At least one thing here from William Dudley seems to me to be completely wrong: The US economy did not need higher interest rates in 2004-2007–there were no signs of accelerating wage or core price inflation that would indicate that the Federal Reserve was behind the curve as far as aggregate demand management was concerned. There were macroprudential failures–a failure to ensure that mortgage borrowers understood and could manage the risks they were running, that MBS purchasers understood and could manage the risks they were running, and that key too-big-to-fail-institutions were not creating systemic risk via regulatory arbitrage by which they held as reserves things they claimed were reserves but were not in fact safe enough assets to be reserves. These were major policies surveillance failures. But they have little to do with raising interest rates to hit the economy on the head with a brick and raise unemployment.

More thoughts about the rest later…

Jon Hilsenrath:
Could Lower 10-Year Yields Spark A More Aggressive Fed?:
“Falling long-term interest rates pose a quandary for Federal Reserve officials….

…If falling yields are a reflection of diminishing inflation prospects… it ought to prompt the Fed to hold off on raising short-term interest rates…. If… lower long-term rates are a reflection of investors pouring money into U.S. dollar assets, flows that could spark a U.S. asset price boom, it might prompt the Fed to push rates higher sooner…. The latter interpretation is less conventional, but it is one that New York Fed President William Dudley made….

During the 2004-07 period, the (Fed) tightened monetary policy nearly continuously, raising the federal funds rate from 1 percent to 5.25 percent in 17 steps. However, during this period, 10-year Treasury note yields did not rise much… the availability of mortgage credit eased…. With the benefit of hindsight, it seems that either monetary policy should have been tightened more aggressively or macroprudential measures should have been implemented in order to tighten credit conditions in the overheated housing sector.

Mr. Dudley’s conclusion was that the pace of the Fed’s short-term interest rate moves this time around ought to be dictated in part by whether the rest of the financial system is moving with or against the Fed’s intentions when it decides it ought to start restraining credit creation:

When lift-off occurs, the pace of monetary policy normalization will depend, in part, on how financial market conditions react to the initial and subsequent tightening moves.’…

The challenge for the Fed is that one can make any number of arguments about the cause of falling long-term rates today…. The Fed’s next policy meeting is three weeks away. It is clear officials will spend a considerable time debating the correct response to a perplexing lurch down in long-term rates.

Must- and Shall-Reads:

• Ezra Klein:
  “Allowing extremists to set the limits of conversation validates and entrenches the extremists’ premises. That was true in the criticism of Charlie Hebdo’s covers, and it’s even truer in today’s crimes…. This is a tragedy. It is a crime. It is not a statement, or a controversy.”
• Just heard first healthcare.gov advertisement ever on Missouri radio…
• Judy Solomon:
  “Contrary to Senate Republican leaders’ recent claim, residents of 34 states with federally run health insurance marketplaces will not have to repay their premium tax credits if the Supreme Court rules in June that health reform doesn’t authorize the credits in those states…”
• Ken Rogoff:
  “Oil prices are the big story for 2015. They are a once-in-a-generation shock and will have huge reverberations…”
• Chris Mooney:
  “The ‘pause’ argument largely relies on the then-record temperatures of 1998 in order to create the impression that there’s been little or no global warming ever since. Yet… the 2000s were considerably hotter than the 1990s, and… [even] without… 2014… NASA considers 1998 merely the fourth hottest year… NOAA considers it third…”
• Adriana Lee:
  Intel Pledges $300M To Take On GamerGate And Diversity In Tech

 

1. Mary C. Daly and Bart Hobijn:
   Why Is Wage Growth So Slow?:
   “Despite considerable improvement in the labor market, growth in wages continues to be disappointing. One reason is that many firms were unable to reduce wages during the recession, and they must now work off a stockpile of pent-up wage cuts. This pattern is evident nationwide and explains the variation in wage growth across industries. Industries that were least able to cut wages during the downturn and therefore accrued the most pent-up cuts have experienced relatively slower wage growth during the recovery…”
2. Larry Mishel:
   American Wages Have Stagnated:
   “If most people believe, as I think they do, that if they’d leave their current job, they’d get a worse job, then exit does not give you much leverage. So, the single most important policy response right now should be to get to a vigorous full employment. That makes the decisions of the Federal Reserve board over the next few years the most consequential economic policy decisions to be made on wages and income inequality.”
3. Megan McArdle:
   Yes, You’re Rich, and It’s Time You Admit It:
   “Jack Lew made a lot of money working for Citibank. So why… did he say last week that ‘My own compensation was never in the stratosphere’? Jack Lew is not the only person who says this sort of thing. The media is routinely filled with people making six- and seven-figure incomes who modestly report that they are very middle class, struggling, really, to make it from paycheck to paycheck. And if you live in a big coastal city like New York, Washington, Boston or San Francisco, you… can go to any private-school parents night or Ivy League alumni reunion to hear a veritable chorus of people remarking that they really don’t know how they keep body and soul together on just $350,000 per annum. Be warned, however, that it is not polite to point and laugh the way that you would on Twitter…”

