Tag: Dialogue

Must-read: Patrick Dunleavy: “Choosing Useless Titles”

Posted on by Brad DeLong

Must-Read: Patrick Dunleavy: Choosing Useless Titles: “The really useless title must be as similar as possible to a thousand others…

…or so obscure that its meaning completely evades readers. It could also miscue or mis-direct readers…. The top five most popular versions are:

  1. A ‘cute’ title using ‘ordinary language’ words with a clear meaning, but taken radically out of context… the author should know what it means, and as few other people as possible…. ‘I introduce my work in such esoteric ways, because I am so much cleverer than you’. It also ensures that anyone interested in the topic covered would be very unlikely to input these words into a search engine….

  2. A ‘cute’ title that is completely obscure. This is a variant of (1) where even the language the author includes in the title is incomprehensible….

  3. An ultra-vague, vacuous, completely conventional, or wholly formal title, preferably one that could mean almost anything. To be fully obscure here it is vital to pick vocabulary that is as general or unspecific as possible and is capable of multiple possible meanings…. ‘Accounting for ministers’ could be about politicians running government departments in parliamentary countries; or alternatively, a manual for vicars or priests doing their income tax returns.

  4. An empty box title…. For example: ‘Regional development in eastern Uganda, 1975-95′ gives you a location, a date range and a topic. But the key message is still: ‘I have done some work in this box (topic area), and I have some findings. But I’m not going to give you any clues at all about what they are’….

  5. The look-alike, empty box title… where the paper title… is devoid of any distinguishing or memorable features of its own. For instance: ‘John Stuart Mill on Education’…. ‘Key features of capitalism’….

  6. The interrogative title, which must always end with a question mark. Again vagueness is an asset in seeking obscurity…

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

Posted on by Brad DeLong

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

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

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

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

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

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

More musings on the fall of the house of Uncle Milton…

Posted on by Brad DeLong

This, from Paul Krugman, strikes me as… inadequate:

Paul Krugman: Why Monetarism Failed: “Right-wingers insisted–Friedman taught them to insist–that government intervention was always bad, always made things worse…

…Monetarism added the clause, ‘except for monetary expansion to fight recessions.’ Sooner or later gold bugs and Austrians, with their pure message, were going to write that escape clause out of the acceptable doctrine. So we have the most likely non-Trump GOP nominee calling for a gold standard, and the chairman of Ways and Means demanding that the Fed abandon its concerns about unemployment and focus only on controlling the never-materializing threat of inflation.

What about the reformicons, who pushed for neo-monetarism? We can sum up their fate in two words: Marco Rubio. There is no home for the kind of return to realism they were seeking…. The monetarist idea no longer serves any useful purpose, intellectually or politically. Hicksian macro–IS-LM or something like it–remains an extremely useful tool of both analysis and policy formulation; that tool is not helped by trying to state it in terms of monetary velocity and all that. And if you want macro policy that isn’t dictated by Ayn Rand logic, you have to turn to a Democrat; on the other side, there’s nobody rational to talk to.

Sad!

This is an issue I have worried at like a dog at a worn-out glove for a decade now. So let me worry at it again:

There were gold bugs and Austrians in the 1950s, 1960s, 1970s, and even 1980s too. But Arthur Burns, Milton Friedman, Alan Greenspan and company kicked them up and down the street with gay abandon. And the Ordoliberal Germans would, when you cornered them, would admit that somebody else had to take on the job of stabilizing aggregate demand for the North Atlantic economy as a whole for their doctrines to work.

But in 2009 the Lucases and the Prescotts and the Cochranes and the Famas and the Boldrins and the Levines and the Steils and the Taylors and all the others and even the Zingaleses (but we can excuse Luigi on the grounds that if you are (a) Italian and (b) view Berlusconi as the modal politician a certain reluctance to engage in fiscal policy is understandable)–crawled out from their caves and stood in the light of day. And the few remaining students of Milton Friedman got as little respect as the Stewards of Gondor gave to the leaders of the Dunedain.

Yes, there is an intellectual tension between believing in laissez faire as a rule and believing in activist monetary management to set the market interest rate equal to the Wicksellian neutral interest rate. But why is that tension unsustainable? Once you have swallowed a government that assigns property rights, sustains contracts, and enforces weights and measures, why is this extra step a bridge too far?

