Manu Saadia, the author of the forthcoming book, Trekonomics, discusses the economic theories behind the creation of the Star Trek with J. Bradford DeLong, professor of Economics at UC Berkeley and former Deputy Assistant Secretary at the US Treasury. Inkshares’ Adam Gomolin is the moderator:

The Vulcans are not coming…:

• https://www.inkshares.com/projects/trekonomics
• https://readfold.com/read/delong/unfinished-notes-on-trekonomics-tKdx6Njn

Must-Read: David Blanchflower, Mariana Mazzucato, et al.: Jeremy Corbyn’s Opposition to Austerity Is Actually Mainstream Economics: “The accusation is widely made that Jeremy Corbyn and his supporters have moved to the extreme left…

…[But his opposition to austerity is actually mainstream economics, even backed by the conservative IMF. He aims to boost growth and prosperity. He voted against the shameful £12bn in cuts in the welfare bill…. It is the current government’s policy and its objectives which are extreme…. Increasing child poverty and cutting support for the most vulnerable is unjustifiable. Cutting government investment in the name of prudence is wrong because it prevents growth, innovation and productivity increases…. We the undersigned are not all supporters of Jeremy Corbyn. But we hope to clarify just where the ‘extremism’ lies in the current economic debate.

David Atkins: Sam Brownback’s Kansas Disaster is Getting Even Worse#annotations:7676499): “Reasonable people can come to different moral value judgments…

…But it’s important to remember that it’s not just about empathy and ethics. It’s about what works and what doesn’t. And every day in every way, we are learning that conservative approaches simply don’t work…. Exhibit A in the utter failure of conservative dogma is Sam Brownback’s trainwreck in Kansas… Yael Abouhalkah….

This has been a bad week for Gov. Sam Brownback and others who believe his massive income tax cuts are going to dramatically boost employment in the state. A new report Friday showed that Kansas had lost a whopping 4,300 jobs in July from a month earlier…. Kansas has added a puny 5,600 total jobs in the last year — from July 2014 to July 2015. The new information shows that the tax cuts that have drained the Kansas treasury of hundreds of millions of dollars the past two years are not working to attract employers and jobs…

Kansas’ atrocious performance has nothing to do with the state of the midwest or the manufacturing sector generally, because both manufacturing and Kansas’ neighbors are actually doing pretty well comparatively…. All this as Brownback’s tax cuts are destroying what remains of the state’s educational system and social services. Brownback and his allies suffer under the delusion that supply-side economics really works, and that if they cut taxes enough on rich people and businesses that there will be an explosion of jobs and economic growth. That’s not just immoral because it increases inequality and hurts the poor. It’s as wrong as 2+2=5. In all but the most extreme cases, cutting taxes on the rich does nothing to create jobs, but slashing the salaries of teachers and cutting welfare benefits means less consumer demand, which in turns drives the economy into recession. The immorality would at least be somewhat tolerable if the ideology functioned at a broad utilitarian level, but it doesn’t.

Must-Read: I think that Paul Krugman’s jump from the first to the second paragraph I quote below is wrong–or at least much too hasty: Reason is not that Cunning. Robert Lucas is no more of a right-wing nut than Milton Friedman and George Stigler–indeed, Lucas probably never was, as Gene Smolensky characterized Milton and George, “in love with Barry Goldwater”. But for Uncle Milton, maintenance of a stable, predictable path for nominal GDP by means of a “neutral” monetary policy was not just Job Number One but Job Number Only–and for Uncle Milton, whatever policy maintains a stable, predictable path for nominal GDP was by definition a “neutral” monetary policy.

But more on this anon, after I return from Jackson Hole..

Paul Krugman: Fairy Tales: “Mike Konczal, channeling Kalecki, pointed out…

…arguments rejecting Keynes and declaring that only business confidence can achieve full employment serve [the] very useful political purpose… [of] empower[ing] plutocrats and big business….

And this speaks to the wider point of the politicization of macroeconomics. Why did freshwater macroeconomists refuse to learn from the lessons of the Volcker recession and recovery, which clearly refuted their approach and supported some kind of Keynesian view on monetary policy? Why has the overwhelming recent evidence for a Keynesian view of fiscal policy been ignored? You might think that business, at least, would welcome policies that boost sales; but the ideology of confidence must be defended.

