No. NAFTA Didn’t Kill American Manufacturing Employment: Afterthoughts

The biggest weasel-phrase–the biggest phrase that is not part of an argument, but rather a placeholder for the fact that I strongly believe that an argument here is needed but have not (yet) thought (my position on) it through (to my satisfaction)–is “proper nurturing of communities of engineering practice”.

Going through the big Vox piece <http://www.vox.com/the-big-idea/2017/1/24/14363148/trade-deals-nafta-wto-china-job-loss-trump> I find it in four places:

  1. “…firms embedded in our communities of engineering practice…”
  2. “…healthy communities of engineering practice…”
  3. “…burturing communities of engineering expertise…”
  4. “…the global treasures that are our communities of engineering practice…”

No. I am not going to deliver today. All I am going to do is point you to six things that you really should read on these issues:

  1. Sue Helper: Supply Chains and Equitable Growth
  2. Michael L. Dertouzos, Robert M. Solow, and Richard K. Lester (1989): Made in America: Regaining the Productive Edge (Cambridge: MIT Press: 0262041006) <http://amzn.to/2kH6JSv>
  3. Stephen S. Cohen and John Zysman (1987): Manufacturing Matters: The Myth of the Post-Industrial Economy (New York: Basic Books) <http://amzn.to/2kGX65V>
  4. Vaclav Smil (2013): Made in the USA: The Rise and Retreat of American Manufacturing (Cambridge: MIT Press: 0262528355) <http://amzn.to/2kg52u6>
  5. Chad Stone: No One Wins Trade Wars: Trump’s ‘America first’ trade policy will be bad for working Americans…
  6. Philip Delves Broughton: America business is the master, not victim, of globalisation: If businesses saw more value in investing in US workers, they could have done so…

Root Post: http://www.vox.com/the-big-idea/2017/1/24/14363148/trade-deals-nafta-wto-china-job-loss-trump

NAFTA and Other Trade Deals Have Not Gutted American Manufacturing—Period: Live at Vox.com

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Live at Vox.com: NAFTA and Other Trade Deals Have Not Gutted American Manufacturing—Period: Politically speaking, there was no debate on United States international trade agreements in 2016: All politicians seeking to win a national election, or even to create a party-spanning political coalition, agree that our trade agreements are bad things…. From the left… Bernie Sanders…. From the right—I do not think it’s wrong but it’s not quite correct to call it “right,” at least not as Americans have hitherto understood what “right” is—but from somewhere… now-President Donald Trump…. From the center establishment… popular vote–winning (but Electoral College–losing)… Hillary Rodham Clinton…. “I will stop any trade deal that kills jobs or holds down wages, including the Trans-Pacific Partnership. I oppose it now, I’ll oppose it after the election, and I’ll oppose it as president.…” The rhetoric of all three candidates resonates with the criticism of trade agreements that we heard way back when NAFTA was on the table as a proposal—not, as today, something to blame all our current economic woes on… Read MOAR at http://vox.com


This piece actually does only a third of what I wanted to do:

  1. Lay out how our trade agreements have not decimated manufacturing.
  2. Lay out what a properly-nurturing macroeconomic and industrial policy to increase the health of our important and valuable communities of engineering practice would be–but stress that such policies would not bring back mass manufacturing jobs.
  3. Account for the political mishegas.

But I only got through (1). And it is 8000 words. And I had to drop the extended notes and digressions that will go into the bibliographic essay…

Money Demand a Function of Private Consumption Spending, Not Income

Note to Self: I alway find it interesting that Friedman and the monetarists formulated money demand as a function of income rather than of private spending, or even of private consumption spending. You don’t need or want money when your income is high, unless you want to spend it.