Should Be Aware of:

• Arthur Goldhammer:
  Let’s not sacralize Charlie Hebdo
• The Minimum Wage and the EITC
  http://delong.typepad.com/sdj/2004/07/the-minimum-wage-and-the-eitc.html
  2004-07-09
• Rucker Johnson:
  School Quality and the Long-run Effects of Head Start
• Ryan Broderick:
  23 Heartbreaking Cartoons From Artists Responding To The Charlie Hebdo Shooting

 

1. Palo Alto Farmers’ Market:
   Spicy Sesame Yuba Noodle Stir Fry: “1 package of Hodo Soy Yuba sheets. 2 tbsp vegetable oil. 2 tsp toasted sesame oil. 4 tbsp soy sauce. 1 tbsp brown sugar. Japanese red chili powder. Green peppers & toasted sesame seeds (garnish). Instructions: Cut the yuba sheets into ½-inch slices. Gently separate to make the noodle strips. Heat vegetable oil in a large pan over medium heat. Drop the noodles into the pan and let cook for about 3 minutes – until warm and some edges are slightly crispy. Don’t let the noodles get too crispy. In a medium bowl, combine sesame oil, soy sauce, brown sugar and chili powder. When all the noodles are cooked, toss them in the sesame soy sauce to coat all the noodles. Plate while still warm and garnish with sesame seeds, green onions and a dash of chili powder if you desire.”

Comments:

