Must-Read: Eric Chyn: Moved to Opportunity: The Long-Run Effect of Public Housing Demolition on Labor Market Outcomes of Children

Posted on by Brad DeLong
Implosion of the former Lexington Terrace housing projects near downtown Baltimore, Saturday, July 27, 1996. (AP Photo/Gary Sussman)

Must-Read: Huh. It now looks like the huge benefits that got us excited back in the “moving to opportunity” policy days may have been an underestimate:

Eric Chyn: Moved to Opportunity: The Long-Run Effect of Public Housing Demolition on Labor Market Outcomes of Children: “This paper provides new evidence on the effects of moving out of disadvantaged neighborhoods…

…on the long-run economic outcomes of children…. Public housing demolitions in Chicago… forced households to relocate to private market housing using vouchers…. Compar[ing] adult outcomes of children displaced by demolition to their peers who lived in nearby public housing that was not demolished[,] displaced children are 9 percent more likely to be employed and earn 16 percent more as adults…

Must-Reads Up to Mid-Morning on November 27, 2015

Posted on by Brad DeLong
  • Must-Read: Adam Posen: Some Big Changes in Macroeconomic Thinking from Lawrence Summers
  • Refet S. Gürkaynak and Troy Davig: Central Bankers as Policymakers of Last Resort: “Central banks… have been shouldering ever-increasing policy burdens beyond their core mandate…. The end result is that tools available to the central bank may be used excessively but ineffectively…” :: I would say central bankers should be (a) more modest, but also (b) commit not to price stability but to making Say’s Law true in practice…
  • Charles Arthur: Artificial Intelligence: “‘Homo sapiens will be split into a handful of gods and the rest of us’…” :: Just what is it that makes some personal service jobs–personal-care attendant, housekeeper–low-status and Low-pay, while keeping others–investment manager who fails to beat the indexes–high status and high pay?
  • Jeffry Frieden: ‘The Money Makers,’ by Eric Rauchway: “For the next 10 years, even as war clouds gathered and then as war raged, American and British policy makers, led by John Maynard Keynes and the United States Treasury official Harry Dexter White, planned a new international monetary order…” :: Few people today realize the extent to which the New Deal was not ideological or theoretical but rather their opposites: pragmatic. And where the New Deal was ideological or theoretical, it tended to be the least successful–witness Thurman Arnold and utilities, or Roosevelt’s austerian turn in 1937-1938.
  • William Poole: Don’t Blame the Fed for Low Rates: “Long-term rates reflect weak job creation and credit demand, both a result of President Obama’s poor economic stewardship…” :: The factors he points to… would… produce both (a) a fall in interest rates and (b) a fall in the equity values of established companies. We have the first. We do not have the second…

Must-Read: Adam Posen: Some Big Changes in Macroeconomic Thinking from Lawrence Summers

Posted on by Brad DeLong

Must-Read: Adam Posen: Some Big Changes in Macroeconomic Thinking from Lawrence Summers: “In the United States, since 1965, there has been a tripling of the non-employment rate…

…for men… 24 and 54… similar trends… elsewhere…. It is a real puzzle to observe simultaneously multi-year trends of rising non-employment of low-skilled workers and declining measured productivity growth. Either we need a new understanding, or one of these observed patterns is ill-founded or misleading…. Unless we can somehow transform that sustained lower demand for workers into the widespread leisure of the sort imagined by Keynes and some science fiction writers, with the income redistribution to support it, I would think this is very bad news for social stability and technological progress….

Unmeasured quality improvement… [the] fraction of the economy… [susceptible] has been rising, so the amount of mismeasurement (and therefore productivity understatement) would be rising…. [Thus] inflation is lower than even its currently low level–and that has the consequence that real interest rates are higher, so monetary policy at present is tighter… [and] farther away from its mandated inflation target…

Recessions in the OECD… in most cases the level of GDP is lower five to ten years afterward than any prerecession forecast or trend…. “The classic model of cyclical fluctuations… around the given trend is not the right model…. The preoccupation of macroeconomics should be on lower frequency fluctuations that have consequences over long periods of time….

Discussing… Abenomics’ results… I asked whether a message we should take from the Japanese experience is to avoid bad states of the economy at almost any cost…. [And] the very language we use to speak of business cycles, of trend growth rates, of recoveries of to those perhaps non-stationary trends, and so on–which reflects the underlying mental framework of most macroeconomists–would have to be rethought.

Must-Read: Refet S. Gürkaynak and Troy Davig: Central Bankers as Policymakers of Last Resort

Posted on by Brad DeLong

Must-Read: So should central bankers be given more tools–conduct monetary/fiscal policy via “social credit” assignment of seigniorage to individuals and monopolize financial regulation? Or should central bankers focus on price stability and only price stability? I would say central bankers should be (a) more modest, but also (b) commit not to price stability but to making Say’s Law true in practice…

Refet S. Gürkaynak and Troy Davig: Central Bankers as Policymakers of Last Resort: “Central banks around the world have been shouldering ever-increasing policy burdens beyond their core mandate…

…of stabilising prices… without an accompanying expansion of their policy tools. They have become policymakers of last resort, residual claimants of macroeconomic policy. As central banks take on the duty of addressing policy concerns other than inflation–and consequently take the blame for not completely solving those problems–other policymakers get a free hand in pursuing alternative goals, which may not be aligned with social welfare. The end result is that tools available to the central bank may be used excessively but ineffectively….

