Regress in macroeconomic knowledge over the past 83 years

Today, in 2016, Raghu Rajan thinks helicopter drops are “a step too far into the dark…”

His predecessor 83 years ago at the University of Chicago, Jacob Viner, thought they were one of the obvious technocratic steps to take, along with further raising the monetary base (i.e., in his day going off of the gold standard) even with short-term safe nominal interest rates at the zero lower bound (as they also were in his day).

Here’s Raghu:

Raghuram Rajan 2016): “If you read the writings of economists…

…it is not clear what’s keeping us still so slow, seven or eight years after the crisis. Ken Rogoff would say it is still the debt overhang and the deleveraging. [Robert] Gordon and others might say it is low productivity and still others may say it is the poorly understood consequences of population aging. But what do we do? And here I think there is more of a consensus that monetary policy pretty much has run its course. There are still guys who are looking for helicopter drops of money but I think that is a step sort of too far into the dark, where I am not sure there is a political consensus to do that in the major economies, if it comes to that…

Here’s Jacob:

Jacob Viner (1933): Balanced Deflation, Inflation, or More Deflation: “If going off the gold standard were as simple a matter for us…

…as for England and Canada, I would not only advocate it, but if [it]… did not suffice to lower substantially the internal purchasing power of the dollar I would recommend its accompaniment by increased government expenditures financed by the printing press or by loans…. England and… the other countries which went off the gold standard in 1931… [made] too restrained use of the freedom which the departure from the gold standard gave them them…. The countries that went off the gold standard have nevertheless weathered the economic storm much better…

We all agree that economies today are “so slow” and inflation pressures are by and large absent. What does Raghu think he knows today that Jacob did not–what have we learned in the past 83 years–that has turned helicopter drops from an obvious technocratic step to take to “a step too far into the dark”? What did Jacob think he knew that Raghu does not–what doctrines, true, false, or uncertain–because we have forgotten them?

Anyone? Anyone? Bueller?

Must-read: Dylan Matthews: Barack Obama: One of the Most Consequential Presidents

Must-Read: Dylan Matthews: Barack Obama: One of the Most Consequential Presidents: “You can celebrate or bemoan these accomplishments…

…But no one can deny that the changes Obama has wrought are enormous in scale. Obamacare: a big ** deal…. National health insurance has been the single defining goal of American progressivism for more than a century… ever since its inclusion in Teddy Roosevelt’s 1912 Bull Moose platform…. It was the big gap between our welfare state and those of our peers in Europe, Canada, Australia, New Zealand, and Japan. And for more than a century, efforts to achieve national health insurance failed…. Then on March 23, 2010, President Obama signed the Affordable Care Act….

When you consider the law in the context of 100 years of progressive activism, and in the grand scheme of American history, it starts to look less like a moderate reform and more like an epochal achievement, on the order of FDR’s passage of Social Security or LBJ’s Great Society programs….

The Affordable Care Act was hardly Obama’s only accomplishment. He passed a stimulus bill… Dodd-Frank Act…. executive action to… curb greenhouse gas emissions… protect nearly 6 million undocumented immigrants from deportation… ended the ban on gay and lesbian service… made it easier for women and minorities to fight wage discrimination, cut out wasteful private sector involvement in student loans… hiked the top income tax rate… reprofessionalized the Department of Justice….

There are obviously places Obama fell short…. Monetary policy… combating HIV/AIDS and other public health scourges abroad… deport[ing] millions of unauthorized immigrants… perpetrators of torture and other war crimes from the Bush administration should have been criminally prosecuted. But… it could never be said that he accomplished little…. And on foreign issues, Obama’s record is perhaps the most successful of any Democratic president since Truman. He has reestablished productive diplomacy as the central task of a progressive foreign policy….

You can generally divide American presidents into… [the] ultimately forgettable … and the hugely consequential for good or ill (FDR, Lincoln, Nixon, Andrew Johnson). Whether you love or hate his record, there’s no question Obama’s domestic and foreign achievements place him firmly in the latter camp.