• Dan Nexon:
  Hard Power, Soft Power, Muscovy, Strategy:
  “Not your fault. The ‘soft power’ concept has become hopelessly confused since Nye introduced. It originally meant ‘attraction’ — think of it as combining Bourdieu’s objectified cultural capital (‘American blue jeans’) and symbolic capital, but has come to mean any non-kinetic or non-economic power resource. In this latter formulation, Dan D. is technically right that sanctions are non-kinetic hard power, but you’re right that putting them into place required diplomatic skill, legitimacy, and other soft-power-esque resources. And you’re doubly right about Russia’s position in the global balance of power.”
• Maynard Handley:
  Hard Power, Soft Power, Muscovy, Strategy:
  “The guy who says this with the most detail and panache (the US has basically burned up all the massive soft power it once had in some sort of insane Bonfire of the Vanities) is Francis Fukuyama in his most recent book, Political Order and Political Decay: From the Industrial Revolution to the Globalization of Democracy. Lots of very depressing stuff there about the current US political order, to complement Piketty’s economic take. “
• Kansas Jack:
  Hard Power, Soft Power, Muscovy, Strategy:
  “Be careful M. Putin… ‘To every administrator, in peaceful, unstormy times, it seems that the entire population entrusted to him moves only by his efforts, and in this consciousness of his necessity every administrator finds the chief rewards for his labors and efforts. It is understandable that, as long as the historical sea is calm, it must seem to the ruler-administrator in his frail little bark, resting his pole against the ship of the people and moving along with it, that his efforts are moving the ship. But once a storm arises, the sea churns up, and the ship begins to move by itself, and then the delusion is no longer possible. The ship follows its own enormous, independent course, the pole does not reach the moving ship, and the ruler suddenly, from his position of power, from being a source of strength, becomes an insignificant, useless, and feeble human being.’ ― Leo Tolstoy, War and Peace”
• Claudius:
  Washington Describes Victory at Princeton:
  “Well, General Howe’s report noted 18 killed, 58 wounded, and 200 missing. So it is likely that Washington inflated the numbers. But the British were flanked, and they also fled, and the Americans had some horse and some of the Americans pursued the fleeing British until nightfall.”
• derrida derider:
  John Cassidy’s Interview with James Heckman:
  “The trouble with the ‘all that is needed for the EMH to hold is proper regulation to ensure a fully informed market’ meme is that it is characteristic of booms and busts that the relevant animal spirits infect the regulators – and the economic theorists behind them too. It seems obvious that when the market is delivering the goodies to all involved that it must be perfectly efficient and therefore that dabbling with it can only do harm (especially obvious as we know any bust will immediately be blamed on the dabbler). It similarly seems obvious when the goodies disappear that market failures and rent seeking of all kinds are pervasive, so both efficiency and equity require the firm and visible hand of good government. Thus we get the classic pattern – the barn door is removed as the horse begins to get frisky ‘so as not to cramp its movements’. Then, after the horse is no longer anywhere in sight, the regulators solemnly close that door and reinforce it with armour plating, muttering ‘never again’.”
• Bloix:
  John Cassidy’s Interview with James Heckman:
  “‘When Bob Lucas was writing that the Great Depression was people taking extended vacations—refusing to take available jobs at low wages…’ What an evil, evil man. This is from what is IMHO the greatest novel of the Depression, Waiting for Nothing, by Tom Kromer: ‘I am in this mission. I lie on top of this bunk… I turn my eyes to the stiff in the bunk next to mine … His face is pasty white. The bones almost stick out of his skin … I turn my head away but still I can hear him groan .. He does not breathe. He only rattles. ‘For Christ sake, what is the matter with that stiff?’ says this stiff in the next bunk. ‘He is croaking up here in his lousy bunk, that’s what’s the matter with him,’ I say. ‘Does he have to make that much racket to croak?’ he says. ‘I see plenty of stiffs croak, but nI ever see one make that much racket at it.’ … I lie up here and think … This stiff has not always been a stiff. Somewhere sometime, this stiff has had a home. Maybe he had a family … He is alone. The fritz has made him alone. He will die cooped up in a mission with a thousand stiffs who snore through the night, but he will die alone … I try think back over the years that I have lived. But I cannot think of years any more. I can only think of the drags I have rode, of the bulls that have sapped up on me, and the mission slop I have swilled. People I have known, I remember no more. They are gone… I lie up here on my three-decker bunk and shiver. I am not cold. I am afraid. What is a man to do? All he do is try to keep his belly full of enough slop so that he won’t rattle when he breathes. All he can do is try and find himself a lousy flop at night. Day after day, week after week, year after year, always the same – three hots and a flop.’ Tom Kromer, the son of a coal miner who had died of cancer, was 22 and had two years of college and had held several decent jobs – proofreader, elementary schoolteacher – when he ran out of money and work and began five years of vagrant life in 1929. In 1935 he managed to enroll in the CCC, but by that time he had contracted severe tuberculosis from sleeping in missions and flophouses. He spent several years in a sanatorium in New Mexico, but he remained an invalid, more or less bedridden, for the next 25 years, until he died. Waiting for Nothing has a dedication: ‘To Jolene, who turned off the gas.’ Bob Lucas – what an evil, evil man.”
  
• Kaleberg:
  What Are the Experiences That MOOCs Need to Replicate?:
  “MOOCs have been attacking the wrong problem. The cost of teaching has not been increasing. Faculty salaries have been falling if anything. College level education costs are driven by increased investment in fixed plant, larger bureaucracies and higher management salaries. College level education prices are driven by decreased public subsidies. Both of these are driven ideologically as college level education is increasingly seen as a business rather than a vital government service. It might be possible to use computer and communications technology to drive down college management costs, shrink the size of the bureaucracy and cut the need for additional fixed plant. Instead of buildings, invest in intelligent leasing management to provide classrooms and other spaces as needed. Rely on computer software to manage student and faculty needs, ideally simplifying the software so that individuals can manage their own education. Of course, this has no room for high investor returns and inflated salaries and payrolls, so it is a non-starter. There is a move towards leaner financial products like self balancing index funds. Perhaps we need a move towards leaner educational products.”
• Tracy Lightcap:
  What Are the Experiences That MOOCs Need to Replicate?:
  “‘This involves a completely unfounded assumption: that the present financial structure of higher education in the US is ‘unsustainable’.’ I run into this occasionally and it always bewilders me. It is true that US higher education is becoming more unaffordable. But that is the result of a variety of easily reversed public policy decisions: the withdrawal of public funds to support tuition costs from public post-secondary education, the intrusion of private businesses into areas where they compete with higher education, the egregious increases in administrative personnel and their salaries, and, finally, the attempt to reduce faculty costs through adjuncts and on-line courses as much as possible. All of these are connected, of course. Taxpayers complain about increased tuition costs because, like all Americans, they want Swedish-style social services for Mississippi-style taxes. They get the Feds to step in with subsidies. For-profit colleges see a tremendous opportunity for them arising from this and use the subsidies to provide cut-rate education that is generally good for less then nothing. Colleges and universities, caught between a rock and a hard place, hire hoards of administrators to intrigue private donors, ‘brand’ collegiate experiences, and cajole students by providing a ‘student experience’ that will keep them around long enough for one more subsidized tuition check. And they also short change their students education by increasing the number of impoverished, over-worked adjuncts and turning to on-line courses as a way out. The solution is not to be found in this policy mix. It is a simple one: replace the levels of funding once given to public post-secondary education. That would: increase pressure on faculties to reduce salary demands, drive for-profit post secondary education out of business, vastly reduce the number of extra administrators needed to make up the present deficits, end the need to replace educational functions with social ones to keep students, and re-establish the collegiate experience. And, as the reaction to the attempted firing of Teresa Sullivan at the University of Virginia and the recent funding increases for public education in California show, there is public support for putting funding for public universities back to a level that will insure a college education within the means of those students who can qualify and curbing the entrepreneurial model of higher education. MOOC’s and their ilk will continue to be around in some subjects; we still have correspondence courses too. But a wholesale restructuring of higher education (only called for in the US, UK, and Australia, for obvious reasons) is not and was never the answer.”

