Venture capital’s gender gap is costly for firms and the economy

Posted on by Emilie Openchowski
Men and women walk to work on Wall Street in New York.

A new study uncovers a surprising performance enhancer for venture capital funds: hiring partners who have daughters. A recent study by business professor Paul A. Gompers and doctorate student Sophie Q. Wang of Harvard University looks at venture capital firms between 1990 and 2016, and finds that senior partners who had daughters were not only more likely to hire women but also realized increased deal and fund performance because of better gender diversity.

This research is not the first to look at the extent to which gender diversity—or lack thereof—can affect an organization’s performance. But no study has been able to establish a causal relationship between diversity and firm outcomes in real-world settings. Gompers and Wang look at the effect of gender diversity driven by a random, outside variable—the gender of venture capitalists’ children. Having a daughter can reduce one’s bias toward women, something that other research confirms. Gompers and Wang find that there is a “significant and economically meaningful increase in the proportion of females hired” when VC partners boast daughters in their families. The two researchers find this increase in firm gender diversity has a causal, positive effect on business performance.

The new study by Gompers and Wang further supports the business case for gender diversity, but its implications for venture capital are especially profound. The industry’s role in the economy has grown enormously over the past 30 years and today is synonymous with fostering the best-of-the-best in innovation and entrepreneurship. But venture capital overwhelmingly remains a boy’s club. The proportion of women in venture capital—10 percent overall—is barely higher than it was three decades ago. Today, 75 percent of firms have never hired a female senior investment partner, and only 7 percent of partners at top venture capital firms are women.

Women are shut out of top venture capital positions even as a growing number have obtained advance degrees in science, technology, and business—typically a criterion for going into the industry. What’s going on? Research has established that people tend to be drawn to people most like themselves, whether that’s in terms of friendships, business deals, or marriage. Other research specific to venture capital firms co-authored by Gompers finds these firm’s investors are more likely to collaborate with those who are similar to them in gender, ethnicity, and background. Doing so, according to the study, reduces the firm’s performance, in part because it may overlook opportunities to work with diverse yet more qualified or able individuals. Thus, given the preponderance of men in venture capital, it makes sense that women might be passed over at a higher rate. The authors also note that hiring is binary: Either you hire somebody or you don’t. So, even if one’s bias is slight, it can have a huge effect on the makeup of the workforce, especially given that many venture capital firms are small and do not hire senior partners very often.

The absence of women in VC firms, of course, trickles down into the success of female entrepreneurs: Women-led startup companies comprised less than 5 percent of venture capital deals last year. The two authors find that firms with a senior female investor are more likely to invest in portfolio companies founded by women. It also means that firms might overlook viable opportunities or suffer from stale thinking or costly mistakes due to a lack of different perspectives.

The authors do some interesting modeling, too. They find that if each of the partners of venture capital firms had had a daughter instead of a son (and thus were more likely to hire female partners), then an additional $4.5 billion could have been raised by firms’ portfolio companies between 1990 to 2010. They also estimate that increasing the percentage of women hired by 10 percent would result in portfolio companies raising an additional $23.2 billion. Gompers and Wang’s research shows how bias not only harms women but also can have an effect on the economy at large.

Perhaps Today We See Not a New Crisis of Liberal Democratic Capitalism, But an Old Condition Recurring

Posted on by Brad DeLong

I do not believe that the very sharp Branko Milanovic ever studied George Kennan’s “Long Telegram”: his 8000-word message in 1946 back from Moscow, where he was then U.S. ambassador, to the State Department in Washington.

In Kennan’s view, what was required was containment. And, indeed, containment was the keystone, indeed the whole arch, of U.S. policy from 1946 all the way up to 1989. Remember that really-existing socialism—Soviet communism—is attractive only to those who do not have to live under it. Remember to keep the competition on the economic, personal freedom, and ideological levels, using force only to preserve post-WWII boundaries and limits. Remember that we have the better system—in choosing leaders, in deciding on policies, in guiding economic growth. And if, when the competition is carried out on the economic, personal freedom, and ideological levels, it turns out that we do not have the better system? Then, as Kennan wrote:

