Tag: The Honest Broker

Tim Duy’s Five Questions for Janet Yellen

Posted on by Brad DeLong
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A very nice piece here from the very-sharp Tim Duy:

Tim Duy: Five Questions for Janet Yellen

Next week’s meeting of the Federal Open Market Committee (FOMC) includes a press conference with Chair Janet Yellen. These are five questions I would ask if I had the opportunity to do so in light of recent events.

(1) 1. What’s the deal with labor market conditions? You advocated for the creation of the Federal Reserve’s Labor Market Conditions Index (LMCI) to serve as a broader measure of the labor market and as an alternative to a narrow measure such as the unemployment rate. The LMCI declined for five consecutive months through May, the most recent release…. On June 6, however, you said that:

the job market has strengthened substantially, and I believe we are now close to eliminating the slack that has weighed on the labor market since the recession.

The LCMI signals that although the economy may be operating near full employment, it is now moving further away from that goal. Is it appropriate for the Fed to still be considering interest rate hikes when your measure is moving away from the goal of full employment? Or have you determined the LMCI is not a useful measure of labor market conditions?

(2) Has the effect of QE been underestimated? Since the Fed began and completed the process of ending quantitative easing (QE), the dollar has risen in value, the stock market rally has stalled, the yield curve has flattened, broader economic activity has slowed, and now we are experiencing a slowing in labor market activity. These are all traditionally signs of tighter monetary policy, but you have insisted that tapering is not tightening and that policy remains accommodative. Given these signs, is it possible or even likely that you have underestimated the effectiveness of QE and hence are now overestimating the level of financial accommodation?

(3) Optimal control or no? The Fed appears determined to hit its inflation target from below. In other words, the central bank is positioning policy to tighten despite inflation currently running below the 2 percent target in order to avoid an overshoot at a later date. In the past, however, you argued for an ‘optimal control’ approach that anticipated an explicit overshooting of the inflation target in order to more rapidly meet the Fed’s mandate of full employment. Under optimal control, it seems that given stalled progress on reducing underemployment, coupled with deteriorating labor market conditions, the Fed should now be explicitly aiming to overshoot the inflation target by keeping policy loose. Do you believe the optimal control approach you previously advocated is wrong? If so, what caused you to change your mind?

(4) An Evans Rule for all? Chicago Federal Reserve President Charles Evans remains concerned about asymmetric policy risks. Persistently below target inflation risks undermining the public’s belief that the Fed is committed to reaching its target. Such a loss of credibility hampers the ability to subsequently meet the central bank’s target. In contrast, the well-known effectiveness of traditional policy tools means there is less upside risk to inflation. Consequently, he argues for an updated version of the Evans Rule (or an earlier commitment to not hike rates as long as unemployment exceeded 6.5 percent and inflation was below 2.5 percent).
Specifically, Evans said:

In order to ensure confidence that the U.S. will get to 2 percent inflation, it may be best to hold off raising interest rates until core inflation is actually at 2 percent. The downside inflation risks seem big — losing credibility on the downside would make it all that more difficult to ever reach our inflation target. The upside risks on inflation seem smaller.

Recall that in your most recent speech you indicated unease with inflation expectations and — at least implicitly — recognized the asymmetry of policy risks:

It is unclear whether these indicators point to a true decline in those inflation expectations that are relevant for price setting; for example, the financial market measures may reflect changing attitudes toward inflation risk more than actual inflation expectations. But the indicators have moved enough to get my close attention. If inflation expectations really are moving lower, that could call into question whether inflation will move back to 2 percent as quickly as I expect.

This — especially when combined with your past support for an optimal control approach to policy — suggests that you should be amenable to adopting Evans’ position. Do you support Evans’ proposal that the Fed should stand down from rate hikes until the inflation target is reached? Why or why not?