And it seems highly likely that the ratio of desired money holdings to planned spending is much higher for consumption than investment. Money demand should therefore be a function of private sector consumption spending–and nominal interest rates–not a function of income. We thus have:

C = MV(i)/P

Y = C + I + G + (X-M)

And from this accounting framework it is very difficult indeed to make strong monetarist conclusions appear obvious facts of nature rather than weird and tendentious claims. Mankiw and Summers made this point back in 1982. And they were totally ignored—even though it was and is a very smart point…

Weekend Reading: George Orwell (1946): In Front of Your Nose

George Orwell (1946): In Front of Your Nose: “Many recent statements in the press have declared…

…that it is almost, if not quite, impossible for us to mine as much coal as we need for home and export purposes, because of the impossibility of inducing a sufficient number of miners to remain in the pits. One set of figures which I saw last week estimated the annual ‘wastage’ of mine workers at 60,000 and the annual intake of new workers at 10,000. Simultaneously with this—and sometimes in the same column of the same paper—there have been statements that it would be undesirable to make use of Poles or Germans because this might lead to unemployment in the coal industry. The two utterances do not always come from the same sources, but there must certainly be many people who are capable of holding these totally contradictory ideas in their heads at a single moment.

This is merely one example of a habit of mind which is extremely widespread, and perhaps always has been.

Bernard Shaw, in the preface to “Androcles and the Lion”, cites as another example the first chapter of the Gospel of Matthew, which starts off by establishing the descent of Joseph, father of Jesus, from Abraham. In the first verse, Jesus is described as ‘the son of David, the son of Abraham’, and the genealogy is then followed up through fifteen verses: then, in the next verse but one, it is explained that as a matter of fact Jesus was not descended from Abraham, since he was not the son of Joseph.

This, says Shaw, presents no difficulty to a religious believer, and he names as a parallel case the rioting in the East End of London by the partisans of the Tichborne Claimant, who declared that a British working man was being done out of his rights.

Medically, I believe, this manner thinking is called schizophrenia: at any rate, it is the power of holding simultaneously two beliefs which cancel out. Closely allied to it is the power of igniting facts which are obvious and unalterable, and which will have to be faced sooner or later. It is especially in our political thinking that these vices flourish. Let me take a few sample subjects out of the hat. They have no organic connexion with each other: they are merely cased, taken almost at random, of plain, unmistakable facts being shirked by people who in another part of their mind are aware to those facts.

  1. Hong Kong: For years before the war everyone with knowledge of Far Eastern conditions knew that our position in Hong Kong was untenable and that we should lose it as soon as a major war started. This knowledge, however, was intolerable, and government after government continued to cling to Hong Kong instead of giving it back to the Chinese. Fresh troops were even pushed into it, with the certainty that they would be uselessly taken prisoner, a few weeks before the Japanese attack began. The war came, and Hong Kong promptly fell — as everyone had known all along that it would do.

  2. Conscription: For years before the war, nearly all enlightened people were in favour of standing up to Germany: the majority of them were also against having enough armaments to make such a stand effective. I know very well the arguments that are put forward in defence of this attitude; some of them are justified, but in the main they are simply forensic excuses. As late as 1939, the Labour Party voted against conscription, a step which probably played its part in bringing about the Russo-German Pact and certainly had a disastrous effect on morale in France. Then came 1940 and we nearly perished for lack of a large, efficient army, which we could only have had if we had introduced conscription at least three years earlier.

  3. The Birthrate: Twenty or twenty-five years ago, contraception and enlightenment were held to be almost synonymous. To this day, the majority of people argue—the argument is variously expressed, but always boils down to more or less the same thing—that large families are impossible for economic reasons. At the same time, it is widely known that the birthrate is highest among the low-standard nations, and, in our population, highest among the worst-paid groups. It is also argued that a smaller population would mean less unemployment and more comfort for everybody, while on the other hand it is well established that a dwindling and ageing population is faced with calamitous and perhaps insoluble economic problems. Necessarily the figures are uncertain, but it is quite possible that in only seventy years our population will amount to about eleven millions, over half of whom will be Old Age Pensioners. Since, for complex reasons, most people don’t want large families, the frightening facts can exist some where or other in their consciousness, simultaneously known and not known.