Must-read: Megan McArdle: “Listen to the Victims of the Free Market”

Posted on by Brad DeLong

Must-Read: For the most part, an excellent piece by Megan McArdle. But…

McMegan: There is a lot of good reason to think that the elasticity of labor demand at the low end is about -0.2! That higher minimum wages of the magnitude we are talking about throw not a lot but a few people out of work–that the actual low-wage household societal welfare gain is roughly 80% of the naive estimate.

And maternity leave makes even not-good jobs much better…

And the point is not to send everyone to a four-year college, but to send enough people to a four-year college to reduce the four-year college wage premium from its current 90% back to the 30% or so it was in the 1970s…

Otherwise: perfect:

Megan McArdle: Listen to the Victims of the Free Market: “The arguments for market liberalism are bound to sound a lot less convincing…

…when they invariably issue from the folks who aren’t expected to take one for the team–who are, in fact, being made better off, thanks to skills… prize… and thanks to trade, automation and immigration…. Academic economists and policy analysts are among the knowledge workers who have benefited greatly from liberalization…. Let’s look at something that elites consistently fail to talk about in any meaningful way: good jobs…. We talk around those things… about inequality… paid leave… education… ritual obeisances toward the necessity of decent work, promising that some policy laughably inadequate to the task…. But neither party has any meaningful policy to foster good work…. The closest either party comes is the $15-an-hour minimum wage, a policy with the slight drawback that it may throw a lot of people out of work….

Elites of both parties focus on the things they want for themselves. Republicans offer tax cuts and deregulation, as if everyone in America were going to become an entrepreneur. Democrats offer free college tuition and paid maternity leave, as if these things were a great benefit to people who don’t have the ability, preparation or inclination to sit through four years of college, and as a result, can’t find a decent job from which to take their leave…. The implicit assumption of elites in both parties is that the solution for the rest of the country is to become more like us, either through education or entrepreneurship. Rarely does anyone discuss how we might build an economy that works for people who aren’t like us and don’t want to turn into us….

Even if they are still consuming the same amount of stuff, even if their incomes are all right for the moment, if people feel that they cannot count on work, then they will feel helpless and frightened, and they will turn to politicians who can assuage those fears by pointing to specific enemies who can be vanquished to secure their safety. Democrats convinced that they have the answer to populism in the form of more social welfare programs are as gravely mistaken as the Republicans who focused on the same old pro-business program…. People are worried about their physical security and their ability to make a decent life for themselves. And ‘for themselves’ is the important phrase in that sentence…. There is no better example of the folly of the elites than the current fashion for a universal basic income among both liberals and libertarians…. I will give the universal basic income people this much; even if they aren’t really grappling with the need for work, at least they understand that there is a problem…. That’s more than you’d gather from the major speeches or the policy programs….

Start thinking about how to listen and talk to everyone else. Don’t answer every question about jobs with boilerplate about clean energy, or entrepreneurship, or… assum[ing] that the solution to our problems is to somehow arrange for everyone in America to get a four-year degree. Don’t assume that the rest of the country is full of Morlocks who do not need what you have for yourself: a stable job that connects you… gives you a sense of usefulness and security, and offers you some chance at an even better future…. That improved conversation is not an answer to either the political or the economic problems that Americans are facing. But at least it’s a start.

We are all Polanyiites now…

The disappearance of monetarism

Posted on by Brad DeLong

I just hoisted a piece I wrote 15 years ago1—a follow-up to my “Triumph of Monetarism” that I published in the Journal of Economic Perspectives. I think of it as my equivalent of Olivier Blanchard’s “The state of macro is good” piece…

However, it is, I now recognize, clearly inadequate. It is quite good on how today’s New Keynesians are really Monetarists and how today’s Monetarists are really Keynesians. But it misses completely:

  • How use of the DSGE framework was morphing from (a) a rhetorical step to emphasize that assuming that agents in models behaved “rationally” did not entail any laissez-faire inclusions to (b) an unhelpful methodological straitjacket.
  • How there were about to be no Monetarists—how the right wing of macroeconomics, the Republican Party in the United States, the Tory Party in England, and all of Germany were about to, when confronted with the choice between following Milton Friedman’s well-grounded and empirically based arguments on the one hand and a mindless lemming-like devotion to austerity on the other hand, reject both empirical evidence and coherent thought and plump enthusiastically for the second.