Must-Read: Stephen Roach: China’s Complexity Problem: “There are many moving parts in China’s daunting transition…

..to what its leaders call a moderately well-off society…. Is China’s leadership up to the task?… The far bigger story is its economy’s solid progress on the road to rebalancing…. Services activity grew 8.4% year on year in the first half of 2015, far outstripping the 6.1% growth in manufacturing and construction…. China’s employment trends have held up much better than might be expected in the face of an economic slowdown…. Services are also the ingredient that makes China’s urbanization strategy so effective. Today, approximately 55% of China’s population lives in cities, compared to less than 20% in 1978….

While progress on economic rebalancing is encouraging, China has put far more on its plate: simultaneous plans to modernize the financial system, reform the currency, and address excesses in equity, debt, and property markets… [plus] an aggressive anti-corruption campaign, a more muscular foreign policy, and a nationalistic revival couched in terms of the “China Dream.”… China could inadvertently find itself mired in something comparable to what Minxin Pei has long called a “trapped transition,” in which the economic-reform strategy is stymied by the lack of political will in a one-party state…. As warnings about the “middle-income trap” underscore, history is littered with more failures than successes in pushing beyond the per capita income threshold that China has attained. The last thing China needs is to try to balance too much on the head of a pin. Its leaders need to simplify and clarify an agenda that risks becoming too complex to manage.

Must-Re-Read: Yes, you do need to reread this. And I do still find myself disturbed by a division in the ranks of those of us economists who I think have some idea of what the elephant in the room us. Some of us–Rogoff, Krugman, Blanchard, me–think our deep macro economic problems could be largely solved by the adoption and successful maintenance of a 4%/year inflation target in the North Atlantic. Others–Summers, Bernanke–do not. They appear to think that a strongly negative natural real safe rate of interest (there’s at mouthful!) will cause sigificant problems even if 4%/year inflation allows a demand-stabilizing central to successfully do its job without hitting the zero lower bound.

My failure to comprehend why they think this disturbs me, for I would have said that my mental model of Bernanke thought is very good. And I would have said that the sub-Turing evocation of Summers that I am currently running on my wetware is world-class:

Paul Krugman (2013): Secular Stagnation, Coalmines, Bubbles, and Larry Summers: “I’m pretty annoyed with Larry Summers right now…

…His presentation at the IMF Research Conference is, justifiably, getting a lot of attention. And here’s the thing…. Larry’s formulation is much clearer and more forceful, and altogether better, than anything I’ve done. Curse you, Red Baron Larry Summers! OK, with professional jealousy out of the way, let me try to enlarge on Larry’s theme….

Larry’s formulation… is the same as my own… works from the understanding that… monetary policy is de facto constrained by the zero lower bound… [and] in this situation the normal rules of economic policy don’t apply…. This is the kind of environment in which Keynes’s hypothetical policy of burying currency in coalmines and letting the private sector dig it up… becomes a good thing…. Larry also indirectly states an important corollary: this isn’t just true of public spending. Private spending that is wholly or partially wasteful is also a good thing…. This is… standard, although a lot of people hate, just hate, this kind of logic–they want economics to be a morality play, and they don’t care how many people have to suffer in the process. But now comes the radical part of Larry’s presentation: his suggestion that this may not be a temporary state of affairs…. The point is that it’s not hard to think of reasons why the liquidity trap could be a lot more persistent than anyone currently wants to admit….

The underlying problem in all of this is simply that real interest rates are too high…. The market wants a strongly negative real interest rate, [and so] we’ll have persistent problems until we find a way to deliver such a rate. One way to get there would be to reconstruct our whole monetary system–say, eliminate paper money and pay negative interest rates on deposits. Another way would be to take advantage of the next boom–whether it’s a bubble or driven by expansionary fiscal policy–to push inflation substantially higher, and keep it there. Or maybe, possibly, we could go the Krugman 1998/Abe 2013 route of pushing up inflation through the sheer power of self-fulfilling expectations….

Oh, and one last point. If we’re going to have persistently negative real interest rates along with at least somewhat positive overall economic growth, the panic over public debt looks even more foolish than people like me have been saying: servicing the debt in the sense of stabilizing the ratio of debt to GDP has no cost, in fact negative cost…. What Larry did at the IMF wasn’t just give an interesting speech. He laid down what amounts to a very radical manifesto. And I very much fear that he may be right.