  4. U.N.O.: In order to have any efficacy whatever, a world organization must be able to override big states as well as small ones. It must have power to inspect and limit armaments, which means that its officials must have access to every square inch of every country. It must also have at its disposal an armed force bigger than any other armed force and responsible only to the organization itself. The two or three great states that really matter have never even pretended to agree to any of these conditions, and they have so arranged the constitution of U.N.O. that their own actions cannot even be discussed. In other words, U.N.O.’s usefulness as an instrument of world peace is nil. This was just as obvious before it began functioning as it is now. Yet only a few months ago millions of well-informed people believed that it was going to be a success.

There is no use in multiplying examples. The point is that we are all capable of believing things which we know to be untrue, and then, when we are finally proved wrong, impudently twisting the facts so as to show that we were right. Intellectually, it is possible to carry on this process for an indefinite time: the only check on it is that sooner or later a false belief bumps up against solid reality, usually on a battlefield.

When one looks at the all-prevailing schizophrenia of democratic societies, the lies that have to be told for vote-catching purposes, the silence about major issues, the distortions of the press, it is tempting to believe that in totalitarian countries there is less humbug, more facing of the facts. There, at least, the ruling groups are not dependent on popular favour and can utter the truth crudely and brutally. Goering could say ‘Guns before butter’, while his democratic opposite numbers had to wrap the same sentiment up in hundreds of hypocritical words.

Actually, however, the avoidance of reality is much the same everywhere, and has much the same consequences. The Russian people were taught for years that they were better off than everybody else, and propaganda posters showed Russian families sitting down to abundant meal while the proletariat of other countries starved in the gutter. Meanwhile the workers in the western countries were so much better off than those of the U.S.S.R. that non-contact between Soviet citizens and outsiders had to be a guiding principle of policy. Then, as a result of the war, millions of ordinary Russians penetrated far into Europe, and when they return home the original avoidance of reality will inevitably be paid for in frictions of various kinds. The Germans and the Japanese lost the war quite largely because their rulers were unable to see facts which were plain to any dispassionate eye.

To see what is in front of one’s nose needs a constant struggle. One thing that helps toward it is to keep a diary, or, at any rate, to keep some kind of record of one’s opinions about important events. Otherwise, when some particularly absurd belief is exploded by events, one may simply forget that one ever held it. Political predictions are usually wrong. But even when one makes a correct one, to discover why one was right can be very illuminating. In general, one is only right when either wish or fear coincides with reality. If one recognizes this, one cannot, of course, get rid of one’s subjective feelings, but one can to some extent insulate them from one’s thinking and make predictions cold-bloodedly, by the book of arithmetic.

In private life most people are fairly realistic. When one is making out one’s weekly budget, two and two invariably make four. Politics, on the other hand, is a sort of sub-atomic or non-Euclidean word where it is quite easy for the part to be greater than the whole or for two objects to be in the same place simultaneously. Hence the contradictions and absurdities I have chronicled above, all finally traceable to a secret belief that one’s political opinions, unlike the weekly budget, will not have to be tested against solid reality.

No, Larry Kudlow Is Not an Economist…

I have only been on the same stage as Larry Kudlow twice in my life. In neither case did he provide any intellectual substance at all. This, a decade ago, was the second time:

Hoisted from the Archives from 2007: I was sitting on the right end of an nine-person panel at the New School Friday morning http://www.cepa.newschool.edu/events/events_schwartz-lecture.htm#webcast. Bob Solow was sitting on the left end–Solow, Shapiro, Schwartz, Rohatyn, Kudlow, Kerrey, Kosterlitz, Hormats, DeLong. Bob Solow expressed concern and worry over the declines in the U.S. savings rate over the past generation. Larry Kudlow, in the middle of the panel, aggressively launched into a rant…

…about how the NIPA savings rate was wrong, about how the right savings rate was the change in household net worth, about how there was no potential problem with America saving too little, that the economy was strong, and that that day’s employment report had been wonderful, and that Paul Krugman had predicted nine out of the last zero recessions, et cetera, et cetera, et cetera.