As Orphanides (2013) highlights, the increase in central banks’ implicit mandates is widely visible. In the developed economies, this is most clearly manifested in central banks’ attempts to compensate for fiscal tightening after the Great Recession. More recently, attention has turned to using interest rate policy to promote financial stability. In developing and emerging market economies, central banks carry out policies to affect a long list of macroeconomic outcomes, including capital flows, exchange rates, bank loan growth rates, housing prices and the like, as well as keeping an eye on inflation. An implicit expectation that central banks will take on these objectives, along with their willingness to do so, runs the risk of producing inferior outcomes compared to when central banks mind their core business of fostering price stability…

Must-Read: Charles Arthur: Artificial Intelligence

Posted on by Brad DeLong

Must-Read: Just what is it that makes some personal service jobs–personal-care attendant, housekeeper–low-status and Low-pay, while keeping others–investment manager who fails to beat the indexes–high status and high pay?

Charles Arthur: Artificial Intelligence: “‘Homo sapiens will be split into a handful of gods…

…and the rest of us’. A new report suggests that the marriage of AI and robotics could replace so many jobs that the era of mass employment could come to an end… a new 300-page report from Bank of America Merrill Lynch… promises robot carers for an ageing population… [and] huge numbers of jobs being wiped out: up to 35% of all workers in the UK and 47% of those in the US, including white-collar jobs, seeing their livelihoods taken away by machines…. “The poster child for automation is agriculture,” says Calum Chace, author of Surviving AI and the novel Pandora’s Brain. “In 1900, 40% of the US labour force worked in agriculture. By 1960, the figure was a few per cent. And yet people had jobs; the nature of the jobs had changed. But then again, there were 21 million horses in the US in 1900. By 1960, there were just three million. The difference was that humans have cognitive skills–we could learn to do new things. But that might not always be the case as machines get smarter and smarter”….

Lawyers who used to slog through giant files for the “discovery” phase of a trial can turn it over to a computer…. Foxconn… aims to replace much of its workforce with automated systems…. Carl Benedikt Frey… points out that even while some jobs are replaced, new ones spring up that focus more on services and interaction with and between people. “The fastest-growing occupations in the past five years are all related to services,” he tells the Observer. “The two biggest are Zumba instructor and personal trainer.” Frey observes that technology is leading to a rarification of leading-edge employment, where fewer and fewer people have the necessary skills to work in the frontline of its advances… technology doesn’t create that many new jobs now compared to the past….. There will be people who own the AI, and therefore own everything else,” he says. “Which means homo sapiens will be split into a handful of ‘gods’, and then the rest of us…

Must-Read: Jeffry Frieden: ‘The Money Makers,’ by Eric Rauchway

Posted on by Brad DeLong

Must-Read: Few people today realize the extent to which the New Deal was not ideological or theoretical but rather their opposites: pragmatic. And where the New Deal was ideological or theoretical, it tended to be the least successful–witness Thurman Arnold and utilities, or Roosevelt’s austerian turn in 1937-1938:

Jeffry Frieden: ‘The Money Makers,’ by Eric Rauchway: “In 2008, the international economy came within weeks of catastrophic collapse…

…Concerted action by the world’s monetary authorities staved off disaster. Although stagnation continues to plague much of the globe, especially Europe, a major depression was avoided. The world was not so lucky in 1929…. The policies of the world’s major governments helped turn the recession that began in 1929 into a full-fledged depression…. [But[ the sooner countries left the gold standard in the 1930s, the more quickly their economies rebounded. Britain went off gold in September 1931, followed by most of the rest of the world. America’s path out of the Depression was slowed by the Hoover administration’s gold-standard orthodoxy. When Roosevelt took office in 1933, he almost immediately took the United States off gold and devalued the dollar. The result, as Rauchway shows, was a robust recovery. By 1936, the world had left gold behind. For the next 10 years, even as war clouds gathered and then as war raged, American and British policy makers, led by John Maynard Keynes and the United States Treasury official Harry Dexter White, planned a new international monetary order…. Rauchway tells this important story with passion, intelligence and style….

The major players come alive in ‘The Money Makers.’ Rauchway’s archival research gives depth to Roosevelt and Treasury Secretary Henry Morgenthau Jr., showing that both men understood the economic and political implications of their monetary policies, even if they were uninterested in the theoretical foundations for them that Keynes and others were building. The book also gives great detail about the practical involvement of the two principal economists involved, Keynes and White. Rauchway places the political context front and center, especially in addressing the issue of White’s contacts with Soviet agents…. Perhaps today’s policy makers — especially contemporary advocates of orthodox austerity sitting in Berlin — can learn something from the story Eric Rauchway tells so well.”