Must-reads: April 16, 2016

et al.: Breaking the Oil Spell: The Path to Diversification
* **Pro-Market Writers
: The White House Acknowledges: The U.S. Has a Concentration Problem; President Obama Launches New Pro-Competition Initiative
* Nick Bunker: How concerned should we be about business investment and productivity growth? – Equitable Growth
* William Cavanaugh and Jack Figura: Merrick Garland on Efficiencies
* Larry Summers: Corporate Profits Near Record Highs Is a Problem


Should Reads:

Must-watch: Min Zhu et al.: Breaking the Oil Spell: The Path to Diversification

Must-Watch: Min Zhu et al.: Breaking the Oil Spell: The Path to Diversification: “H.E. Obaid H. Al Tayer… Zeti Akhtar Aziz… J. Bradford DeLong… Simon Johnson… Reda Cherif… Fuad Hasanov…

…Imagine a future in which oil is no longer the main source of energy. Such a future is not necessarily cataclysmic for oil exporters if they succeed in diversifying their economies. To achieve this, however, they must change the prevailing economic model. In the past, countries such as Brazil, Korea, Malaysia, and Singapore have made major strides in economic diversification, and this book distills lessons from their experiences to help guide the Gulf countries and other oil exporters today. Their stories reveal that incentives for firms and workers need to be realigned to develop technologically sophisticated export-oriented industries. More important, their stories show that standard growth policy prescriptions may not be enough and changing incentives for firms and workers is essential. Breaking the Oil Spell sheds light on what constitutes true economic diversification and the role of the state in achieving it.

http://www.imf.org/external/np/seminars/eng/2016/mcd/index.htm | http://bcove.me/5yk1fp5o

Must-note: Pro-Market Writers: The White House Acknowledges: The U.S. Has a Concentration Problem; President Obama Launches New Pro-Competition Initiative

Must-Note: The Economist has long had a house style of no bylines–a deliberate institutional decision about the voice with which they want to speak that has, I think, more downsides the upsides. But we can argue about that.

But what I discovered today is that Pro-Market: The blog of the Stigler Center at the University of Chicago Booth School of Business has bylines only for Luigi Zingales, Asher Schechter, and Guy Rolnick. The rest are merely anonymous “Pro-Market Writers”.

This cannot be the right approach, for a large number of reasons that I’m sure you can think of as well as I:

Pro-Market Writers: The White House Acknowledges: The U.S. Has a Concentration Problem; President Obama Launches New Pro-Competition Initiative: “The White House acknowledged the steep price Americans pay due to anti-competitive behavior…

…across our economy, too many consumers are dealing with inferior or overpriced products, too many workers aren’t getting the wage increases they deserve, too many entrepreneurs and small businesses are getting squeezed out unfairly by their bigger competitors, and overall we are not seeing the level of innovative growth we would like to see. And a big piece of why that happens is anti-competitive behavior—companies stacking the deck against their competitors and their workers. We’ve got to fix that, by doing everything we can to make sure that consumers, middle-class and working families, and entrepreneurs are getting a fair deal.

The first action in Obama’s new initiative is to open the market for set-top cable boxes. The administration has singled out the set-top box market as an example of anti-competitiveness leading to inferior and overpriced products for consumers…

Weekend reading: “Unlocking the cable box” edition

This is a weekly post we publish on Fridays with links to articles that touch on economic inequality and growth. The first section is a round-up of what Equitable Growth has published this week and the second is work we’re highlighting from elsewhere. We won’t be the first to share these articles, but we hope by taking a look back at the whole week, we can put them in context.

Equitable Growth round-up

Earlier this week, a group of researchers released a new report looking at the variation in the life expectancy across the United States. Their findings are an important reminder of the significance of both income and place in the United States.

After a huge increase in the duration of unemployment insurance in the wake of the Great Recession, economists wondered if such an increase boosts unemployment rates. The answer, according to one new study, is yes—but only by a very small amount.

Tax Day is just around the corner. If you’ve already filed, congratulations are in order: You’re administrative data. Unfortunately, getting access to the data you’ve created isn’t easy.