What is one to do? You watch a guy–Bob Solow–one of the smartest and most thoughtful people I know, having his intellectual impact neutralized by a guy–Kudlow–who really isn’t in the intellectual inquiry business anymore. Kudlow clearly has not thought through the biases and gaps in the household net worth number: if he had, there is no way he could say what he is saying.

On paper, in print, on the screen, one can point out that the employment report was anemic–it was not a bloodletting by any means, but it was a bit disappointing. On paper, in print, on the screen, one can say that there is reason to worry about the decline in housing demand and the possibility that it might trigger a recession.

On paper, on print, on the screen, one can list the seven potential wedges between the NIPA savings rate and the change in household net worth:

  1. There is a gap between the rate of return on the average investment made in a year and the cost of capital, which means that $1 of savings on average produces more than $1 of value.
  2. The NIPA may well understate corporate savings and investment by counting a bunch of investments in organizational form as corporate operating expenses.
  3. All of us free-ride on technological research and development, reaping where we do not sow, gathering where we do not scatter, and profiting where we do not save and invest.
  4. Shifts in the distribution of income away from labor and toward capital increase measured household net worth–which includes the increased expected future profits from capital–but not true household net worth–which also includes the decreased expected future wages of labor.
  5. Declines in interest rates make the future more valuable relative to the present and so raise measured household net worth today–which is measured in today’s dollars–without any outward shift in the true consumption-possibilities frontier.
  6. Government deficits that raise the debt lower national savings but not measured household net worth.
  7. Good news about the future produces windfall gains and bad news windfall losses which alter this year’s household net worth without telling us much about over-all long-run accumulation trends.

On paper, in print, on the screen one can say that reasons (4), (5), and (6) pushing up measured household net worth are reasons to discount that statistic as misleading: they do not reflect any true increase in appropriately-defined wealth. One can say that any increase in household net worth caused by (7) is a transitory phenomenon that tells us little about permanent saving and accumulation patterns. One can say that (1) and (2) affect the level but not the trends of saving, and do not speak to Solow’s worry about the savings-investment rate’s decline. One can say thus that only reason (3)–the effects of the now decade-long computer-and-communications real investment boom on our total wealth–provides a reason to even begin to think about whether Bob Solow’s worries about declining savings as measured by the NIPA are at all overblown.

But there are ninety minutes for a panel with nine people on it. To the audience it looks like two cocksure economists who disagree for incomprehensible reasons. And my ten minute share will come too late to try to referee Solow-Kudlow in any fair, balanced, and effective way.

It’s an un-discourse situation: Kudlow doesn’t acknowledge–may not know–the flaws in his chosen statistic. And I can’t help wonder what Kudlow would be saying if a Democrat were president.

It’s an intellectual Gresham’s Law in action…

What can I do? I can blog about it.

And I can, a decade letter, hoist it from the archives…

(Early) Monday DeLong Smackdown Watch: Has Macroeconomics Gone Right?

U.S. Real GDP since 2009

After three years, how is this working out?…

Paul Krugman (2013): The Neopaleo-Keynesian Counter-counter-Counterrevolution: “OK, I can’t resist this one — and I think it’s actually important…

…Brad DeLong reacts to Binyamin Appelbaum’s piece on Young Frankenstein Stan Fischer by quoting from his own 2000 piece on New Keynesian ideas in macroeconomics, a piece in which he argued that New Keynesian thought was, in important respects, a descendant of old-fashioned monetarism. There’s a lot to that view. But I’m surprised that Brad stopped there, for two reasons. One is that it’s worth remembering that Fischer staked out that position at a time when freshwater macro was turning sharply to the right, abandoning all that was pragmatic in Milton Friedman’s ideas. The other is that the world of macroeconomics now looks quite different from the world in 2000.