Must-Read: William Poole: Don’t Blame the Fed for Low Rates

Posted on by Brad DeLong

Must-Read: You know, given the demographic headwinds of this decade, the consensus of economic historians is likely to say that job growth under Obama was not weak, but quite possibly the second-strongest relative to baseline since the Oil Shock of 1973–somewhat worse than under Clinton, a hair better than under Carter or Reagan, and massively superior to job growth under either Bush:

Graph All Employees Total Nonfarm Payrolls FRED St Louis Fed

William Poole: Don’t Blame the Fed for Low Rates: “Long-term rates reflect weak job creation and credit demand, both a result of President Obama’s poor economic stewardship…

…The frequent claim that Federal Reserve Chair Janet Yellen and her colleagues are responsible for continuing low rates of interest may be correct in the small, but not in the large…. The real villain behind low interest rates is President Obama. Long-term rates reflect weak job creation and credit demand…. The real rate of interest, currently negative for short-term interest rates and only slightly positive for long rates, is a consequence of non-monetary conditions that have held the economy back….

Disincentives to business investment deserve special notice…. The Obama administration has created one disincentive after another… the failure to pursue tax reform… insistence on higher tax rates… environmental activism… growth-killing overreach in the Affordable Care Act and Dodd-Frank to the Consumer Financial Protection Bureau, the Environmental Protection Agency and the Labor Department….

The Fed is responsible, however, for not defending itself by explaining to Congress and the public what is going on. The Fed is too afraid politically to mention any details of its general position that it cannot do the job on its own. Yes, there are “headwinds,” but they are largely the doing of the administration…. The Obama administration didn’t create Fannie Mae and Freddie Mac, for instance, or the government’s affordable-housing goals—both of which fueled the 2008 financial crisis. But the Obama administration has failed to correct the economic problems it inherited. It has simply piled on more and more disincentives to growth. These disincentives have kept long-term rates low.

It seems to me that very little of William Poole’s argument makes any sense at all.

If the factors he points to were there and were operating, they would operate by lowering the future profits of both new capital and old capital. They should thus produce both (a) a fall in interest rates and (b) a fall in the equity values of established companies. We have the first. We do not have the second. Thus I find it very hard to understand in what sense this is made as a technocratic argument. It seems, instead, to be some strange fact-light checking off of political and ideological boxes: Obama BAD! Federal Reserve GOOD!!

Must-Reads Up to Breakfast Time on November 25, 2015

Posted on by Brad DeLong

Must-Read: Mark Thoma Sends Us to Simon Wren-Lewis: Economists and the Eurozone: Wake Up Calls and Political Capture

Posted on by Brad DeLong

Must-Read: Mark Thoma sends us to Simon Wren-Lewis: Economists and the Eurozone: Wake Up Calls and Political Capture: “I have often tried… to ask whether Germany’s strange stance on these macro issues…

…simply reflects this different conjunctural position. I think the answer is no…. Germany’s stance reflects similar political economy pressures as you will find in other OECD economies: there is no German exceptionalism, but rather that the forces that everywhere are pushing austerity and tighter monetary policy happen for various reasons to be stronger in Germany. From this perspective, this post from Frances Coppola is particularly interesting. Perhaps the problem at the heart of the Eurozone is that economic policy advice in Germany has been effectively captured by employers’ interests, and perhaps the interests of banks in particular…

And Mark comments:

Economic policy effectively captured by business and financial interests? That could never happen here…

Must-Read: Ian Johnson: Xi’s China: The Illusion of Change

Posted on by Brad DeLong
“Lights of Shanghai” by David Almeida, flickr, cc

Must-Read: Ian Johnson: Xi’s China: The Illusion of Change: “Xi[‘s]… goal has been to recreate the early years of Communist rule…

…in the early to mid-1950s when his father was part of the ruling elite. Back then, according to official mythology, the party was clean and officials were upright, and the populace was content. Returning to this imagined past means strengthening, not weakening party control. If we briefly survey Xi’s actions… we can see this as the primary goal of his reforms. Most obvious and probably the most disappointing for optimists is the economy…. Most of Xi’s changes—such as incremental bank rate liberalizations or opening the stock market a bit wider to foreign investors—can more properly be viewed as technocratic tinkering. It’s true that a lot of small repairs can lead to an overhaul, but only if the changes are part of a broader plan with a clear goal. There has been no indication that such a plan exists—at least not one that would lead to a more open economy. It is possible that Xi might reverse course… but signs are not promising. A recent, outstanding piece of fly-on-the-wall reporting in The Wall Street Journal shows that despite Xi’s anger about the slowing economy, the slow growth itself has made him cautious and even less willing to push reforms…