Megan McArdle:
Yes, You’re Rich, and It’s Time You Admit It:
“Jack Lew made a lot of money working for Citibank. So why…

…did he say last week that ‘My own compensation was never in the stratosphere’? Jack Lew is not the only person who says this sort of thing. The media is routinely filled with people making six- and seven-figure incomes who modestly report that they are very middle class, struggling, really, to make it from paycheck to paycheck. And if you live in a big coastal city like New York, Washington, Boston or San Francisco, you… can go to any private-school parents night or Ivy League alumni reunion to hear a veritable chorus of people remarking that they really don’t know how they keep body and soul together on just $350,000 per annum. Be warned, however, that it is not polite to point and laugh the way that you would on Twitter…

Larry Mishel:
American Wages Have Stagnated:
“If most people believe…

…as I think they do, that if they’d leave their current job, they’d get a worse job, then exit does not give you much leverage. So, the single most important policy response right now should be to get to a vigorous full employment. That makes the decisions of the Federal Reserve board over the next few years the most consequential economic policy decisions to be made on wages and income inequality.

Mary C. Daly and Bart Hobijn:
Why Is Wage Growth So Slow?:
“Despite considerable improvement in the labor market…

…growth in wages continues to be disappointing. One reason is that many firms were unable to reduce wages during the recession, and they must now work off a stockpile of pent-up wage cuts. This pattern is evident nationwide and explains the variation in wage growth across industries. Industries that were least able to cut wages during the downturn and therefore accrued the most pent-up cuts have experienced relatively slower wage growth during the recovery…

https://www.icloud.com/keynote/AwBUCAESEF4LXeNCpXwKfLDofdWn_dsaKeHcPNB0pmbKyTMjezpOIYcmM9nUzT-5JG8ExkbS3sc2Hn82UIJwtEaJMCUCAQEEIKrGQK6hn6DxBfu8VrkXsnOt10rY7yjVI4D3OAoTRNYE#2015-01-07–The_Economy%2C_Past_10%2C_Future_2%2C_10%2C_50_Year_Perspectives.key

---

Part I: Thinking About the Current Business Cycle

• The circular flow of economic activity
• Everyone’s income becomes their spending and investing, which is then someone else’s income
• Except: When people want to hoard (or de-hoard) their cash
• When people want to spend down their cash, (planned) spending is greater than (expected) income
  • Unexpected inflation
  • Job of the Federal Reserve to sell bonds and soak that excess cash up to rebalance the economy
• When people want to hoard cash, (planned) spending is less than (expected) income
  • Unemployment and depression
  • Job of the Federal Reserve to buy bonds and so give the economy the cash it needs to make people comfortable spending and investing their incomes
• Private sector cannot do this job: in a panic nothing banks can provide counts as “cash”; in a euphoria everything counts as “cash”
  • Take away the punchbowl before the party really gets going; but be sure there is a punchbowl