Specifically, when Brad lists five key propositions of New Keynesian macro and declares that prominent Keynesians in the 60s and early 70s by and large didn’t agree with these propositions, he should now note that prominent Keynesians–by which I mean people like Oliver Blanchard, Larry Summers, and Janet Yellen–in late 2013 don’t agree with these propositions either.

In important ways our understanding of macro has altered in ways that amount to a counter-counter-counterrevolution (I think I have the right number of counters), giving new legitimacy to what we might call Paleo-Keynesian concerns. Or to put it another way, James Tobin is looking pretty good right now. (Incidentally, this was the point made by Bloomberg almost five years ago, inducing John Cochrane to demonstrate his ignorance of what had been going on macroeconomics outside his circle.)

Consider Brad’s five points:

  1. Price stickiness causes business cycle fluctuations: You clearly need price stickiness to make sense of the data. However, there is now widespread acceptance of the point that making prices more flexible can actually worsen a slump, a favorite point of Tobin’s.

  2. Monetary policy > fiscal policy: Not when you face the zero lower bound — and that’s no longer an abstract or remote consideration, it’s the world we’ve been living in for five years. And Tobin, who defended the relevance of fiscal policy, is vindicated.

  3. Business cycles are fluctuations around a trend, not declines below some level of potential output: This view comes out of the natural rate hypothesis, and the notion of a vertical long-run Phillips curve. At this point, however, there is wide acceptance of the idea that for a variety of reasons, but especially downward nominal wage rigidity, the Phillips curve is not vertical at low inflation. Again, a very Tobinesque notion, as Daly and Hobijn explain.

  4. Policy rules: Not so easy when once in a while you face Great Depression-sized shocks.

  5. ‘Low multipliers associated with fiscal policy’: Ahem. Not when you’re in a liquidity trap.

I do think this is important. Among economists who are actually looking at recent events, not doing a see-no-Keynes, hear-no-Keynes, speak-no-Keynes act, there has been a strong revival of some old ideas in macroeconomics. It’s not just new classical macroeconomics that’s in retreat; we’re also seeing, within the Keynesian camp, a distinct if polite rise of Neopaleo-Keynesianism.

I must say I find myself distinctly less optimistic than Paul here. After three years:

  • We seem to me to have had no influence on policy: IS-LM says that if the Federal Reserve wants to be able to respond to the next adverse macroeconomic shock we need a looser fiscal policy in order to normalize interest rates during this expansion. The Federal Reserve is ignoring IS-LM.

  • While it is true you no longer hear people outside of what I call “Chicago” talking about how DSGE is a progressive research program, you do hear nearly everybody still talking about it as if it were a harmless fetish and a useful neutral ground to frame the discussion.

  • As far as actual serious work as to what emergent properties we can expect from what characteristics of our really-existing structure of markets? We have made no progress…

What Is the Excellence of an Economist?

I have been thinking about John Maynard Keynes’s observations on the mysterious difficulty of being a first-class economist that I quoted a while ago:

John Maynard Keynes (1924): Alfred Marshall: “The study of economics does not seem to require…

…any specialised gifts of an unusually high order. Is it not, intellectually regarded, a very easy subject compared with the higher branches of philosophy and pure science? Yet good, or even competent, economists are the rarest of birds. An easy subject, at which very few excel! The paradox finds its explanation, perhaps, in that the master-economist must possess a rare combination of gifts. He must reach a high standard in several different directions and must combine talents not often found together. He must be mathematician, historian, statesman, philosopher—in some degree. He must understand symbols and speak in words. He must contemplate the particular in terms of the general, and touch abstract and concrete in the same flight of thought. He must study the present in the light of the past for the purposes of the future. No part of man’s nature or his institutions must lie entirely outside his regard. He must be purposeful and disinterested in a simultaneous mood; as aloof and incorruptible as an artist, yet sometimes as near the earth as a politician…