I am still not sure how that happened…

Must-read: Noah Smith: “101ism in Action: Minimum Wage Edition”

Posted on by Brad DeLong

Must-Read: Noah Smith waxes wroth about really lousy economics perpetrated by Alex Tabarrok, Mark Perry of the invariably-execrable American Enterprise Institute (sorry Norm Ornstein: you inhabit a really bad neighborhood), and a guy who puts things on the internet while remaining anonymous. It need not to be said that randomly tweeting art put on the internet by guys who do not have real names rarely ends well…

But it does need to be said that, for Noah, “Econ 101ism” involves pretending that Econ 101 says things that it does not–that it involves getting the elementary economics 180 degrees wrong, all the while claiming that you are merely parroting elementary economics.

I suggest renaming it: “False-Flag Econ 101ism”. But Noah is right on the big point. This one is a beauty, for Econ 101–the real Econ 101–tells us that the first-order effect of a minimum wage is to transfer wealth from consumers and business owners to low-wage workers…

Noah Smith: 101ism in Action: Minimum Wage Edition: “American Enterprise Institute scholar Mark J. Perry tweeted the following…

Noahpinion 101ism in action minimum wage edition

…I was annoyed by the word ‘actually’…. So I started giving Mark a hard time about ignoring the empirical evidence on the minimum wage question. That’s when Alex Tabarrok jumped in and defended the cartoon, saying that it’s just a basic supply-and-demand model…. But that’s not right…. While the cartoon and the D-S model both predict that minimum wage causes job loss, it’s only a coincidence–they’re not the same model at all… some sloppy political crap made by a cartoonist who doesn’t remember his intro econ class very well…

Must-read: Brian Feldman: “A Bunch of Websites Migrate to Medium–Following: How We Live Online”

Posted on by Brad DeLong

Must-Read: Brian Feldman: A Bunch of Websites Migrate to Medium–Following: How We Live Online: “Medium has now placed its bets firmly on the ‘platform’ side of its bipolar business…

…It makes sense. Of the many reasons given for the decline of the media establishment, one of the most compelling has been the technological blind spot of many publishing companies, which operate at a slower pace than the portals and social networks that dictate how much traffic they receive. Part of the reason that BuzzFeed–to name the most prominent example–ate everyone else’s lunch so quickly is due to their substantial in-house tech department. Many others outsource development of new features to contractors. Medium wants to be everyone’s tech department (and, eventually, their ad department as well). In return for bearing the brunt of that work, Medium gets a bunch of publications to publish good stuff on their platform. And for a small website in particular, the pitch is good….

The dream of the internet, with its low overhead and near-infinite user base, is that a smart publication can find a large audience whose attention and traffic can sustain it. But it’s increasingly clear that the demands of the web economy are squeezing out the already-small middle class of independent content creators — even those with audiences in the hundreds of thousands. If Medium can help small and self-sustaining publishers like the Awl and Pacific Standard be better, for longer, that’s something to celebrate. But it also feels like the latest in a series of increasingly clear signals that the display-ad model, relying as it does on irritating and cheap programmatic ad networks, and competition with much larger publications (not to mention social networks), is not a sustainable business model even for the smart and popular.

Must-read: ProGrowthLiberal: “Social Security Replacement Rates as Reported by the CBO”

Posted on by Brad DeLong

Must-Read: ProGrowthLiberal: Social Security Replacement Rates as Reported by the CBO: “Brian Faler warned us a year ago…

Republicans on Friday named Keith Hall head of the Congressional Budget Office, installing a conservative Bush administration economist atop an agency charged with determining how much lawmakers’ bills would cost…

Keith Hall just admitted:

After questions were raised by outside analysts, we identified some errors in one part of our report, CBO’s 2015 Long-Term Projections for Social Security: Additional Information, which was released on December 16, 2015. The errors occurred in CBO’s calculations of replacement rates—the ratio of Social Security recipients’ benefits to their past earnings.