The issue of Soviet-American relations is in essence a test of the overall worth of the United States… [which] need only measure up to its own best traditions…. Surely, there was never a fairer test of national quality than this…. The thoughtful observer… will find no cause for complaint in the Kremlin’s challenge to American society…

George Kennan (1946): The Sources of Soviet Conduct: “The main element of any United States policy toward the Soviet Union must be that of long-term, patient but firm and vigilant containment… http://www.historyguide.org/europe/kennan.html

…It is a sine qua non of successful dealing with Russia that the foreign government in question should remain at all times cool and collected and that its demands on Russian policy should be put forward in such a manner as to leave the way open for a compliance not too detrimental to Russian prestige…. Soviet pressure against the free institutions of the western world is something that can be contained by the adroit and vigilant application of counter-force at a series of constantly shifting geographical and political points, corresponding to the shifts and maneuvers of Soviet policy, but which cannot be charmed or talked out of existence. The Russians look forward to a duel of infinite duration, and they see that already they have scored great successes….

But if the ideology convinces the rulers of Russia that truth is on their side and they they can therefore afford to wait, those of us on whom that ideology has no claim are free to examine objectively the validity of that premise…. Suppose that the western world finds the strength and resourcefulness to contain Soviet power…. What does that spell for Russia itself?…

The Kremlin has… proved able to accomplish its purpose of building up Russia… [but] both the maintenance of internal political security and the building of heavy industry has been carried out at a terrible cost in human life and in human hopes and energies… involved the neglect or abuse of… particularly agriculture, consumers’ goods production, housing and transportation…. There are limits to the physical and nervous strength of people themselves. These limits are absolute ones, and are binding even for the cruelest dictatorship…. Soviet economic development, while it can list certain formidable achievements, has been precariously spotty and uneven. Russian Communists who speak of the “uneven development of capitalism” should blush at the contemplation of their own national economy….

It is difficult to see how these deficiencies can be corrected at an early date by a tired and dispirited population working largely under the shadow of fear and compulsion. And as long as they are not overcome, Russia will remain economically as vulnerable, and in a certain sense an impotent, nation, capable of exporting its enthusiasms and of radiating the strange charm of its primitive political vitality but unable to back up those articles of export by the real evidences of material power and prosperity.

Meanwhile, a great uncertainty hangs over the political life of the Soviet Union. That is the uncertainty involved in the transfer of power from one individual or group of individuals to others. This is, of course, outstandingly the problem of the personal position of Stalin…. It is always possible that another transfer of pre-eminent power may take place quietly and inconspicuously, with no repercussions anywhere. But again, it is possible that the questions involved may unleash, to use some of Lenin’s words, one of those “incredibly swift transitions” from “delicate deceit” to “wild violence” which characterize Russian history, and may shake Soviet power to its foundations…. This is not only a question of Stalin himself. There has been, since 1938, a dangerous congealment of political life in the higher circles of Soviet power….

It is curious to note that the ideological power of Soviet authority is strongest today in areas beyond the frontiers of Russia, beyond the reach of its police power. This phenomenon brings to mind a comparison used by Thomas Mann in his great novel Buddenbrooks. Observing that human institutions often show the greatest outward brilliance at a moment when inner decay is in reality farthest advanced, he compared one of those stars whose light shines most brightly on this world when in reality it has long since ceased to exist. And who can say with assurance that the strong light still cast by the Kremlin on the dissatisfied peoples of the western world is not the powerful afterglow of a constellation which is in actuality on the wane? This cannot be proved. And it cannot be disproved. But the possibility remains (and in the opinion of this writer it is a strong one) that Soviet power, like the capitalist world of its conception, bears within it the seeds of its own decay, and that the sprouting of these seeds is well advanced….

The possibilities for American policy are by no means limited to holding the line and hoping for the best…. The United States can create among the peoples of the world generally the impression of a country which knows what it wants, which is coping successfully with the problem of its internal life and with the responsibilities of a World Power, and which has a spiritual vitality capable of holding its own…. The palsied decrepitude of the capitalist world is the keystone of Communist philosophy. Even the failure of the United States to experience the early economic depression which the ravens of the Red Square have been predicting with such complacent confidence since hostilities ceased would have deep and important repercussions throughout the Communist world…. The issue of Soviet-American relations is in essence a test of the overall worth of the United States as a nation among nations. To avoid destruction the United States need only measure up to its own best traditions and prove itself worthy of preservation as a great nation. Surely, there was never a fairer test of national quality than this. In the light of these circumstances, the thoughtful observer of Russian-American relations will find no cause for complaint in the Kremlin’s challenge to American society…

Nikita Sergeyevich Khrushchev took up this gauge ten years later:

Nikita Sergeyevich Khrushchev (1956): “Whether you like it or not, history is on our side. We will bury you.”