Earlier this morning, the Obama administration announced a number of steps to place a new emphasis on increasing competition in the U.S. economy. Spurring competition in today’s economy, though, will require some creative policy thinking.

Links from around the web

Black and Hispanic students are disproportionately underrepresented in “gifted” programs in public schools, despite becoming a larger and larger share of all students. Susan Dynarski reports on a new study that shows using a universal test instead of teacher recommendations can help boost the share of black and Hispanic students in these programs. [the upshot]

Before Silicon Valley became the technology center for the United States, many wondered if it would beat out the Route 128 Corridor outside Boston. Why did the valley win? Seems as though it was a lack of non-compete agreements, which Justin Fox argues could use some pruning. [bloomberg view]

One of the more intriguing ideas in recent years is that increased “common ownership” of competitors through mutual funds has reduced competition in the United States. While Steven Davidoff Solomon isn’t sure it’s causing outright collusions, we need to think about the root causes. [dealbook]

As household wealth increased in the United States during the mid-2000s, savings rates correspondingly dropped. And after wealth dropped after the housing bust, savings rates increased. But as wealth has started to increase again, savings rates haven’t declined as much as we’d expect, as Tim Taylor points out. [conversable economist]

There are a number of ways to improve the stability of a financial system. One of them is to require financial firms to be funded more via equity, which is called “holding more capital” for some strange reasons. Either way, Matt Klein makes the argument for more capital. [ft alphaville]

Friday figure

Figure from “What happened to the job ladder in the 21st century?” by Marshall Steinbaum and Austin Clemens

Working toward a new U.S. competition policy

A cable box on top of a television.

If you’ve ever moved or switched cable providers, or simply cut the cable cord altogether, you’ve had to physically return your cable box—and you’ve probably wondered why each provider had a specialized box. Or maybe you’ve looked at your cable bill and wondered why you’re paying to rent the box in addition to getting the services. If you can get cable from any provider with any TV you’d like, why can’t you have a third-party cable box that works with any provider, even Netflix or HBO NOW?

Well, cable providers certainly don’t want that to happen. New innovation from a third party would cut into the nice little economic rent they’ve created for themselves. And it’s that outcome—the cutting off of potential innovation by incumbent firms—and others that are at the heart of steps that President Obama and his Administration are taking to put a new emphasis on competition policy in the United States.

The first, most concrete step is that the Administration will urge the Federal Communications Commission to push forward on efforts to “unlock the cable box.” The hope is that opening up the space for potential entrants by preempting the use of market power will introduce choice and competition into the set-top box market.

But the lack of competition and rise in market power isn’t confined to the cable industry. As Jeffrey Zients, Director of the National Economic Council, and Jason Furman, Chairman of the Council of Economic Advisers, put it, the Administration weighing in on the FCC rule is a “mascot” for a broader look at how policy can help promote competition in the United States.

Via an executive action, the President is having federal departments and agencies look at how they can help increase competition. But it’s not just the traditional antitrust authorities that need to be concerned about market power and concentration. Consider the example of non-compete agreements and occupational licensing—areas of labor market policy that are all about competition and that the Obama administration has previously highlighted.

It’s also worth thinking about competition policy as not just traditional antitrust, even though there is a strong case to be made that enforcement of antitrust laws can and should be better. Consider the rise of firms like Facebook, Inc., whose business model depends upon network effects to give them market power. But that power is intrinsic to that kind of firm. What can policymakers do there?

Or consider the idea that increased common ownership of competitors via mutual funds reduces competition—a possibility that interestingly gets a shout-out in a new Council of Economic Advisers brief on competition issues. Does policy attack the deep sources of the increased market power? Or does it merely work to constrict its use?

These questions are even more important as the research isn’t entirely there on the relative importance of issues like these or even the best ways to go after them, if we should at all. The picture isn’t so clear right now—but perhaps it will get clearer if policymakers and researchers keep trying to tune in.

Must-read: Nick Bunker: How concerned should we be about business investment and productivity growth?

Must-Read: Non-residential investment is not that low given the low-pressure economy. In fact, on some measures, business equipment and structures investment is relatively high.