---

The Situation as of 10 Years Ago

Interest Rates

• The Federal Reserve back then was trying to manage the economy: full employment and rough price stability

---

Salient Components of Spending

• Deviations as shares of potential production from recent business-cycle peak values
• As of 2005 we were pretty optimistic about the near-term and medium-term future of the American economy
• Worries about budget deficits and trade deficits, but not a source of immediate disaster
• U.S. economy had fallen into recession in 2001 for two reasons:
  • People who had been investing in high-tech businesses decided to hoard their cash
  • Fall-off in demand for U.S. exports as people elsewhere decided they wanted to hoard more cash inside the U.S.
• But recovery was in train
  • A housing boom
  • An export recovery as foreigners figured they had about enough assets in the United States

---

Employment-to-Adult-Population Ratio

• Only big black spot: next to no recovery in employment as a share of the adult population, but that was expected to come in time…

---

Managing the Correction of Imbalances

Salient Components of Spending

• 2005-2008: collapse of the housing bubble
• Became clear that a lot of the housing investment had been based on people taking on risks that they did not understand–and when they learned what the risks were, they were unhappy
• But from 2005-2008 the economy rebalanced–people who had been investing in financing construction shifted to financing exports, business investment instead

---

The Collapse

Salient Components of Spending

• Then the financial crisis…
• Should not have happened…
• Became clear that not just the “frothier” parts of housing investment were made by people taking on risks that they did not understand, but that Wall Street had no control whatsoever over what its derivative positions were…
• A collapse of trust–and an enormous demand for cash to hoard–as (planned) spending fell way below (expected) income
• And then actual income fell below expected incomes because spending had collapsed

---

Employment-to-Adult-Population Ratio

• The worst employment decline since the Great Depression

---

Interest Rates

• Federal Reserve responds by flooding the economy with cash by buying short-term Treasury bills–but it doesn’t work: people are so eager to hoard that they take the cash, sock it into their portfolios, where the Treasury bills used to be, and still demand to hoard more…

---

The Flatlining

Interest Rates

• “Quantitative Easing” does not return spending to normal…

---

Employment-to-Adult-Population Ratio

• And the employment-to-adult-population ratio does not recover to normal either

---

Salient Components of Spending

• Why not?
• Housing finance not fixed–even very low interest rates and ample cash do not induce people to de-hoard that cash and start investing in construction again (except in a few places)
• Businesses see that they have ample capacity and are not enthusiastic about spending their cash on capacity that would then sit idle for a while
• Exports do bounce back, but there is a depression going on in most of our export markets as well, so that is limited help
• And we hit the economy on the head with a brick by cutting way back on what the government purchases
• Exactly the wrong thing to do
• Why we do it is a mystery

---

Part II: The Next Two Years

Labor Force Participation and Employment-to-Adult Population

• The Federal Reserve is about to start “normalizing” policy
• The question of trend labor-force participation
• Federal Reserve believes (a) demography is shrinking desired hours, and (b) many of those who lost their jobs in 2008-9 and haven’t gotten good ones since are never going to come back
• Hence the economy has nearly “recovered to normal”
  • But not because production and employment have risen from their depressed levels back to normal
  • Because the financial crisis, the collapse, and the flatlining have done permanent damage that has pushed “normal” down to nearly where we are today…

---

Inflation-Adjusted Price of Oil

• Only bright spot: Saudi Arabia’s loss of pricing power in the oil market–that will give a big boost to Americans’ incomes and spending
• And it will entail a substantial regional shift within America of wealth from Texas-Oklahoma-North Dakota to California-New York-Florida-Illinois
• Also: ObamaCare implementation

---

Part III: The Next Ten Years

Real GDP

• We used to bounce-back from business-cycle downturns and return to normalcy

---

Real GDP

• We are showing no signs of bouncing-back from this one
• $6,000 per adult in potential production lost–that’s $1.2 trillion/year of real wealth that we could be making that we are not, and that it looks like we are never going to recoup.
• But we are producing $80,000 per adult a year these days–twice what we were producing in the 1970s. $6,000 a year is very painful–7.5%. But that is only an eight-year delay in the course of economic growth, a “lost growth decade” only.
  • Data caveats: $80,000/year includes depreciation, benefits, imputed rent on your house, taxes taken out before the money hits your paycheck, and so forth–figure $50,000/year per working age adult of something that looks like “income”