I have been thinking about it because a couple of weeks ago I ran across a comment I once made:

The model says that attempting a 4%-point increase in government revenue as a share of GDP in Greece may well push you over the top of the Laffer Curve. It follows immediately that the excess burdens of a 1%-point increase are overwhelmingly large. It then follows immediately that any tax increases at all are inadvisable. Thus the only deficit-reducing policies that might possibly be advisable are those that cut spending. It would, therefore, seem to me that the paper ought to consist of one paragraph–that Greece is near the top of the Laffer Curve, hence what it urgently does not need is any tax increases–followed by fifteen pages documenting this claim on which all else depends: that Greece is near the top of the Laffer Curve. Yet those fifteen pages are missing…

It seemed to me very clear what was going on the moment I read: “We do not push the model to generate the full 4 percent increase in the [Greek] primary balance as a share of 2014 GDP… [because it] could push capital and labor taxes into the downward sloping portions of the Laffer curve…” And yet the well-regarded authors then spent fifteen pages calculating benefit-cost ratios–which were, of course, much less than one–rather than documenting their belief that Greece is near the top of the Laffer Curve.

I have been thinking about this Keynes passage in the context of Dani Rodrik’s “don’t blame economics–blame economists!”

It strikes me that a first-class economist needs to have a firm grasp of:

  1. The economic models that might be used to analyze the situation.
  2. The benefits and drawbacks of each possible model, and the reasons to on balance prefer one particular model and one particular analysis.
  3. What dangers the assumptions needed to make one’s chosen model tractable expose one to.
  4. How one’s model actually works.

N. Emrah Aydınonat: Using and Abusing Models in Economics: A Review of Rodrik’s Economics Rules: “Rodrik… argues that both unrealistic assumptions and mathematics are useful in economic modelling…

…Rodrik argues that economics is not the problem, economists are… idealization, abstraction, utilization of unrealistic assumptions, methodological individualism are not problems as long as one appreciates the diversity of economic models and accepts the fact that each economic model is an attempt to understand some real world relationships in isolation. Market favoritism is not a problem of economics… [but] rather a problem created by some overconfident economists…. Economics is more pluralist than it appears…

Musings: Donald Trump Ought Not to Be a Hard-Money Gold-Standard Austerian Pain-Caucus President

3 Month Treasury Bill Secondary Market Rate FRED St Louis Fed

When I was working in the Treasury in 1993, I was struck by how much it was the case that President Bill Clinton was still the ex-Governor of Arkansas, and that arguments that would have been powerful and important when directed at a Governor of Arkansas still resonated in his mind much more strongly than they perhaps should have if they were evaluated purely on technocratic grounds.

Arkansas, remember, was a small, poor state, heavily dependent on coupon-clipping from the Walton family and on the ability of Tyson Chicken to export to other states as its engines of economic growth. Those put constraints on Arkansas and make certain factors salient for Arkansas in ways that do not apply to the country as a whole.

Donald Trump has been a real estate developer–and a failed casino manager. The same where-he-comes-from-determine-which-arguments-resonate should apply here.

There thus ought to be an elective affinity between Donald Trump and proper technocratic fiscal policy: he ought to be very responsive to the very strong case for a real and substantial infrastructure construction-led fiscal expansion–and remember that investing in the human capital of twelve year olds is a very durable piece of infrastructure indeed. The math that shows that at current interest rates borrow-and-build is indeed a no-brainer for the economy is math that ought to be very familiar to Donald Trump.

And he ought to be very responsive to the Yellen caucus in the Federal Reserve. Very much like Reagan in 1980, Donald Trump has been told and from personal experience knows very different things about the Federal Reserve. by some that we need rigid Taylor Rules and has been told by others that we need a Gold Standard, but he also knows that high interest rates kill real estate values, real estate deals, and the solvency of real estate developers. Reagan’s goldbug and loose-money staffers fought each other to a standstill, and Volcker was left alone to manage the economy as best he could. There is a potential fight between the Donald Trump who develops real estate and the Donald Trump who wants to be a good Republican fighting for Republican causes he doesn’t really resonate with. My bet is that, if the issue can be properly framed, the valid technocratic arguments for loose money will prevail inside Donald Trump’s head, given the natural elective affinity with his past career.