Nikita Sergeyevich Khrushchev (1959): “The expression I used was distorted, and on purpose…

…what was meant was not the physical burial of any people but the question of the historical force of development. It is well known that at the present time no one social or economic system is dominant throughout the world, but that there are different systems, social systems in different countries. And those systems change. At one time the most widespread system of society in the world was feudalism. Then capitalism took its place….

We believe that Karl Marx, Engels and Lenin gave scientific proof of the fact that the system, the social system of socialism, would take the place of capitalism.… That is why I said that looking at the matter from the historical point of view, socialism, communism, would take the place of capitalism and capitalism thereby would be, so to speak, buried…

Nikita Sergeyevich Khrushchev (1963): “I once said, ‘We will bury you,’ and I got into trouble with it. Of course we will not bury you with a shovel. Your own working class will bury you…

Thus Branko does not understand how the post-World War II Cold War era looked from the perspective of the United States. From the U.S. perspective the important thing was to keep the (nuclear) piece and make sure that decisions were reached by speeches and majority votes, not by iron and blood. And from the U.S. perspective the U.S.S.R. was another inhumane authoritarian government with two particular characteristics; a more dysfunctional than usual economy, and an alliance with a strange eschatological messianic quasi-religious cult. The cult made it more dangerous to the world. Its economic inefficiency made it less dangerous. Those balanced out.

Yet Branko can write:

Branko Milanovic: The Hidden Dangers of Fukuyama-Like Triumphalism http://glineq.blogspot.com/2017/05/the-hidden-dangers-of-fukuyama-like.html “Deeply divided between the democratic and Communist factions…

…The former eventually prevailed but after having to keep in check, often by very brutal and undemocratic means, one-quarter of the electorate in France and Italy, large organized trade unions linked with communist and socialist parties in most of Continental Europe, all the while supporting capitalist dictatorial regimes in most of the Mediterranean Europe and in places… far away… fighting innumerable colonialist and post-colonialist wars… support[ing] the “bad” guys…. “Liberal democracy” was in a continual crisis, fighting for its mere survival…. It… survived, not because everybody, as the triumphalist narrative would have it, saw that it was a more “natural” system but because it used power and intimidation on the one hand, and superior economic performance for the masses on the other…

For those of us whose Kronstadt was Lenin’s armed thugs dissolving the elected Constituent Assembly in Petrograd at the end of 1917, claims that liberal democratic capitalism’s Cold War victory over communism was in some sense unfair because it used “power and intimidation” leaves us rolling on the floor and laughter. And the last clause “superior economic performance for the masses” gives away the game, no? Any societal system that must point to Josip Broz Tito as its most successful leader is truly in very deep trouble at so many levels.

And I think Branko simply gets it wrong when he writes: “In 1945, the chances of democratic capitalism winning over the Soviet system were 10% (read Schumpeter)…” Schumpeter’s Capitalism, Socialism, and Democracy is an interesting book. But at the core Schumpeter’s argument is the false argument you hear at the American Enterprise Institute: that political majorities will vote for high taxes on job-creators and burdensome regulations on businesses; thus they will strangle entrepreneurship with red tape of bureaucracy, and then socialism will win by pointing out that the entrepreneurial capitalism it has strangled with red tape is not delivering proper growth. That Schumpeter thought that capitalism was creating its own gravediggers—not in the form of an immiserized working class but of a new class of intellectuals hostile to entrepreneurship and an electoral majority of losers, moochers, and takers—does not mean that that was true, even in 1945.