FRED Graph FRED St Louis Fed

It’s residential investment and productivity growth that appear to me to be disappointingly low. The first is due, in some part at least, to administrative malpractice on the part of the Obama Treasury. The second is a puzzle , for it is a lot lower than could be plausibly accounted for by lower business investment…

Nick Bunker: How concerned should we be about business investment and productivity growth? – Equitable Growth: “The changes in business behavior in recent decades…

…are factors in the recent slowdown in productivity growth. But how concerned should we be about these trends? Are they cyclical problems that will soon be corrected? Or are they deeper structural changes we should grapple with more?… Jason Furman… provide[s] a good starting point…. He points out that since 2010 the decline in labor productivity growth in the United States has been driven mostly by a… slowdown in business investment…. How do we boost business investment?… [The] ‘accelerator’ view of the slowdown makes sense…. What are firms doing with all these profits they’re earning and not investing, then? The data show that a large chunk of these profits are being distributed to shareholders in the form of increased dividends and stock buybacks…. Declining business investment and dynamism, insomuch as they are affecting productivity growth, should concern policymakers and everyday Americans. Stronger productivity is a necessary requirement for higher living standards…

Must-read: William Cavanaugh and Jack Figura: “Merrick Garland on Efficiencies”

Must-Read: William Cavanaugh and Jack Figura: Merrick Garland on Efficiencies: “A Garland appointment would likely be bad news for those who seek to justify mergers based on the efficiencies…

…In 2001 Judge Garland joined an opinion rejecting an efficiency defense in the merger context, and in a different context in a 1987 article, he critiqued an efficiency-based approach to the state action doctrine…. The ‘revisionist’ model of the state action doctrine, as put forth by UCLA law professor John Wiley and Seventh Circuit Judges Richard Posner and Frank Easterbrook, among others… incorporate[d] an ‘efficiency test,’ where a state or local regulation would be subject to federal antitrust scrutiny if it ‘restrain[ed] market rivalry without responding directly to a substantial market inefficiency.’… Garland… criticized the efficiency test as bearing ‘sobering’ parallels to the Supreme Court’s much-criticized decision in Lochner v. New York….

The role of efficiencies continues to be often debated in the merger context, where proponents of mergers have pointed to alleged post-merger efficiencies as a defense against challenges under Section 7 of the Clayton Act.  The Horizontal Merger Guidelines issued by the U.S. Department of Justice and the Federal Trade Commission recognize the role that efficiencies may play…. In 2001, Judge Garland joined an opinion rejecting an efficiency defense in FTC v. H.J. Heinz Co…. cautioned that that any defendant relying on the defense would have to prove ‘extraordinary efficiencies’ that could not be obtained absent a merger and could not rely on ‘mere speculation and promises about post-merger behavior’…

Must-read: Larry Summers: “Corporate Profits Near Record Highs Is a Problem”

Must-Read: Larry Summers: Corporate Profits Near Record Highs Is a Problem: “The rate of profitability in the US is at a near-record-high level…

…All this might be taken as evidence that this is a time when the return on new capital investment is unusually high…. A high market value of corporations implies that ‘old capital’ is highly valued and suggests a high payoff to investment in new capital…. Yet matters are more complex. For some years now, real interest rates on safe financial instruments have been low and, for the most part, declining. And business investment is either in line with cyclical conditions or a little weaker than would be predicted…. This is anomalous…. An unusually high rate of investment would be expected to go along with a high rate of return on existing capital.

How can this anomaly be resolved? There are a number of logical possibilities…. [But] it could be that higher profits do not reflect increased productivity of capital but instead reflect an increase in monopoly power…. Is the increased monopoly power theory plausible?… (i) Many industries have become more concentrated; (ii) we are coming off a major merger wave; (iii) there is some evidence of greater profit persistence among major companies; (iv) new business formation has declined; (v) overlapping ownership of companies that compete has become more common with the rise of institutional investors; (vi) leading technology companies such as Google and Apple may be benefiting from increasing returns to scale and network effects…. Only the monopoly power story can convincingly account for the divergence between the profit rate and the behavior of real interest rates and investment…