---

Inequality: The Rise of the 1%

• Back in the 1970s–when we had $40,000/year productivity for your average working-age adult–the top 1% took 8%, the rest of the top 5% took 13%, the rest of the top 10% took 12%.
  • Top 1%: $320,000/year
  • 96-99%: $130,000/year
  • 91-95%: $96,000/year
  • Bottom 90%: $30,000/year
• Today: $80000/year productivity
  • Top 1%: 24%: $1,920,000/year
  • 96-99%: 16%: $320,000/year
  • 91-95%: 12%: $192,000/year
  • Bottom 90%: $42,700/year

---

Inequality: The Rise of the 0.01%

• 1970s:
  • Top 0.01%: 1%: $4,000,000/year (12000 people)
  • Rest of top 1%: 7%: $280,000
• Today:
  • Top 0.01%: 6%: $48,000,000/year (20000 people)
  • Rest of top 1%: 16%: $1,280,000/year
• What are we getting for this rise in inequality? We are paying our top 1% and our top 0.01% very handsomely, yet…
• Finance and health-care administration very nearly zero if not negative-sum…

---

Regional Factors

…

• Normally Americans moved to opportunity–to where people were more productive…
• Not anymore–the triumph of NIMBYism

---

Part IV: The Next Fifty Years

Long-Run Impact of the Downturn

• $6000 per adult in potential production lost–that’s $1.2 trillion/year of real wealth that we could be making that we are not, and that it looks like we are never going to recoup.
• Capitalize at 4%/year in real terms, that’s a $30 trillion hit in real wealth–$150000 per adult
• But perform the same calculation as to how wealthy we and our descendants will be. At a 1.5%/year real growth rate of productivity and a 4%/year real discount rate, our total prospective wealth is $3.2 million per American adult–$640 trillion
  • Plus the wealth of future immigrants
  • $32 trillion is painful, but not crushing, in that scale

---

Long-Run Prosperity: The Math

• No reason not to see a growth of 1.5%/year in measured real product per working-age adult over the next 50 years.
• Economic growth as measured comes from making cheaper the things we currently make expensively, and there is enormous human ingenuity devoted to that…
• $80,000/year x exp(1.5% x 50) = $170,000/year come 2065
  • Cf: Median household income in Orinda today is $160,000/year
• An America that looks–in prosperity–like Orinda today

---

What Could Go Wrong?

• Politics
• War
• Inequality
• What will people do?
  • Backs
  • Fingers
  • Brains as cybernetic control mechanisms for managing machines
  • Brains as routine paper-shuffling control mechanisms
  • Smiles
  • Ideas
• There will be jobs: nothing guarantees they will be well paid
• “Peak horse”

---

Prime-Aged Male Employment

What happens when the mail piles up for two weeks because they have turned off the heat in Evans Hall:

And from Mrs. Dalloway’s:

In the Mailbox at Evans Hall:

Must- and Shall-Reads:

• Paul Krugman:
  “One thing is not a risk, because it has already happened: the euro area has entered a Japan-style deflationary trap… not literally deflation at an EA-wide level, but… slightly positive and slightly negative inflation with interest rates already at the zero lower bound are essentially the same. Furthermore, southern Europe still needs substantial amounts of ‘internal devaluation’…. And if you look at the implied market forecast, it’s truly disastrous…”
• Daron Acemoglu:
  Democracy Does Cause Growth
  http://www.nber.org/papers/w20004.pdf
  
• Naomi Oreskes:
  Playing Dumb on Climate Change
• Martin Wolf:
  “How far are Koo’s analysis and recommendations right? The diagnosis of ‘debt trauma’ is persuasive… exceptional policies… are likely to endure for many years…. Read Koo. He has a hammer, even if everything is not a nail.”
• Nick Bunker:
  Reference points, loss aversion, and redistribution

 

1. Henry Farrell:
   Social democrats in the twin-peaked world — Crooked Timber:
   “There’s plausibly a structural story behind the inability of conventional leftwing parties to challenge conventional orthodoxies…. They haven’t really relied on this constituency for a long time. Peter Mair’s Ruling the Void hasn’t gotten nearly the attention that it deserves…. Mair… makes a strong case that leftwing parties in Europe today have become profoundly disassociated from their voters… ordinary people withdrawing from political parties… elites of parties don’t rely on mass membership to provide resources…. European political parties rather than representing their constituents to the state, tend to represent the state and its imperatives to their constituents. This helps explain the extraordinary haplessness of mainstream leftwing parties faced with the politics of austerity…”
   

