Must-Read: Marshall Steinbaum: The Unseen Threat of Capital Mobility

Posted on by Brad DeLong

Must-Read: Marshall Steinbaum: The Unseen Threat of Capital Mobility: “The Hidden Wealth of Nations: The Scourge of Tax Havens…

…by Gabriel Zucman, University of Chicago Press, $20 (cloth). Out of Sight: The Long and Disturbing Story of Corporations Outsourcing Catastrophe by Erik Loomis, The New Press, $25.95 (cloth). Two new books link rising inequality to unseen forces: tax havens in economist Gabriel Zucman’s case, and overseas labor and environmental exploitation in historian Erik Loomis’s. The adverse consequences of the free movement of capital suffuse both narratives…. Both authors propose tariffs, capital controls, and international regulatory standards that would either re-erect national boundaries or threaten to do so–proposals that will strike many readers as misguided, out of touch with political reality, or both….

When the Rana Plaza factory collapsed in 2013, Loomis engaged in a memorable online dispute with Matthew Yglesias, who published a piece on the disaster headlined ‘Different Places Have Different Safety Rules and That’s Okay’…. Loomis’s and Zucman’s calls for re-erecting national boundaries and re-empowering democratically accountable regulators are implications of a much more successful model for explaining why inequality has risen so much within developed and developing countries than in Yglesias’ just-so story: capital has gained the upper hand over labor by creating and accessing outside options while eliminating those of its opponents. Both books are the product of careful reconsideration and critique of received wisdom in the fields each covers, and more casual commentators would be wise to take heed of their implications instead of peddling discredited objections to any check on international capital mobility.

Must-Read: Thomas Laubach and John C. Williams: Measuring the Natural Rate of Interest Redu

Posted on by Brad DeLong

Must-Read: If our estimates of the real natural rate of interest are that it is less than zero, and if inflation is below target, what is the argument for even talking about raising interest rates? Isn’t the argument that ought to be made that one should raise the inflation target? One does want to have a late-expansion nominal federal funds rate of at least 6%/year, does one not?

Thomas Laubach and John C. Williams: Measuring the Natural Rate of Interest Redux: “Persistently low real interest rates have prompted the question…

…whether low interest rates are here to stay. This essay assesses the empirical evidence regarding the natural rate of interest in the United States using the Laubach-Williams model. Since the start of the Great Recession, the estimated natural rate of interest fell sharply and shows no sign of recovering. These results are robust to alternative model specifications. If the natural rate remains low, future episodes of hitting the zero lower bound are likely to be frequent and long-lasting. In addition, uncertainty about the natural rate argues for policy approaches that are more robust to mismeasurement of natural rates.

Www frbsf org economic research files wp2015 16 pdf Www frbsf org economic research files wp2015 16 pdf

Must-Read: Antonio Fatas: The Missing Lowflation Revolution

Posted on by Brad DeLong

Antonio Fatas: The Missing Lowflation Revolution: “It will soon be eight years since the US Federal Reserve decided to bring its interest rate down to 0%…

…In these eight years central banks have used all their available tools to increase inflation closer to their target and boost growth with limited success. GDP growth has been weak or anemic, and there is very little hope that economies will ever go back to their pre-crisis trends…. Very few would have anticipated… that central banks cannot lift inflation rates closer to their targets over such a long horizon… that a crisis can be so persistent and that cyclical conditions can have such large permanent effects on potential output… the slow (or inexistent) natural tendency of the economy to adjust by itself to a new equilibrium. To be fair… we had been warned about this by those who had studied the Japanese experience: both Krugman and Bernanke, among others…. But my guess is that even those who agreed with this reading of the Japanese economy would have never thought that we would see the same thing happening in other advanced economies….

It might be time to rethink our economic policy framework. Some obvious proposals include raising the inflation target and considering “helicopter money” as a tool for central banks. But neither of these proposals is getting a lot of traction. My own sense is that the view among academics and policy makers is not changing fast enough…. The comparison with the 70s when stagflation produced a large change in the way academic and policy makers thought about their models and about the framework for monetary policy is striking…. How many more years of zero interest rate will it take to witness a similar change in our economic analysis?