And I think Branko gets it wrong when he write: “In 1965, they were 30% (read Samuelson, Galbraith and Tinbergen)…” Tinbergen and Galbraith saw not victory but rather convergence—communist countries would move toward a role for the price system and toward some form of representative political institutions, while liberal democracies would move toward larger welfare states and more public services. Samuelson saw a future in which the communist countries would be rich because of the suppression of household consumption: high savings rates and thus high capital-output ratios would produce greater GDP per capita even with central-planning inefficiencies. But communist societies would not be good societies.

And when we get to “in 1975, they were 60%…”, I still do not see what Branko sees. Lenin had had his lovers. Stalin had had his stooges. Castro had had his cadres. Mao had had his masses. But who by 1975 living in Russia or China or Cuba thought they lived in a good system? And who outside in 1975 found Leonid Brezhnev or Hua Guofeng or even Fidel Castro an attractive figure.

Branko gets back on track when he write:

When you have in your mind this (I think) much more accurate narrative of the past half-century, the current crisis can only be seen as one of the many crises of capitalism…

That is a much more defensible position. But right now I am playing with the idea that it is not a new crisis, but rather it is in some sense the same old crisis as we saw in the 1930s, the 1920s, or—indeed—with the post-Boer War khaki election and then the strange death of liberal England before WWI. I am playing with the idea that Frank Fukuyama got it wrong when he wrote:

Francis Fukuyama (1989): The End of History? https://ps321.community.uaf.edu/files/2012/10/Fukuyama-End-of-history-article.pdf: “Fascism was destroyed as a living ideology by World War II…

…a defeat… on a very material level… [and] of the idea as well…. Expansionist ultranationalism, with its promise of unending conflict leading to disastrous military defeat, had completely lost its appeal. The ruins of the Reich chancellory as well as the atomic bombs dropped on Hiroshima and Nagasaki killed this ideology on the level of consciousness as well as materially, and all of the proto-fascist movements spawned by the German and Japanese examples like the Peronist movement in Argentina or Subhas Chandra Bose’s Indian National Army withered after the war…

Thinking clearly about this is, I think, greatly hindered by references to “populism” rather than by calling it what it is: “neo-fascism”, if you insist on not using the full F-word. (The real populists of the late nineteenth century were something very different.) But what is really going on is that Frank was wrong when he said that this ideology had been “killed… on the level of consciousness”, wasn’t he?

Must-Read: Lael Brainard: Navigating the Different Signals from Inflation and Unemployment

Posted on by Brad DeLong

Must-Read: Once again:

Employment Rate Aged 25 54 All Persons for the United States© FRED St Louis Fed

Over the past 30 years we have had three business cycle peaks—1990, 2000, and 2007—and three business cycle troughs—1993, 2003, and 2009. The 2009 trough—what marked the nadir of what I now call the Longer Depression, at least as far as Europe is concerned—was an extraordinary and anomalous disaster. Taking the averages of the other peaks and troughs tells us that an economy with a prime-age employment-to-population ratio of 78.5% is still depressed relative to its normal sustainable configuration, while an economy with an employment-to-population ratio of 80.5% or above is in some kind of potential danger zone—although in all of 1990, 2000, and 2007 the danger has come from financial imbalances rather than accelerating wage-push inflationary pressures.

I remember back in mid-2014 when the prime-age employment-to-population ratio was 76.5%: I was then told that it was an unreliable indicator—that structural changes and hysteresis on the downside had made it next to impossible to get those missing prime-age workers back into employment. More than “I was told”, in fact: I greatly feared it myself.

Well, that was wrong.

So why say “the prime-age employment-to-population ratio—remains more than 1 percentage point below pre-crisis levels” rather than “the prime-age employment-to-population ratio remains at levels that before 2010 we would have characterized as depressed and indicating substantial economic slack”?

Lael Brainard: Navigating the Different Signals from Inflation and Unemployment: “The labor market has continued to strengthen… https://www.federalreserve.gov/newsevents/speech/brainard20170530a.htm

…the employment-to-population ratio has reached a new post-recession high…. The… U-3 measure of the unemployment rate moved down to 4.4 percent… the cyclical low reached in 2006-07…. There is little indication of an outbreak of inflation—rather, the latest data on inflation have been lower than expected…. Even wage inflation, which is most tightly connected to labor market slack, shows little sign of heating up by most measures…. Traditionally, economists assessed that as labor market slack diminished and the economy approached full employment, upward pressure on inflation would result, in the statistical relationship known as the Phillips curve. But I am not confident we can count on the Phillips curve to restore inflation to target in today’s economy…. The anchoring role of inflation expectations remains critically important….