2. Anonymous and Miles Kimball:
   How Big Is Economics’s Sexism Problem? This Article’s Co-Author Is Anonymous Because of It:
   “One indication of the career challenges women face in economics is the fact that one of us felt the need to remain anonymous…. Many male economists underestimate the headwinds women face in economics… at every stage of a woman’s career… many forces both large and small that add up to a huge overall damper on the number of women who make it to the higher ranks…. And even when women do reach these higher levels—despite the difficulty of getting their work published in male-dominated journals and in getting promoted even when they do get their work published—their wages remain lower…. Sendhil Mullainathan argues that discrimination often operates at an unconscious level…. Here are a few of the issues women in economics face that their male colleagues might not be aware of…”
   

3. Joe Romm:
   2014 Was Hottest Year On Record Globally By Far, Reports Japan Meteorological Agency:
   “The Japan Meteorological Agency (JMA) has announced that 2014 was the hottest year… by far… [with] no ‘hiatus’ or ‘pause’ in warming. In fact, there has not even been a slowdown…. 1998 is in (a distant) second place–but 1998 was an outlier… boosted above the trendline by an unusual super-El Niño…. If you were wondering how 2014 could be the hottest year on record when it wasn’t particularly hot in the United States (if we ignore California and Alaska)… there’s like a whole planet out there…. Europe was the hottest it’s been in 500 years…. California had record-smashing heat, which helped create its ‘most severe drought in the last 1200 years.’ Australia broke heat records across the continent (for the second year running)…. Much of Siberia ‘defrosted in spring and early summer under temperatures more than 9°F (5°C) above its 1981 to 2010 average’… the second exceptionally hot summer in a row for the region…. The permafrost (soon to be renamed the permamelt) contains twice as much carbon as the entire atmosphere. If we don’t reverse emissions trends sharply and soon, then the carbon released from it this century alone could boost global warming as much as 1.5°F…”
   

4. Paul Krugman:
   Not Invented Here Macroeconomics:
   “[Richard] Koo had a big and important idea…. As long as some part of the private sector has… levels of debt that now look excessive, the efforts of debtors to pay off their debts… [is] a persistent drag… hard to counter with monetary policy, because many players in the economy can’t or won’t spend more…. Deficit spending can play a useful role… by providing a favorable environment for debtors to deleverage…. This is a very useful insight…”
   

5. Richard Florida:
   Is Life Better in America’s Red States?:
   “Blue states… are generally richer than red states. But red states, like Texas, Georgia and Utah, have done a better job over all of offering a higher standard of living relative to housing costs…. Red state economies based on energy extraction, agriculture and suburban sprawl may have lower wages, higher poverty rates and lower levels of education… [but] the American dream of a big house with a backyard and a couple of cars is much more achievable in low-tax Arizona than in deep-blue Massachusetts…”

6. Jérémie Cohen-Setton:
   Permanent QE and helicopter money:
   “What’s at stake: QE… is believed to matter (beyond the portfolio channel) for inflation and growth… the associated monetary base growth needs to be permanent… the pros and cons of helicopter money… as compared with permanent QE…. David Beckworth writes that… [in] the Fed’s quantitative easing programs… the large expansion of the monetary base under QE is temporary… [but] for QE to have made a meaningful difference the associated monetary base growth needed to be permanent. This… is the standard view in modern macroeconomics… Woodford, Svensson, and Obstfeld among others)…”

7. Eric Engen et al.:
   The Macroeconomic Effects of the Federal Reserve’s Unconventional Monetary Policies:
   “After reaching the effective lower bound for the federal funds rate in late 2008, the Federal Reserve turned to two unconventional policy tools—quantitative easing and increasingly explicit and forward‐ leaning guidance for the future path of the federal funds rate—in order to provide additional monetary policy accommodation. We use survey data from the Blue Chip Economic Indicators to infer changes in private‐sector perceptions of the implicit interest rate rule that the Federal Reserve would use following liftoff from the effective lower bound. Using our estimates of the changes over time in private expectations for the implicit policy rule, and estimates of the effects of the Federal Reserve’s quantitative easing programs on term premiums derived from other studies, we simulate the FRB/US model to assess the actual economic stimulus provided by unconventional policy since early 2009. Our analysis suggests that the net stimulus to real activity and inflation was limited by the gradual nature of the changes in policy expectations and term premium effects, as well as by a persistent belief on the part of the public that the pace of recovery would be much faster than proved to be the case. Our analysis implies that the peak unemployment effect—subtracting 1 1⁄4 percentage points from the unemployment rate relative to what would have occurred in the absence of the unconventional policy actions—does not occur until early 2015, while the peak inflation effect—adding 1⁄2 percentage point to the inflation rate—is not anticipated until early 2016…”
   