Noted for Lunchtime on October 29, 2015

Posted on by Brad DeLong

Must- and Should-Reads:

Might Like to Be Aware of:

Inequality, Prosperity, Growth, and Well-Being in America

Posted on by Brad DeLong

Live from Lawrence, KS: Kansas Economic Policy Conference:

My Presentation: Inequality, Prosperity, Growth, and Well-Being in America

Kansas Economic Policy Conference: Lunch: Video: https://youtu.be/nsT6gQmesdQ (1:13:53 total; Kane starts at 8:25, DeLong at 21:32, conversation with Kane and DeLong at 34:14, and closing remarks by Ginther at 1:06:25):

  • 8:30: Registration, Coffee & More
  • 9:00: Welcome & Introductions: Steven Maynard-Moody, Director, Institute for Policy & Social Research and Professor, School of Public Affairs & Administration
  • 9:10: Morning Keynotes – The State of the Economy and Economic Opportunity in Kansas
    • Kenneth Kriz, Regents Distinguished Professor of Public Finance and Director, Kansas Public Finance Center, Wichita State University
    • Gary Brunk, Executive Director, Kansas Association of Community Action Programs
  • 10:00: Break* 10:15: Conversation about Economic Opportunity
    • Patricia Clark, State Director of Kansas, USDA Rural Development
    • Shannon Cotsoradis, President and CEO, Kansas Action for Children
    • Shawna Chapman, Senior Analyst, Kansas Health Institute
  • BREAK
  • Conversation about Policy and Economic Opportunity
    • Senator Jim Denning, Kansas Senate District 8, Overland Park
    • Representative Melissa Rooker, Kansas House District 25, Fairway
    • Host: Jim McLean, Executive Editor, KHI News Service, Kansas Health Institute
  • NOON: Luncheon and Luncheon Panel
    • Remarks & Introduction: Jeffrey S. Vitter, Provost & Executive Vice Chancellor, The University of Kansas
    • Luncheon Panel: Economic Inequality and Economic Growth in the U.S.
      • Brad DeLong, Professor of Economics, University of California, Berkeley and Washington Center for Equitable Growth
      • Timothy Kane, Research Fellow, Hoover Institution, Stanford University
      • Host: Donna Ginther, Director, Center for Science, Technology & Economic Policy, Institute for Policy & Social Research and Professor, Department of Economics, The University of Kansas
    • 1:45: Closing Remarks: Donna Ginther, Director, Center for Science, Technology & Economic Policy, Institute for Policy & Social Research and Professor, Department of Economics, The University of Kansas
  • 2:00: Adjourn

https://fold.cm/read/delong/inequality-prosperity-growth-and-well-being-in-america-2JaJqA8z

Secular Stagnation–That’s My Title, of the Longer Version at Least

Posted on by Brad DeLong

J. Bradford DeLong: The Tragedy of Ben Bernanke: Project Syndicate:

Ben Bernanke has published his memoir, The Courage to Act.

I am finding it hard to read. And I am finding it hard to read as anything other than a tragedy. It is the story of a man who may have been the best-prepared person in the world for the job he was given, but who soon found himself outmatched by its challenges, quickly falling behind the curve and never quite managing to catch up.

It is to Bernanke’s great credit that the shock of 2007-2008 did not trigger another Great Depression. But the aftermath was unexpectedly disappointing… READ MOAR AT PROJECT SYNDICATE

Must-Read: Dean Baker: Growth Falls Off Sharply in Third Quarter

Posted on by Brad DeLong

Must-Read: Dean Baker: Growth Falls Off Sharply in Third Quarter: “The economy grew at a 1.5 percent annual rate in the third quarter…

…a sharp slowing from the 3.9 percent rate reported for the second quarter…. For the first three quarters of the year GDP has risen at a 2.0 percent annual rate…. There continues to be no evidence of inflationary pressures in any sector…

A 2.0%/year growth rate over the past three quarters, a 2.1%/year growth rate over the past four quarters, a 2.9%/year growth rate the year before (2013:III-2014:III), and a 1.6%/year growth rate the year before that (2012:III-2013:III).

The case for tightening monetary policy is not obvious, to say the least…

Must-Read: Yael T. Abouhalkah: Paging Gov. Sam Brownback’s Sycophants

Posted on by Brad DeLong

Must-Read: I must say: this amazes me. The old argument was that large Kansas-Missouri differences in AFDC payments back before 1995 did not lead single mothers to move across State Line Road into Kansas, so why should we expect even sharp state tax differentials to pull people across? The answer to that is: It was very, very clear that African-Americans in Kansas City were suppose to stay east of Troost. And non-African American AFDC recipients were much more geographically dispersed, hence it was not a short move.

Thus I thought business would be different.