Who were these outside analysts and what was this about? Alicia Munnell explains:

CBO suggests that Social Security is getting more generous every day. The stage is being set for cuts in Social Security, and the Congressional Budget Office (CBO) has become a major player in this effort. The agency’s most recent report shows not only a huge increase in the 75-year deficit, but also an enormous increase in the generosity of the program as measured by replacement rates — benefits relative to pre-retirement earnings. None of the changes that increase the deficit — lower interest rates, higher incidence of disability, longer life expectancy, and a lower share of taxable earnings — should have any major effect on replacement rates. CBO has simply been revising its methodology each year in ways that produce higher numbers….

Putting out such a high number without any effort to reconcile it with the historical data is irresponsible. And those waiting for an opportunity to show that Social Security is excessively generous have pounced on the new CBO replacement rate number and publicized it in op-eds from coast-to-coast. Social Security is the backbone of the nation’s retirement system. Its finances need to be treated more thoughtfully.

Agreed. My only question is whether anyone in Congress can the courage to demand that Mr. Hall explain…

Monday Smackdown: Robert Waldmann Marks Brad DeLong’s Beliefs about “The Return of Depression Economics” to Market

Posted on by Brad DeLong

Robert Waldmann: Brad DeLong Marks His Beliefs about “The Return of Depression Economics” to Market: “Brad DeLong…reposted his review of Krugman’s ‘The Return of Depression Economics’ from 1999…

…’Just in case I get a swelled-head and think I am right more often than I am …’ Way back in the last century, Brad thought he had a valid criticism of Paul Krugman’s argument that Japan (and more generally countries in a liquidity trap) need higher expected inflation. I think the re-post is not just admirable as a self criticism session, but also shows us something about the power of Macroeconomic orthodoxy. Brad is just about as unorthodox as an economist can be without being banished from the profession, but even he was more influenced by Milton Friedman and Robert Lucas than he should have been…. Japan had slack aggregate demand at a safe nominal interest rate of 0–that i,s it was in the liquidity trap. Krugman argued that higher expected inflation would cause negative expected real interest rates and higher aggregate demand and solve the problem. Brad was unconvinced (way back then):

But at this point Krugman doesn’t have all the answers. For while the fact of regular, moderate inflation would certainly boost aggregate demand for products made in Japan, the expectation of inflation would cause an adverse shift in aggregate supply: firms and workers would demand higher prices and wages in anticipation of the inflation they expected would occur, and this increase in costs would diminish how much real production and employment would be generated by any particular level of aggregate demand.

Would the benefits on the demand side from the fact of regular moderate inflation outweigh the costs on the supply side of a general expectation that Japan is about to resort to deliberate inflationary finance? Probably. I’m with Krugman on this one. But it is just a guess–it is not my field of expertise–I would want to spend a year examining the macroeconomic structure of the Japanese economy in detail before I would be willing to claim even that my guess was an informed guess.

And there is another problem. Suppose that investors do not see the fact of inflation–suppose that Japan does not adopt inflationary finance–but that a drumbeat of advocates claiming that inflation is necessary causes firms and workers to mark up prices and wages. Then we have the supply-side costs but not the demand-side benefits, and so we are worse off than before.

As Brad now notes, this argument makes no sense. I think it might be hard for people who learned about macro in the age of the liquidity trap to understand what he had in mind. I also think the passage might risk being convincing to people who haven’t read enough Krugman or Keynes. The key problems in the first paragraphs are ‘adverse’ and ‘any particular level of aggregate demand’. Brad assumed that an increase in wage and price demands is an adverse shift. The argument that it is depends on the assumption that he can consider a fixed level of nominal aggregate demand (and yet he didn’t feel the need to put in the word ‘nominal’). The butchered sentence ‘would diminish how much real production and employment would be generated by any particular level of [real] aggregate demand.’ clearly makes no sense.

During the 80s, new Keynesian macroeconomists got into the habit of considering a fixed level of nominal aggregate demand when focusing on aggregate supply. Because it wasn’t the focus, they used the simplest existing model of aggregate demand the rigid quantity theory of money in which nominal aggregate demand is a constant times the money supply (which is assumed to be set by the monetary authority). This means that the aggregate demand curve (price level on the y axis and real gdp on the x axis) slopes down. This in turn means that an upward shift in the aggregate supply curve is an adverse shift.