(5) Just how much do you care about the rest of the world? Earlier this year, Federal Reserve Governor Lael Brainard suggested that the many developed economies operating at or below zero percent interest rates reduces the central bank’s capacity for raising rates:

‘Financial tightening associated with cross-border spillovers may be limiting the extent to which U.S. policy diverges from major economies…

At last September’s FOMC press conference, you said that you thought the global forces were insufficient to restrain the path of U.S. monetary policy. In response to a question about ‘global interconnectedness’ preventing the U.S. from ever moving away from zero percent interest rates, you said:

I would be very surprised if that’s the case. That is not the way I see the outlook or the way the Committee sees the outlook. Can I completely rule it out? I can’t completely rule it out. But, really, that’s an extreme downside risk that in no way is near the center of my outlook.

Given the events of the past six months — especially the refusal of longer-term U.S. Treasury yields to rise despite repeated hints of monetary tightening — have you reassessed your opinion? Do you view the risks of such an outcome as greater or lower than your assessment made last September?

Bottom Line: Most of these questions try to push Yellen to explain her past positions in light of the current data and actions. I think understanding how and why her positions change is critical to understanding how the Fed reacts to the conditions facing it. Making the so-called ‘reaction function’ clear remains the most important piece of the Fed’s communication strategy.

These five questions–“What’s the deal with labor market conditions?… Has the effect of QE been underestimated?… Optimal control or no?… An Evans Rule for all?… Just how much do you care about the rest of the world?”–are the right questions to ask. And Tim’s bottom line–“Push Yellen to explain her past positions in light of the current data and actions. I think understanding how and why her positions change is critical…. Making the so-called ‘reaction function’ clear remains the most important piece of the Fed’s communication strategy”–is the right bottom line.

After all, does this look like an economy crossing the line of potential output in an upward direction with growing and substantial gathering inflationary pressures to you?

Change in Labor Market Conditions Index FRED St Louis FedNewImage
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The Federal Reserve is simply not doing a good job of communicating its reaction function. It is not doing a good job of linking its model of the economy to current data and past events. Inflation, production, and employment (but not the unemployment rate) have been disappointingly low relative to Federal Reserve expectations for each of the past nine years. These events should have led to substantial rethinking by the Federal Reserve of its model of the economy. And yet the model set forward by Yellen and Fischer (but not Evans and Brainard) appears to be very much the model they held to in the late 1990s, which was the model they believed in in the early 1980s: very strong gearing between recent-past inflation and expected inflation, and a Phillips Curve with a pronounced slope, even with inflation very low.

Unless my Visualization of the Cosmic All is grossly wrong along the relevant dimensions, this is not the right model of the current economy. There was never good reason to think that the bulk of the runup in inflation in the 1970s was due to excessive demand pressure and unemployment below the natural rate–it was, more probably, mostly due to supply shocks plus the lack of anchored expectations. Only if you highball the estimate of the Phillips Curve’s slope for the 1970s can you understand the fall in inflation in the early 1980s as due overwhelmingly to slack, rather than ascribing a component to the reanchoring of inflation expectations. Thus the way to bet is that the economy on its current trajectory will produce less upward pressure on current inflation and also on inflation expectations than the Federal Reserve currently projects.

But how will it react when the data once again disappoints Federal Reserve expectations–as it has? In June 2013, the Fed was predicting that annual GDP growth during the 2013-2015 period would average 2.9%, with longer-run growth of real potential GDP averaging 2.4%. Instead, annual growth has averaged 2.3% (or 2.2%, if estimates for the first half of 2016 are correct). Nor did it perform better on other measures. The Fed predicted an annual inflation rate, based on the personal consumption expenditures index, of 1.9% for 2015. The true number was 1.5%. Similarly, its average projection of the federal funds rate for 2015 was 1.5%. The figure is currently 0.25%. This three-year period, starting in 2013, in which the economy undershot the Fed’s expectations, follows a three-year period in which the economy likewise fell short of the Fed’s forecast. And that period followed a three-year period, starting in 2007, in which the Fed massively understated downside deflationary risks.