Gavyn Davies (2013): The implications of secular stagnation: “The alleged consequence of the fact that the actual real rate is above the equilibrium…

…is that there has been a prolonged period of under-investment in the developed economies, with GDP falling further and further behind its underlying long run potential. In a largely unsuccessful effort to close the gap, the central banks have created asset price bubbles (technology stocks in the late 1990s, housing in the mid 2000s and possibly credit today), since this has been the only means available to boost demand…. If they are right, is that the problem of under-performance of GDP will last for a very long time, and will not solve itself through flexibility in prices and interest rates…. The normal route through which monetary policy works, by bringing forward consumption from the future into the present, is unlikely to be successful…. There will still be a shortage of demand when the future comes around…. Calls for fiscal action are bound to intensify…. The conclusion about public investment now seems to be supported by most shades of professional economic opinion, including Ken Rogoff at the IMF conference. Yet there is little sign of it happening on any significant scale.

Paul Krugman (2013): Bubbles, Regulation, and Secular Stagnation: “Looking at current macroeconomic policy…

…the obvious question is, stupid or evil? And the obvious answer is, why do we have to choose? But it is… at any rate soothing… to think about the longer-term future…. I recently talked about some of these issues with Adair Turner… (just to be clear, Adair bears no responsibility for any errors or confusion in what follows). In brief, there is a case for believing that the problem of maintaining adequate aggregate demand is going to be very persistent–that we may face something like the “secular stagnation” many economists feared after World War II….

When the Minsky moment came, there was a rush to deleverage; this drove down overall demand for any given interest rate, and made the Wicksellian natural rate substantially negative, pushing us into a liquidity trap…. How should pre-2008 policy have been different? And what should policy look like looking forward? There are many economic commentators who take rising leverage, asset bubbles and all that as prima facie evidence that monetary policy was too loose…. The trouble with this line of argument is that if monetary policy is assigned the task of discouraging people from excessive borrowing, it can’t pursue full employment and price stability, which are also worthy goals (as well as being the Fed’s legally binding mandate)…. Since the US economy shows no signs of having been overheated on average from 1985 to 2007, the argument that the Fed should nonetheless have set higher rates is an argument that the Fed should have kept the real economy persistently depressed, and unemployment persistently high…. That’s quite a demand. Many of us would therefore argue that the right answer isn’t tighter money but tighter regulation….

Our current episode of deleveraging will eventually end, which will shift the IS curve back to the right. But if we have effective financial regulation, as we should, it won’t shift all the way back to where it was before the crisis…. And here’s the worrisome thing: what if it turns out that we need ever-growing debt to stay out of a liquidity trap?… Bear in mind that interest rates were actually pretty low even during the era of rising leverage, and got worryingly close to zero after the 2001 recession and even, you might say, after the 90-91 recession (there was talk of a liquidity trap even then)….

One answer could be a higher inflation target, so that the real interest rate can go more negative. I’m for it! But you do have to wonder how effective that low real interest rate can be if we’re simultaneously limiting leverage. Another answer could be sustained, deficit-financed fiscal stimulus. But, you say, this would lead to exploding public debt! Actually, no–not if the real interest rate is persistently below the economy’s growth rate….

OK, I’m shooting from the hip here. The main point is simply that the weirdness of our current situation may well go on much longer than anyone currently imagines.

Jared Bernstein (2013): Paul, Larry, Secular Stagnation, and the Impact of Negative Real Rates: “Paul K was as impressed with the recent words of Larry S as I was…

…I’d like to further elaborate and pose a question to Paul and Larry (really, Larries—Summers and Ball) and, of course, anyone else who’d like to weigh in…. Larry’s analysis is… compelling… [because] it’s framed quite cozily in neoclassical thinking… and simple empirics…. Many years post-panic, we still have large output gaps and no evidence of price pressures.  The zero-bound is constraining Fed policy, and thus we must do more with economic policy, not less…. [This] suggests a level of secular stagnation that I and others have been worrying about for a very long time… [is] behind my conviction… my life’s work… that left to its own devices, the market can’t be counted on to generate full employment….

In the spirit of recognizing limits of interest rate policy, how certain are those of us who advocate this position—which given today’s ZLB means higher inflation to achieve lower real rates—that it would help much? At first blush, this is simple IS-LM stuff—history is very clear that the IS curve slopes down…. But there’s something about “secular stagnation” that has a way of messing with old rules…. Many observers of the US economy have worried about the impact of financialization… the bubble machine… the devotion of considerable resources to non-productive activities…. Who out there thinks financial markets are playing their necessary role of allocating excess savings to their most productive uses?…

So, I’m totally with the program re getting the real interest rate down… But I’m nervous that it might not be as effective as historical correlations would suggest. I’d be interested in Paul and Larries responses.