More generally, the way in which a higher price level causes lower real aggregate demand is by reducing the real value of the money supply, but if the economy is in the liquidity trap the reduction in the real money supply has no effect on aggregate demand. In the case considered by Krugman, the aggregate demand curve is vertical. This means that he can discuss the effect of policy on real GDP without considering the aggregate supply curve. The second paragraph just repeats the assumption that higher expected inflation causes ‘costs’. There are no such costs (at least according to current and then existing theory) if the economy is in a liquidity trap. The third paragraph shows confusion about the cause of the ‘demand side benefits’. They are caused by higher expected inflation not by higher actual inflation. If there were higher expected inflation not followed by higher actual inflation, Japan would enjoy the benefits anyway. Those benefits would outweigh the non-existent costs.

Krugman actually did consider a model of aggregate supply, but it is so simple it is easy to miss. As usual (well as became usual as Krugman did this again and again) the model has two periods–the present and the long run. In the present, it is assumed that wages and prices are fixed. In the long run it is assumed that there is full employment and constant inflation. Krugman’s point is that all of the important differences between old Keynesian models and models with rational forward looking agents can be understood with just two periods and very simple math. The problem is that the math is so simple that it is easy to not notice it is there and to assume that he ignored the supply side.

I am going to be dumb (I am not playing dumb–I just worked through each step) and consider different less elegant models of aggregate supply. The following will be extremely boring and pointless:

  1. Fixed nominal wages, flexible prices and profit maximization (this is Keynes’s implicit model of aggregate supply). In this case, the supply curve gives increasing real output as a function of the price level. An ‘adverse’ shift of this curve would be a shift up. It would not affect real output in the liquidity trap since the aggregate demand curve is vertical. it would not impose any costs as the increased price level would reduce the real money supply from plenty of liquidity to still plenty of liquidity. This model of aggregate supply is no good (it doesn’t fit the facts). It is easy to fear that Krugman implicitly assumed it was valid when in a rush (at least this is easy if one hasn’t been reading Krugman every day for years–he doesn’t do things like that).

  2. A fixed expectations-unaugmented Phillips curve which gives inflation as an increasing function of output. An ‘adverse’ shift of he Phillips curve would imply higher inflation. This would have no costs.

  3. An expectations-augmented Phillips curve in which expected inflation is equal to lagged inflation–output becomes a function of the change in inflation. In a liquidity trap, there would be either accelerating inflation or accelerating deflation. For a fixed money supply accelerating inflation would reduce real balances until the economy would no longer be in a liquidity trap. The simple model would imply the possibility of accelerating deflation and ever decreasing output. This model is no good, because such a catastrophe has never occurred, Japan had constant mild deflation which did not accelerate, even during the great depression the periods of deflation ended.

  4. An expectations augmented Phillips curve with rational expectations–oh hell I’ll just assume perfect foresight. Here both the aggregate demand and aggregate supply curves are vertical. If they are at different levels of output, there is no solution. The result is that a liquidity trap is impossible. This is basically a flexible price model. If there were aggregate demand greater than the fixed aggregate supply, the price level would jump up until the real value of money wasn’t enough to satiate liquidity preference. Krugman assumed that, in the long run, people don’t make systematic forecasting mistakes. So he assumed that the economy can’t stay in the liquidity trap for the long run. Ah yes, his model had everything new classical in the long run (this is the point on which Krugman has marked his beliefs to market).

The argument that Krugman would not have reached his conclusions about the economics of economies in liquidity traps if he had considered the supply side only makes sense if it includes the intermediate step that, if one considers the supply side, one must conclude that economies can never be in liquidity traps. This is no good as Japan was in the liquidity trap as are all developed countries at present.

I think the only promising effort here was (3)–a Phillips curve with autoregressive expectations. The problem is: why hasn’t accelerating deflation ever occurred? Way back in 1999, Krugman clearly thought that the answer was just that we had been lucky so far. He warned of the risk of accelerating deflation. Now he thinks he was wrong. Like Krugman, I think the reason is that there is downward nominal rigidity — that it is very hard to get people to accept a lower nominal wage or sell for a lower price. This depends on the change in the wage or price and not in that change minus expected inflation.

Clearly this rigidity isn’t absolute (Japan has had deflation and there were episodes of deflation in the 30s). But it is possible to get write a model in which unemployment is above the non accelerating inflation rate, but nominal wages aren’t cut. In this case expected inflation remains constant–actual deflation doesn’t occur so expected deflation doesn’t occur. The math can work. See here.