And there is much to be done here…

One of my proudest moments was when, back in 1992, Larry Summers and I egged each other on to tell the Federal Reserve at Jackson Hole that, given the magnitude of recessionary shocks and the vulnerability of an economy to the zero lower bound, it was too hazardous to try to push the average inflation rate much below 5%/year. Great call. Completely correct. Totally ignored. One that I am very proud of.

But a 2%/year inflation target was set in stone for the U.S. by Alan Greenspan in the 1990s. Thereafter the Federal Reserve system fell in line and coalesced around finding reasons why that target was a good thing–not analyzing whether it was in fact a good thing.

It is now clear that it is not a good thing: shocks are too large. Perhaps the 2%/year target was appropriate if the Great Moderation was permanent. It wasn’t. We have radical uncertainty of many kinds, and a 2%/year target will have us slam into the zero lower bound appallingly often. The target inflation rate should be raised to 4%/year.

The only argument for keeping the 2%/year inflation target is that it helps build the Federal Reserve’s credibility. But the credibility that comes from doing stupid things consistently and persistently is not the kind of credibility you want to build or have, is it? It is important that people trust your promises. But the promises that you want to make and that you want credibility for are promises that you will do the right and smart thing–not the wrong and dumb thing–and thus that you will correct policies that turn out to have been clearly mistaken.

The Phrase “Structural Reform” Considered Harmful

Preview of Fiscal Policy in the New Normal IMF Panel

The worst possible “structural reform” program is one that moves a worker from a low productivity job into unemployment, where they then lose their weak tie social network that allows them to get new jobs. They then get used to sitting in their sisters’ basement splaying video games and surfing the internet all day. “Structural reforms” are extremely dangerous unless you have a high-pressure economy to pull resources out of low productivity into high productivity sectors.

The view in the high councils of Europe is that, when there is a high-pressure economy, politicians will not press for “structural reform”: there is no obvious need, and so why rock the boat? Politicians kick every can they can down the road, and you can only try “structural reform” when unemployment is high–and thus when it is likely to be ineffective if not destructive.

I don’t think this view is correct. But this is the view–in Europe. This creates a very difficult political economy puzzle for Europe. I really do not have any sort of solution.

Quite possibly we should simply drop “structural reform”. Most of the time, “structural reform” means policies that reduce the size of unproductive sectors and in the process create significant numbers of substantial losers. That is why people call it “structural reform” rather than some other, more properly descriptive phase.

We can (almost) all get behind “reduce product market monopoly power”. We can (almost) all get behind “reduce NIMBYist constraints on land development”–provided, that is, we can agree which restraints are and which are not NIMBYist. Calling those part of the suspicious portmanteau of “structural reform” does not materially aid their cause. We should drop the phrase “structural reform” in the interest of clarity about just what we are planning to do.

Cf: http://www.bradford-delong.com/2016/08/must-read-very-nice-to-see-very-good-but-four-brief-whimpers-1-structural-reform-is-a-very-dangerous-thing-to-do.html

Missing the Economic Big Picture

Project Syndicate: Missing the Economic Big Picture: BERKELEY – I recently heard former World Trade Organization Director-General Pascal Lamy paraphrasing a classic Buddhist proverb, wherein China’s Sixth Buddhist Patriarch Huineng tells the nun Wu Jincang: “When the philosopher points at the moon, the fool looks at the finger.” Lamy added that, “Market capitalism is the moon. Globalization is the finger.” With anti-globalization sentiment now on the rise throughout the West, this has been quite a year for finger-watching… **Read MOAR at Project Syndicate