There have long been many who fear immigration–or people who look and speak differently–and who fear social change–or social difference–while not loving a market economy that leaves them without security and vulnerable to falling into poverty because of incomprehensible decisions made by bankers thousands of miles away. There has long been an argument about whether this mode of thought is primarily the foundation of the republican virtue tradition (cf. Edmund S. Morgan: American Slavery, American Freedom); primarily a con game run by the rich against the non-rich (cf. Franz Neumann: Behemoth; William Freehling: The Road to Disunion); or primarily simply a somewhat-confused but not insane set of political doctrines that was taken over by Hitler and has thus lost legitimate modes of expression since the end of World War II. Whatever it is, this is Trumpism. And, since 1945, as Matthew Yglesias writes:

thinkers who define ideological space have decreed… nationalist principles… pare… with small government… and cosmopolitan principles… pare… with economic egalitarian[ism]…. But many actual voters see it differently…

Now there is the fact that in a country with native demography near zero population growth and thus with an aging society, hatred of immigrants and love of social insurance really do not go together at all. National Socialism competing for economic and other advantages against other nations trying to hog the world’s global societal surpluses may be a coherent doctrine that adds up. National Medicarism does not. Yglesias:

Matthew Yglesias: To Understand Donald Trump, Look to Europe[‘s] Far-Right: “Populist conservatives… [claim] that if we weren’t wasting so much money on welfare for migrants…

…retirement programs would be easily affordable. This simply isn’t true…. More immigration means at least marginally faster productivity growth, immigrants improve the ratio of working-age to retired people, and foreign-born health care providers help contain the cost of caring for the elderly.

Desire for social insurance, hatred of immigrants, fear that the haves–not so much the billionaires, who are to be admired from their Randite social-darwinist fitness–but, rather,an upper-middle class that knows how to work the system, is stealing your stuff, all adding up to a fear that the system isn’t working for you and people like you. This is not an unexpected thing to see in a world in which rapid economic growth at the top is accompanied by mass stagnation and mass insecurity among those who thought that they were going to make it. And it is all over the place in the North Atlantic:

Matthew Yglesias: To Understand Donald Trump, Look to Europe[‘s] Far-Right: “Newish parties… are gaining support with platforms…

…[of] nationalism… anti-immigrant politics… [plus] a more… [larger] welfare state… the Trump ideological mix…. Their rise has been astoundingly swift, and it tells us a lot about Trump…. As unlikely as Trump’s rise in the polls has been in some ways the rise of the Sweden Democrats is even weirder…. Trumpism, in other words, is much bigger than Donald Trump or the particular pathologies of the US Republican Party. It’s a global phenomenon….

Thinkers who define ideological space have… decreed… nationalis[m]… pair[s]… with small government… and cosmopolitan[ism]… pair[s]… with economic egalitarian[ism]…. But many actual voters see it differently… are both beneficiaries of government programs… while also being skeptical of the kinds of social change brought about by immigration.

And to the extent that the people who think this way are called fascists and Nazis by virtue of these thoughts, they will sooner or later start giving a positive ideological valence to fascism and Naziism.

Yglesias continues:

Sometimes this can express itself in a kind of ‘keep the government’s hands off my Medicare’ ideological confusion. Other times, leaders of mainstream conservative parties can try to square the circle, as when the Republican Party promises to cut Social Security benefits for young people but not for old people…

As my sister points out, it is a very interesting strategy to promise a special set of goodies for a particular group that by agreeing undermine the broader coalition that has created those goodies and also lose the power to block future action to take those goodies away. Thus it seems to me that ideological confusion is the natural strategy of mainstream right-wing parties so far in the twenty-first century. And I believe this is at the root of the current war on science and arithmetic we see in the American Republican Party, and elsewhere.

The replacement of mainstream conservatives by anti-immigration and anti-difference National Medicarists seems to me highly likely, for:

Mainstream conservative[s]… [can’t advocate]… social welfare for retirees because, being parties of the right, they [want]… taxes low…

and, as Sam Brownback’s disastrous rule-by-confidence-game in Kansas shows, ideological confusion can take you only so far when you eventually have to govern.