It is also possible that the… unemployment rate still may be overstating the strength of the labor market…. Another key measure—the prime-age employment-to-population ratio—remains more than 1 percentage point below pre-crisis levels, and further improvement there would be welcome…

Should-Read: Anatole Kaletsky: The Divergence of US and British Populism

Posted on by Brad DeLong

Should-Read: IMHO, Anatole Kaletsky is over credulous: He believes what the Republican establishment told him at the Milken Institute Conference—that everything is under control. It isn’t. Or, if it is, it could blow in any moment in any of a number of different ways. That the Republican establishment in Los Angeles thought that its highest priority was to sooth the rich of America with the meme that everything was just fine is information. But it does not necessarily reflect reality:

Anatole Kaletsky: The Divergence of US and British Populism: “Trump’s key economic officials… plus a galaxy of Congressional officials and business leaders, made clear that Trump… is only a temporary aberration… https://www.project-syndicate.org/commentary/trump-resistance-brexit-acceptance-by-anatole-kaletsky-2017-05

…The US has taken a detour into a theme park of nationalist nostalgia, but it remains focused on the future and the benefits of globalization…. Trump will not deliver most of his domestic agenda. The Rust Belt will not enjoy a surge of infrastructure spending. US relations with Mexico or China will not change much. Trump’s main tax proposals will not get through Congress. And Trump’s promise to “repeal and replace” Obamacare immediately after taking office is almost certain to give way, under public pressure, to “reform and repair.”

After this immersion in US pragmatism, my return to British politics was deeply depressing…. The US has taken only 100 days to see through Trump’s “alternative reality” (though perhaps not through Trump himself). Almost nobody in Britain is even questioning the alternative reality of Brexit…. How might we explain the starkly different responses in American and British civil society to the dangerous flirtation with nationalist populism? In America, the immediate response to policies that were logically incoherent, economically dishonest, and diplomatically impossible to implement was an upsurge of opposition and debate…. Most important, US businesses started lobbying immediately to block any Trump policies that threatened their economic interests. As a top Senate staffer told the Milken conference, Walmart and other retailers “were extremely effective at educating our members”….

Now compare all this US opposition to the passivity in Britain after last year’s referendum…. Brexit has become an immovable dogma, immune to challenge or questioning of any kind…. No major British companies have tried to protect their interests by campaigning to reverse the Brexit decision. None has even publicly pointed out that the referendum gave Prime Minister Theresa May no mandate to rule out membership of the European single market and customs union…. The taboo against questioning Brexit has not been justified by appeals to reason, economics, or national interest. Instead the “will of the people” has been invoked….

There was never any doubt about the democratic legitimacy of opposition in the US…. A clear majority of Americans voted against Trump…. Trump lost the popular vote by 2%….

In Britain’s unwritten constitution, there is only one limitation on the power of a prime minister with a parliamentary majority–the right of voters to change their minds. But what happens if anyone who tries to persuade voters to change their minds is delegitimized as a denier of democracy and an “enemy of the people”?… Britain will take a wrong turn onto the bumpy path of nostalgic nationalism, while the US rejoins Europe on the modern highway of multicultural globalization.

Should-Read: Annette Alstadsæter, Niels Johannesen, and Gabriel Zucman: Tax Evasion and Inequality

Posted on by Brad DeLong

Should-Read: Annette Alstadsæter, Niels Johannesen, and Gabriel Zucman: Tax Evasion and Inequality: “We combine stratified random audits… with new micro-data leaked from two large offshore financial institutions, HSBC Switzerland (“Swiss leaks”) and Mossack Fonseca (“Panama Papers”)… http://gabriel-zucman.eu/files/AJZ2017.pdf

…We match these… to population-wide wealth records in Norway, Sweden, and Denmark…. Tax evasion rises sharply with wealth, a phenomenon that random audits fail to capture…. About 3% of personal taxes are evaded in Scandinavia, but this figure rises to about 30% in the top 0.01% of the wealth distribution…. Taking tax evasion into account increases the rise in inequality seen in tax data since the 1970s markedly…. Fighting tax evasion can be an effective way to collect more tax revenue from the ultra-wealthy…

Must- and Should-Reads: May 30, 2017

Posted on by Brad DeLong

Interesting Reads:

Why Is the FOMC So Certain the U.S. Is “Essentially at Full Employment”?