I really did think that Brownback’s tax cuts would pull enough income across State Line Road to allow him to declare him non-defeat, and indeed to avoid utter defeat, when the rubber of his ideology met the road of reality and he had to make a Kansas state budget. Yet it is not so:

Yael T. Abouhalkah: Paging Gov. Sam Brownback’s Sycophants: “Kansas tax cuts still aren’t killing Missouri jobs in KC area…

…Jobs continue to grow more quickly on the Missouri side of the state line than on the Kansas side of the Kansas City metropolitan area. The Bureau of Labor Statistics reported that the Missouri portion of the region gained 2 percent in employment from September 2014 to September 2015. Meanwhile, the Kansas portion gained .9 percent…. This new report continues a recent trend in year-over-year superiority for the Missouri side…. This is not supposed to be happening, at least according to Brownback and his followers. He has stated that the income tax cuts he put in place in 2013 would generate more jobs especially in the Kansas City area, because it’s supposedly so easy just to hop the state line to reap tax benefits. Yet, month after month, that’s not happening…

Must-Read: Charles I. Jones and Paul M. Romer: The New Kaldor Economic Growth Facts: Ideas, Institutions, Population, and Human Capital

Posted on by Brad DeLong

Must-Read: Charles I. Jones and Paul M. Romer: The New Kaldor Economic Growth Facts: Ideas, Institutions, Population, and Human Capital: “Here is a summary of our new list of stylized facts, to be discussed in more detail:

  1. Increases in the extent of the market. Increased flows of goods, ideas, finance, and people—via globalization, as well as urbanization—have increased the extent of the market for all workers and consumers.
  2. Accelerating growth. For thousands of years, growth in both population and per capita GDP has accelerated, rising from virtually zero to the relatively rapid rates observed in the last century.
  3. Variation in modern growth rates. The variation in the rate of growth of per capita GDP increases with the distance from the technology frontier.
  4. Large income and total factor productivity (TFP) differences. Differences in measured inputs explain less than half of the enormous cross-country differ- ences in per capita GDP.
  5. Increases in human capital per worker. Human capital per worker is rising dramatically throughout the world.
  6. Long-run stability of relative wages. The rising quantity of human capital, relative to unskilled labor, has not been matched by a sustained decline in its relative price.

Must-Read: Joseph E. Gagnon: Is QE Bad for Business Investment? No Way!

Posted on by Brad DeLong

Must-Read: Also Larry Summers.

The important thing here, I think, is to have Bernanke’s back. Bernanke is right: QE was worth trying ex ante, and ex post it looks as though it was worth doing–and I would say it was worth doing more of it than he did. If there are arguments that Bernanke’s QE policy is wrong, they need to be arguments–not mere expressive word-salad.

Spence and Warsh are attacking Bernanke’s monetary policy. Why? It’s not clear–they claim that business investment is low because Bernanke’s QE policies have retarded it. But they do not present anything that I would count as an argument or evidence to that effect. As I see it, they are supplying a demand coming from Republican political masters, who decided that since Obama renominated Bernanke the fact that Bernanke was a Republican following sensible Republican policies was neither here nor there: that they had to oppose him–DEBAUCHING THE CURRENCY!!

And Warsh and Spence are meeting that demand, and meeting it when a more sensible Republican Party–and more sensible Republican economists–would be taking victory laps on how the George W. Bush-appointed Republican Fed Chair Ben Bernanke produced the best recovery in the North Atlantic.

I don’t know why Warsh is in this business, lining up with the Randites against Bernanke, other than hoping for future high federal office. And I am with Krugman on Spence: I have no idea why Spence is lining up with Warsh here–he is very sharp, even if he did give me one of my two B+s ever. What’s the model?

Joseph E. Gagnon: Is QE Bad for Business Investment? No Way!: “There is no logical or factual basis for their claim…

…It is the reluctance of businesses and consumers to spend in the wake of a historic recession that is forcing the Fed and other central banks around the world to keep interest rates unusually low–not the other way around…. Economies in which central banks were most aggressive in conducting QE early in the recovery (the United Kingdom and the United States) have been growing more strongly than economies that were slow to adopt QE (the euro area and Japan). At the top of their piece, the authors pull a classic bait and switch, noting ‘gross private investment’ has grown slightly less than GDP since late 2007. Yet the shortfall in private investment derives entirely from housing. No one believes that Fed purchases of mortgage bonds tanked the housing market. The whole premise of the article, that business investment is excessively weak, is simply false….

But the piece also fails a basic test of common sense. Spence and Warsh posit that ‘QE has redirected capital from the real domestic economy to financial assets at home and abroad.’ This statement reveals a fundamental misunderstanding of what financial assets are. They are claims on real assets. It is not possible to redirect capital from financial assets to real assets, since the two always are matched perfectly. Equities and bonds are (financial) claims on the future earnings of (real) businesses. Spence and Warsh accept that QE raised the prices of equities and bonds. Yet they seem ignorant of the effect this has on incentives to invest…. True, some businesses have used rising profits to buy back their own stock. But that is a business prerogative that points to lackluster investment prospects and cannot be laid at the feet of easy Fed policy…. [If] QE has raised stock prices, it discourages businesses from buying back stock because it makes that stock more costly to buy…