I agree that it was very clear over time and even clearer in hindsight that William F. Buckley was no prize: somebody who supports Joe McCarthy’s attacks on George C. Marshall as a Chinese Communist spy, uses his position among the first generation of Catholics at Yale to argue for making Jews at Yale as uncomfortable as possible—”preserving the Christian character of the university—plus the racist-terrorist dog whistles of how white southerners could decide to use any means necessary to keep African-Americans down, the not just neo- but plain old fascist worship of Francisco Franco. What do I need to say about him? What do WFB’s defenders need to say and do, other than blush in shame, resign from public life, give all they have to the poor, and take up a life of anonymous service to others?

I agree with Krugman that conservative economists were always hopeless ideologues on inequality. And I agree with Krugman that Friedman was more right than wrong, and was very useful to have around.

I have, however, come to differ from Paul on Lucas as it becomes clear that whatever good things he wrote were “in the air” at the time, while the bad things have wrenched macroeconomics off its proper course for what look like generations:

• I think it was clear at the time that Lucas was wrong from the start on policy—disinflation was not and was never going to be nearly costless given the institutional structure of the economy in the 1970s.
• I think that it was clear at the time that Lucas was wrong on models of reality too: no, monetary shocks do not have real effects because people cannot observe and so misestimate the real prices of the things they buy and sell.
• Ascending to more rarified theoretical air, it should have been clear by the mid-1980s abandonment of estimation for calibration, if not before, that the abandonment of the disequilibrium learning-about-the-world approach to expectations for the pull-a-rabbit-out-of-a-magic-hat approach had obviously been a wrong turn.
• And even as of 1980 the idea of putting your output equation’s residual on the right-hand side and claiming it as an explanatory variable never passed any laugh test.

As Paul says, the same broad story holds on the environment and on health care. The generation of Friedman’s contemporaries had some good things to say; subsequent generations, much less so; today, economists worth listening to and economists who can work at the AEI without fearing that they will at some point be David Frummed are nearly disjoint sets.

Paul Krugman: When Was The Golden Age Of Conservative Intellectuals?: “Bret Stephens’s… [on] the intellectual decline of conservatism… the modern degeneracy… https://krugman.blogs.nytimes.com/2017/07/09/when-was-the-golden-age-of-conservative-intellectuals/?smid=tw-share&_r=0

…But Stephens harks back to a golden age… when… exactly? William F. Buckley is a problematic icon. Surely one needs to mention his spirited defense of white supremacy in the South, and National Review’s weird infatuation with Generalissimo Francisco Franco….

Let’s talk about… macroeconomics, environment, health care, and inequality…. In macroeconomics… Milton Friedman and, initially, Robert Lucas performed a useful service by challenging the case for policy activism, especially fiscal activism…. The track record of Chicago macroeconomics was impressive indeed. But then it all fell apart. Lucas-type models failed the test of events in the 1980s, while updated [new] Keynesianism held up. Rather than admitting that they had overreached, however, conservative macroeconomists just dug themselves deeper into the rabbit hole….

On environment, a similar turn took place a bit later. The use of markets and price incentives to fight pollution was, initially, a conservative idea condemned by some on the left. But liberals eventually took it on board—while cap-and-trade became a dirty word on the right….

On health care, ObamaRomneycare—relying on mandates, regulation, and subsidies rather than a single-payer system—was, famously, a conservative idea developed at the Heritage Foundation. But liberals took it on board—pretty quickly, actually—while conservatives began denouncing their own side’s clever idea as evil incarnate.

Finally, on inequality, conservative intellectuals were terrible from the very beginning. I wrote a long piece in 1992 detailing their evasions and distortions, many of which remain unchanged to this day. It wasn’t just that they were wrong; as I wrote at the time: “The combination of mendacity and sheer incompetence displayed by the Wall Street Journal, the U.S. Treasury Department, and a number of supposed economic experts demonstrates something else: the extaent of the moral and intellectual decline of American conservatism.” Remember, this was a quarter-century ago.

So when was the golden age of conservative intellectuals?… There never was one…. There was a period when conservatives contributed some useful stuff to the discourse. But that era ended a long, long time ago.