The problem is that the National Medicarists will be no more friendly toward arithmetic, science, or a reality-based technocratic policy debate about policies that would really work.

Populist conservatives… [claim] that if we weren’t wasting so much money on welfare for migrants, retirement programs would be easily affordable. This simply isn’t true…. More immigration means at least marginally faster productivity growth, immigrants improve the ratio of working-age to retired people, and foreign-born health care providers help contain the cost of caring for the elderly.

The two central planks of National Medicarism–keep out immigrants, and top up Social Security and Medicare–do work against each other given the North Atlantic’s current demography and relative wealth. Someday somebody should write something about how Japan’s lost decades are in large part due to its falling victim to its own version: National Medicarism with Japanese Characteristics…

Must- and Should-Reads:

• Federal Reserve Bank of Kansas City: Economic Policy Symposium Proceedings
• Must-Read: Paul Krugman: Rate Hike FeverMust-
• MustLawrence Summers: The Fed Looks Set to Make a Dangerous Mistake
• Owen Zidar: Amir Sufi on Household Debt, Redistribution, and Monetary Policy During the Economic Slump
• Must-Read: Paul Krugman: Nobody Could Have Predicted, Interest Rates Edition
• Mike Konczal: The Voluntarism Fantasy: “Voluntary social insurance… [in 1900 was] socially fragmented… regionally segregated and isolated… [and only] for working men…”
• Thomas Piketty: New Thoughts on Capital in the Twenty-First Century)
• Must-Read: Stan Collender: Paul Krugman Is Wrong

Might Like to Be Aware of:

• Dean Murphy: Crystal: “An advert & tracking blocker for iOS”
• Jeet Heer (2013): Sex, Economics, and Austerity: “The real meaning of Niall Ferguson’s John Maynard Keynes-was-gay jibe-and why Keynes is so threatening to conservative economists and moralists alike…”
• Jim Henley: “Tobias Buckell looks at… the [SF Hugo] ballot.. with no [puppy] skunks at the picnic. I take the results somewhat personally. Skunkworks kept both ‘The Litany of Earth’ by Ruthanna Emrys and ‘Jackalope Wives’ by Ursula Vernon off the final ballot. I loved both of those stories, and Litany in particular blew my doors off…”
• Jonathan Rees: The ‘flipped classroom’ is professional suicide
• Norm Ornstein**: Why the 2016 Republican Nomination Can’t Be Predicted Through History
• Heebie Jeebie: Reading Group: Ta-Nehisi Coates’s Between the World and Me

Must-Read: What did Alan Greenspan do in 1987 when the stock market suddenly dropped by 25%? He reduced short-term safe nominal interest rates by 200 basis points.

What is the equivalent policy to produce that same amount of monetary easing today, should it become appropriate–as it will, should global stock markets drop by 25%?

Paul Krugman: Rate Hike Fever: “Larry Summers argues that a Fed rate hike would be a big mistake…

…I completely agree. Yet he also suggests that the Fed ‘seems set’ to do this foolish thing. Why?… It’s not like debating monetary policy with the seventeen stooges conservatives whose doctrine tells them that fiat money will turn us into Zimbabwe… and are impervious to evidence. The Fed chair is Janet Yellen; the vice chair is Stan Fischer; both… [of] whose underlying macro worldview is… Larry’s, or mine, not least because we studied under Stan himself. So why the difference on policy?….

Something about being on the inside is making the Fedsters more rate-hike prone… [not] regular contact with Wall Street types… Larry actually has plenty of that too…. [not] extra information: basically the Fed knows no more than anyone [else]… and… Janet and Stan are smart and level-headed enough to get that….

The constant sniping against easy money… may play a role…. I also suspect… the whole culture of central banks… taking away the punch bowl… having the courage to do unpopular things…. The Fed is really, really eager to return to that position–and is, I fear, engaging in wishful thinking, believing much too readily that a return to normalcy is appropriate. It’s not. I’m with Larry here: this attitude has the makings of a big mistake. Think Japan 2000; think ECB 2011; think Sweden. Don’t do it.

NABE@KC :: 11:30 AM CDT FRBKC 1 Memorial Drive, Kansas City, Missouri 64198 :: Conference Room

What the Frack Is Going on in Europe?

NABE@KC August Event Announcement-Delong.pdf