Should-Read: Brad DeLong (1995): Trade Policy and America’s Standard of Living: An Historical Perspective http://pages.ucsd.edu/~jlbroz/Courses/POLI142B/syllabus/delong.pdf: Before the Great Depression, the U.S. went through waves of protection and liberalization…

…as the federal government’s demands for revenue and industry pressure for protection waxed and waned. Some advocates of protection then as now argued that it would enhance economic development: translated into the language of modern economics, they argued that protection shifted American economic activity toward manufacturing, and that increasing returns to scale and externalities made specialization in manufacturing uniquely valuable for economic development.

But even if protection generated endogenous productivity growth by increasing economic activity in the externality-generating manufacturing sector, it slowed the rate of growth of wages because high tariffs on imported capital goods retarded capital deepening and delayed the development of capital-intensive infrastructure and industry. For plausible magnitudes, this second effect dominates: whatever Americans gained in faster mastery of technology as a result of protection in the late 19th century, they lost more because the higher price of—imported—capital goods made it more difficult and costly to build America’s transportation network and industrial base.

Must-Read: Mark Thoma: The More Trump Fails, the Better Off We’ll Be: “The Trump administration has gone to war against independent sources of information that pose a challenge to its policy goals and the narratives… http://www.thefiscaltimes.com/Columns/2017/06/05/More-Trump-Fails-Better-We-ll-Be

…One of the most recent targets is the Congressional Budget Office…. Trump’s budget director, Mick Mulvaney, criticized the CBO’s estimate that 23 million people would lose health insurance if the Republican health care plan were to be enacted: “If the same person is doing the score of undoing Obamacare who did the scoring of Obamacare in the first place, my guess is that there is probably some sort of bias in favor of a government mandate.” He went on to claim that the CBO is a partisan organization, and other Republicans defended him by arguing that the CBO’s estimates of insurance coverage under Obamacare were overly optimistic and biased in favor of the Obama administration. In responding to this, it’s useful to remember why Congress created the CBO in the first place. As Peter Suderman explains, the problem Congress was trying to solve was “a powerful executive branch with incentives to offer conveniently misleading, overly rosy projections about the costs and budgetary impacts of major federal expenses like war and entitlements. Congressional frustration boiled over during the Nixon administration… and the Congressional Budget Office was born.” Suderman goes on to conclude, “Basically, the CBO was created as a budgetary power center that could check the influence of the administration’s Office of Management and Budget (OMB).”

It’s telling that Mulvaney is the Director of the OMB, and the administration’s budget is a prime example of “overly rosy” projections–with double-counting thrown in for good measure…

Must-Read: The Financial Times is woke: it has joined the Left Central bank Opposition:

Financial Times: The needless urge for higher borrowing costs: “Talk of ‘normalising’ interest rates betrays a mistaken belief… https://www.ft.com/content/b752f7dc-4782-11e7-8d27-59b4dd6296b8

…Central banks are supposed to be targeting inflation, which remains stubbornly low, its relationship with the apparent tightness in the economy showing few signs of replicating its historic pattern. On the Fed’s preferred “core” measure… annual inflation was 1.5 per cent in April…. In the eurozone… the ECB’s own projections show the core rate at 1.1 per cent this year. In this context, the apparent determination of the Fed in particular to press on with interest rate rises looks a little peculiar. Having created expectations that it was likely to tighten policy with three quarter-point increases over the course of 2017, the Fed is acting more like a party to a contract that feels the need to honour its terms, than a central bank that takes the data as it finds them. Fortunately, there appears to be more resistance to the danger of premature tightening at the ECB….

There are two mistaken ideas at the heart of the urge to tighten policy too quickly. The first is that interest rates need “normalising”, as though there were an eternal and fixed level of equilibrium real rates. The evidence that the real rate has substantially lowered, even before the global financial crisis, is strong. The second is the belief that the output capacity of the economy, measured by the unemployment rate or by other metrics, is sufficiently well known that a central bank can safely raise rates on the basis of gross domestic product growth or increases in employment before it sees inflation start to rise. The history of the past few years, where inflation has continually undershot expectations despite recoveries in the major economies, suggests otherwise….