Posted on by Brad DeLong
Employment Rate Aged 25 54 All Persons for the United States© FRED St Louis Fed

Suppose you had, back in 1992 or 2004 or indeed any other time since 1990 and before 2013, asked a question of Charlie Evans—or, indeed, any of the other non-Neanderthal participants in the Federal Reserve’s Federal Open Market Committee meetings. Suppose you had asked whether a 25-54 employment-to-population ratio in the United States of today’s 78.5% was anywhere near “full employment”. What would they have said?

They would have said “of course not!”

They would have observed that the post-baby boom decline in fertility, wage stagnation among male earners, and the coming of feminism had greatly increased the share of 25-54 year old women who wanted paying jobs outside the home.

They would have pointed out that upward pressure on core inflation at an 80% 25-54 employment-to-population ratio in 1990 was small, that upward pressure on core inflation at an 82.5% 25-54 employment-to-population ratio in 2000 was minimal, and that upward pressure on core inflation at an 80% 25-54 employment-to-population ratio in 2007 was minimal.

They would have pointed out that today’s 78.5% was between between the 78.1% 1992 recession trough and the 78.6% 2003 recession trough.

They would have concluded that, by the standards of the post-feminist revolution era, a labor market with a 25-54 employment-to-population ratio of 78.5% was a labor market as bad from a business cycle perspective as the labor market got during the Great Moderation.

So why is Charlie Evans now saying that today the United States has “essentially returned to full employment”? Why no qualifiers? Why no “if you look only at the unemployment rate, and put the shockingly-low labor force participation statistics to one side…? Why no “it may well be the case that the U.S. has essentially returned to full employment? Why this certainty on the part of even the non-Neanderthal members of the FOMC—in public, at least—that the unemployment rate is the sole guide?

And why the puzzlement at the failure of core inflation to rise to 2%? That is a puzzle only if you assume that you know with certainty that the unemployment rate is the right variable to put on the right hand side of the Phillips Curve. If you say that the right variable is equal to some combination with weight λ on prime-age employment-to-population and weight 1-λ on the unemployment rate, then there is no puzzle—there is simply information about what the current value of λ is:

Charles Evans: Lessons Learned and Challenges Ahead: “These policies… produced results. Unemployment began to fall… https://www.chicagofed.org/publications/speeches/2017/05-25-lessons-learned-and-challenges-ahead-bank-of-japan

…more quickly than anticipated in 2013…. We were able to scale back the QE3 purchases…. Today, we have essentially returned to full employment in the U.S.

Unfortunately, low inflation has been more stubborn, being slower to return to our objective. From 2009 to the present, core PCE inflation, which strips out the volatile food and energy components, has underrun 2% and often by substantial amounts. This is eight full years below target. This is a serious policy outcome miss…

Charlie says a lot of good things in his talk. His discussions of “outcome-based policies… symmetric inflation target[s]… [and] risk management” are wise. But wisdom can be usefully applied only if you know where you start from. And we start from a position in which we really do not know how close the U.S. economy is right now to “full employment”—how much headroom for catch-up growth and catch-up employment remains, and how powerful and useful more aggressive policies to stimulate spending would be right now.

In 25 years my students are likely to ask me why the FOMC was so certain the U.S. was “essentially at full employment” today. What will I tell them?

Should-Read: Charles Evans: Lessons Learned and Challenges Ahead

Posted on by Brad DeLong

Should-Read: A 25-54 employment-to-population ratio in the United States of today’s 78.5% as “full employment”, qualified only by an “essentially”? WTF?! Why isn’t this qualified—why isn’t this, instead: “today, we may have essentially returned to full employment”?