8. Paul Krugman:
   About That French Time Bomb:
   “I’ve written often about the remarkable track record of U.S. debt-and-inflation doomsayers… now completely unwilling to admit that they were wrong, or even that their model of how the world works needs some revision. But… let’s look back at the bad-mouthing of another economy, which looks equally wrong-headed if not more so…. It was the Economist that declared, on its cover more than two years ago, that France was the time bomb at the heart of Europe. And of course the inflationistas were even more certain that France faced imminent doom; for example, John Mauldin proclaimed that France was in fact worse than Greece. Now that time bomb–which has actually had better economic growth since 2007 than Britain–can borrow at an interest rate of only 0.8 percent. It seems obvious to me that the bad-mouthing of France was and is essentially political. Of course France has big problems; who doesn’t? But the real sin of the French body politic is its refusal to buy into the notion that the welfare state must be sharply downsized if not dismantled; hence the continuing warnings that France is doomed, doomed I tell you. And this in turn reflects the larger issue of what calls for austerity are really about. Can we imagine a clearer demonstration that they’re not really about appeasing bond vigilantes?”
   

Should Be Aware of:

• Chris Buckley and Andrew Jacobs:
  “China’s Maoist ideologues are resurgent after languishing in the political desert, buoyed by President Xi Jinping’s traditionalist tilt and emboldened by internal party decrees that have declared open season on Chinese academics, artists and party cadres seen as insufficiently red…”
• Charles Stross:
  “Concorde, flying trans-Atlantic at Mach 2.0, burned about the same amount of fuel as a Boeing 747 of similar vintage flying trans-Atlantic at Mach 0.85 … while carrying less than a quarter as many passengers…”
  Austin Frakt:
  “What else can researchers do to keep managers and policymakers informed? There must be something–some kind of an electronic, updatable, web-based thingamabob where one can report on new evidence and put it in context and in relatively simple terms. I can’t quite make out the details, but there’s a free idea out there for someone who can dream up such a thing…”
• Jim Webb:
  Remarks at the Confederate Memorial

 

1. Mark Mazower:
   Napoleon the Great by Andrew Roberts:
   “Hitler took the most powerful country in Europe and wrecked it for a generation, demonstrating in the process how not to run a continent. The one debt we owe Stalin is that he ensured Hitler’s defeat…. Napoleon–another case entirely. He took a country in the throes of acute fiscal crisis and social unrest and made it the dominant power in Europe; he oversaw the shattering of the old ruling order across the continent; he reformed the government; and he transformed the very idea of what politics could be and man could do. All of these achievements proved to be irreversible…”
   

2. Jo Walton:
   Gods, Philosophers, and Robots:
   “The Just City is a fantasy novel about a group of classicists and philosophers from across all of time setting up Plato’s Republic on Atlantis, with the help of some Greek gods, ten thousand Greek-speaking ten-year-olds they bought in the slave markets of antiquity, and some construction robots from our near future. What could possibly go wrong?Now I get two different immediate reactions to this. The first is from people who say ‘That’s insane, and I want it now!’ The second is from people who say they know nothing about Plato or philosophy in a kind of apologetic way, as if anything that touches on these subjects in any way would require background reading and be kind of boring…”
   

Henry Farrell:
Social democrats in the twin-peaked world — Crooked Timber:
“There’s plausibly a structural story…

behind the inability of conventional leftwing parties to challenge conventional orthodoxies…. They haven’t really relied on this constituency for a long time. Peter Mair’s Ruling the Void hasn’t gotten nearly the attention that it deserves…. Mair… makes a strong case that leftwing parties in Europe today have become profoundly disassociated from their voters… ordinary people withdrawing from political parties… elites of parties don’t rely on mass membership to provide resources…. European political parties rather than representing their constituents to the state, tend to represent the state and its imperatives to their constituents. This helps explain the extraordinary haplessness of mainstream leftwing parties faced with the politics of austerity…

I am skeptical of this explanation–largely because I remember similar haplessness from the left in Britain, Germany, and France during the Great Depression…