The Fed… the ECB… both betray, at least in some quarters of those institutions, a misguided approach to monetary policy that ignores recent experience in favour of a default expectation that the future will be like the past.

Should-Read: Simon Wren-Lewis: GE2017 and the Stages of Leaver Grief: “The EU knows that No Deal would be a disaster for the UK… https://mainlymacro.blogspot.com/2017/06/the-stages-of-leaver-grief.html

…Their overriding objective is to ensure the UK will be worse off under Brexit, not as some punishment but to ensure EU survival. Given that No Deal will be so much worse for the UK than the EU, and as the clock is already ticking, the EU are in a position where they can pretty well dictate terms. To the extent that this is a game, we lost it the moment Article 50 was triggered. The EU negotiations are still very important, but for the UK it is more a matter of making choices rather than extracting concessions. There are many kinds of Brexit. In thinking about who would be the best negotiator for the UK, the most important question to ask is who would make the right choices. Theresa May, by focusing so much on immigration and the European court, has already made two very bad decisions. She seems to be rather good at bad decisions. Personal qualities matter to a lesser extent, but success involves empathy and trust, not obstinacy. Unfortunately much of the country is still lost to the fiction that the negotiations are a battle of wills where the UK can emerge victorious if it is stubborn enough…

Should-Read: This is one of the iron laws of bureaucracy: Whenever an incumbent in an office appoints a chair of the search committee who then winds up getting the job, something has gone badly wrong—the process has been rigged to flatter the outgoing occupant, rather than to choose an appropriate successor.

In the first four months of 2017 the monthly changes in the core PCE chain inflation index have added up to 0.52%-points: an average of 0.13%-point per month.

If all twelve months of 2017 are to add up to the 2%/year core PCE chain inflation that is the Federal Reserve’s target, the remaining eight months of 2017 need to average 0.19%-points.

That’s average over the next eight months—not kiss once or twice.

The economic world is a surprising place: it could happen. But I see nothing in the data or in any underlying economic relationships—no chain of logical reasoning—that would lead anybody to truthfully say that they anticipate that 0.19%-point will be the average monthly PCE core chain inflation rate reported over the next eight monthly releases.

Yet that is what Philadelphia Fed President Patrick Parker is currently claiming:

Reuters: Fed’s Harker Still Sees Two More Interest Rate Hikes in 2017: “Philadelphia Federal Reserve Bank President Patrick Harker said on Friday that the U.S. central bank remains on track… https://www.nytimes.com/reuters/2017/06/02/business/02reuters-usa-fed-harker.html

…to meet its inflation goal… reiterated his support for a further two interest rate increases this year. “Turning to inflation, things are still on track, despite a couple of months trending in the wrong direction,” Harker said… add[ing] that he still forecasts inflation reaching the Fed’s 2 percent target around the end of this year…

Is this professional? Is this arithmetic?

Must-Read: There are many inconsistent and wildly different definitions of “artificial intelligence”. Here are two useful ones:

• Building systems that humans can easily and successful interact with by acting as if they are a human-level intelligence (within their domain).
• Building systems that behave in ways “that would be called ‘intelligent’ if a human were so behaving.”

Luciano Floridi says smart things about the second:

Luciano Floridi: A fallacy that will hinder advances in artificial intelligence: “The best definition of AI was written in 1955 by US computer scientist John McCarthy and colleagues… https://www.ft.com/content/ee996846-4626-11e7-8d27-59b4dd6296b8

….The problem, they wrote, “is taken to be that of making a machine behave in ways that would be called intelligent if a human were so behaving”…. The definition does not say the artificial agent is intelligent, but that a human would have to be to achieve the same goal…. The whole and only point is to perform a task such that the outcome is as good as, or better than, what human intelligence would have been able to achieve. “How” is not in question, only the outcome. This is why AI is not about reproducing but replacing human intelligence. A dishwasher does not clean the dishes as I do. But in the end its clean dishes are indistinguishable from mine—indeed, they may be cleaner…. AI is the continuation of intelligence by other means…