Charles Evans: Lessons Learned and Challenges Ahead: “These policies… produced results. Unemployment began to fall… https://www.chicagofed.org/publications/speeches/2017/05-25-lessons-learned-and-challenges-ahead-bank-of-japan

…more quickly than anticipated in 2013…. We were able to scale back the QE3 purchases…. Today, we have essentially returned to full employment in the U.S…

What unconventional policies are likely to stay in central bankers’ toolkits?

Posted on by Meghan Miller
The Federal Reserve Building is seen on Constitution Avenue in Washington, March 2009.

In responding to the global financial crisis back in 2007, central bankers in many countries tried policies that had once seemed unthinkable. Nominal interest rates were slashed to zero and kept there for years. Central banks purchased trillions of dollars of assets, and their communication practices were radically changed. The recovery from the crisis over the past several years also sparked debate about even further changes to central bank tools and targets. Now, almost 10 years after the start of the crisis, will some of these new policies endure?

One way to figure out what post-crisis monetary policy tools are still considered to be useful is to ask the people most likely to make those decisions—central bankers and academic economists who study monetary policy. A recent paper by Alan Blinder of Princeton University, Michael Ehrmann of the European Central Bank, Jakob de Haan of the University of Groningen, and David-Jan Jansen of De Nederlandsche Bank does exactly that. The four economists sent out a survey to academic economists whose research covers monetary policy and central bankers across the world. The central bankers were from 55 different banks, and 16 of them were from high-income countries. The 159 economists who replied were much more concentrated in high-income countries, with 101 of them currently living in the United States.

Academics appear to be much more willing to keep the new unconventional tools of the past few years, while central bankers are a bit more hesitant. One case in point: 68 percent of the surveyed academics want to keep quantitative easing—the purchasing of large quantities of assets—using government debt in the policy toolkit. Compare that with the 35 percent of central bankers who want to keep quantitative easing as a viable policy measure. The gap disappears when only central bankers from high-income countries are included, with about 54 percent of those bankers wanting to keep it around.

A more significant difference is related to forward guidance. This form of central bank communication calls for central banks to forecast publicly future policy decisions such as interest rate hikes. Both central bankers and academics want to keep forward guidance around, but they are torn between what kind of guidance is best. Academics, about 69 percent of them, favor data-based forward guidance, where changes in policies are tied to specific thresholds such as a level of the unemployment rate. Central bankers tend to prefer more qualitative forward guidance, which allows for more wiggle room for changes in policy.

So it seems from the survey done by the four economists that several of the key monetary policy innovations of the crisis era are likely to remain in central bankers’ toolkits. Yet academics and central bankers also should consider the policies they didn’t pull out during the panic, such as nominal gross domestic product targeting. Remember that several unconventional ideas back in 2007 eventually became real-world policy. Who knows what the next downturn might require central bankers to turn to spark a turnaround.

Must-Read: Samuel Osborne: Angela Merkel says Germany can no longer rely on Donald Trump’s America

Posted on by Brad DeLong

Must-Read: November 8, 2016 was indeed the end of the long twentieth century:

Samuel Osborne: Angela Merkel says Germany can no longer rely on Donald Trump’s America: “‘We Europeans must really take our destiny into our own hands’… http://www.independent.co.uk/news/world/europe/angela-merkel-donald-trump-germany-us-no-longer-rely-european-union-climate-change-g7-a7760486.html

…She said that “the times in which we can fully count on others are somewhat over, as I have experienced in the past few days.”… Trump, who has previously called global warming a hoax, came under concerted pressure from the other leaders to honour the 2015 Paris Agreement on curbing carbon emissions. Although he tweeted to say he would make a decision next week, his apparent reluctance to embrace the first legally binding global climate change deal, signed by 195 countries, clearly annoyed Ms Merkel.

“The entire discussion about climate was very difficult, if not to say very dissatisfying,” she told reporters. “There are no indications whether the United States will stay in the Paris Agreement or not.” G7 leaders went on to blame the US for the failure to reach an agreement on climate change, in an unusually frank statement which read:

The United States of America is in the process of reviewing its policies on climate change and on the Paris Agreement and thus is not in a position to join the consensus on these topics. Understanding this process, the heads of state and of government of Canada, France, Germany, Italy, Japan and the United Kingdom and the presidents of the European Council and of the European Commission reaffirm their strong commitment to swiftly implement the Paris Agreement…