Should-Read: Emily Gee: Coverage Losses by State for the Senate Health Care Repeal Bill: “The Center for American Progress has estimated how many Americans would lose coverage by state and congressional district based on the CBO’s projections… https://www.americanprogress.org/issues/healthcare/news/2017/06/27/435112/coverage-losses-state-senate-health-care-repeal-bill/

…By 2026, on average, about 50,500 fewer people will have coverage in each congressional district. Table 1 provides estimates by state, and a spreadsheet of estimates by state and district can be downloaded at the end of this column… https://cdn.americanprogress.org/content/uploads/2017/06/27053751/CBOCoverageLossTableJune2017.xlsx

Should-Read: David Autor and Anna Salomons: Does Productivity Growth Threaten Employment?: “Is productivity growth inimical to employment?… https://www.ecbforum.eu/uploads/originals/2017/speakers/papers/D_Autor_A_Salomons_Does_productivity_growth_threaten_employment_Final_Draft_20170619.pdf

…Canonical economic theory says no, but much recent economic theory says ‘maybe’ — that is, rapid advances in machine capabilities may curtail aggregate labor demand as technology increasingly encroaches on human job tasks. We explore the relationship between productivity growth and employment using country- and industry-level data for 19 countries over 35+ years. Consistent with both the popular narrative and the Baumol hypothesis, we find that industry-level employment robustly falls as industry productivity rises, implying that technically progressive sectors tend to shrink. Simultaneously, we show that country-level employment generally grows as aggregate productivity rises. Because sectoral productivity growth raises incomes, consumption, and hence aggregate employment, a plausible reconciliation of these results — confirmed by our analysis — is that the negative own-industry employment effect of rising productivity is outweighed by positive spillovers to the rest of the economy. Despite the relative neutrality of productivity growth for aggregate labor demand, we estimate that rapid productivity growth in primary and secondary industries has generated a substantial reallocation of workers into tertiary services. Because these services have a comparatively bimodal skill distribution of employment, the ensuing sectoral shifts have tended to ‘polarize’ labor demand. Yet, the skew has been far stronger in favor of high- than low-skill employment. In net, the sectoral bias of rising productivity has not diminished aggregate labor demand but has yielded skill-biased demand shifts…

Must-Read: Larry Summers is spending his time describing the elephant in the room:

Larry Summers: Donald Trump’s alarming G20 performance: “the content of the [of the G-20] communiqué [is] a confirmation of the breakdown of international order that many have feared since the election of Donald Trump… https://www.ft.com/content/ea2849ea-6335-11e7-8814-0ac7eb84e5f1

…His conduct is the greatest threat to American security….The idea that the US should lead in the development of the international community has been a central tenet of American foreign policy since the end of the second world war. Since his election, Mr Trump’s rhetoric has rejected the concept of global community, and expressed a strong belief that the US should seek better deals rather than stronger institutions and systems…. It has become clear that Mr Trump’s actions will match his rhetoric….

What many people fear but few are saying is that in the difficult times that come during any term the president’s character will cause him to act dangerously…. Power… always reveals…. Trump has yet to experience a period of economic difficulty or any form of international economic crisis. He has not yet had to make a major military decision in time of crisis. Yet his behaviour has been erratic…. It is rare for heads of government to step away from the table during major summits…. There is no precedent for a head of government’s adult child taking a seat, as was the case when Ivanka Trump took her father’s place at the G20. There is no precedent for good reason. It is insulting to the others present and sends a signal of disempowerment regarding senior officials. Mr Trump’s pre-summit speech in Poland expressed the sentiment that the primary question of our time was the will of the west to survive…. Manichean rhetoric from presidents is rarely wise. George W Bush’s reference to an “axis of evil” is generally regarded as a serious error….

A corporate chief executive whose public behaviour was as erratic as that of Mr Trump would already have been replaced…. The president’s cabinet and his political allies in Congress should never forget that the oaths they swore were not to the defence of the president but to the defence of the constitution.

Larry Summers: Our President is the greatest threat to our security: “The only really important issue was whether the United States would at last be induced to signal [for the first time since November 8, 2016] a commitment to the idea of a global community or would it double down on atavism… http://larrysummers.com/2017/07/08/our-president-is-the-greatest-threat-to-our-security/

…As I write Saturday morning (US time), things seem to be running below my already low expectations. On the philosophical and policy questions regarding United States’ willingness to continue supporting a rules based international system, there is no progress to observe. On the question of the character of the US President–the most powerful person in the world–there is new and disturbing evidence. President Trump has deemed the survival of the West to be the issue of our time. In context, his statement cannot be read as anything other a call for a dangerous clash of civilizations. It will surely raise doubts in Asia, the Middle East and Africa about the reliability of American support…. At a time when the elephant in the room is his own mental stability, the President has confirmed doubts by bizarrely tweeting about how leaders are preoccupied by Hillary’s campaign manager. It is the tragedy of this moment that our President, and how he causes himself to be perceived, is the greatest threat to our security.