Yet the prevailing model does appear to be the model of the early 1980s. It continues to gear inflation expectations at unrealistically high levels based on past inflation. And it continues to rely on the unemployment rate as a stand-in for the state of the labor market, at the expense of other indicators. So the big questions are: Will that commitment break? What would make them revise their models of the economy? And how will those model revisions affect their policy reaction function map from data to interest rates?

In an environment of economic volatility like the one in which we find ourselves today, a prudent central bank should do everything it can to raise expected and actual inflation, in order to gain the ability to stabilize the economy in any direction. If interest rates were well above zero, the Fed would have scope to raise them further in case of overheating or to lower them in response to adverse demand shocks.
But the Fed continues to neglect asymmetry, considering it only a second- or third-order phenomenon. It is not pushing for inflation at or above its target, even as optimal-control doctrines that themselves neglect asymmetry call for such a trajectory. Instead, by tightening policy by an amount that it cannot reliably gauge, it is narrowing its room for maneuver.

Looking at the current composition of the FOMC does not add to confidence:

  • On the left, Lael Brainard and Charles Evans certainly understand the situation–and have been right about almost everything they have opined on over the past eight years. Dan Tarullo shares their orientation, but these are not his issues.

  • On the right, Robert Kaplan and Patrick Harker replace hawks who were always certain, often wrong, and never open-minded–and are the products of failed searches: a job search is not supposed to choose a director of the search-consultant firm or the head of the search committee. Jeffrey Lacker and James Bullard and their staffs have been more wrong on monetary policy than the average FOMC member over the past eight years, but do not appear to have taken wrongness as a sign that their views of the economy might need a rethink. Esther George and Loretta Mester and their staffs feel the pain of a commercial banking sector in the current interest-rate environment, but I have never been convinced they understand how disastrous for commercial banks the medium- and long-term consequences of premature tightening and interest-rate liftoff would be.

  • In the neutral center, Jerome Powell does not appear to have views that differ from those of the committee as a whole. These are not Neel Kashkari’s issues: he is too good a bureaucrat to want to dissent from any consensus or near consensus on issues that are not his. And I simply do not have a read on Dennis Lockhart and his staff.

  • The active center is thus composed of Janet Yellen, Stanley Fischer, Bill Dudley, Eric Rosengren, and John Williams. Market risk and confusion is generated by uncertainty about their models of the economy, uncertainty about how they will revise their models as the data comes in, and uncertainty as to how they will react in committee, with six voices to their right calling for rapid interest-rate normalization and only three voices to their left worrying about asymmetric risks and policy traction.

When I listen to this center, one vibe I get is that the asymmetries are really not that great. Janet Yellen this March:

One must be careful, however, not to overstate the asymmetries affecting monetary policy at the moment. Even if the federal funds rate were to return to near zero, the FOMC would still have considerable scope to provide additional accommodation. In particular, we could use the approaches that we and other central banks successfully employed in the wake of the financial crisis to put additional downward pressure on long-term interest rates and so support the economy–specifically, forward guidance about the future path of the federal funds rate and increases in the size or duration of our holdings of long-term securities. While these tools may entail some risks and costs that do not apply to the federal funds rate, we used them effectively to strengthen the recovery from the Great Recession, and we would do so again if needed…

Another vibe I get is more-or-less what Bernanke said back in 2009:

The public’s understanding of the Federal Reserve’s commitment to price stability helps to anchor inflation expectations and enhances the effectiveness of monetary policy, thereby contributing to stability in both prices and economic activity…. A monetary policy strategy aimed at pushing up longer-run inflation expectations in theory… could reduce real interest rates and so stimulate spending and output. However, that theoretical argument ignores the risk that such a policy could cause the public to lose confidence in the central bank’s willingness to resist further upward shifts in inflation, and so undermine the effectiveness of monetary policy going forward. The anchoring of inflation expectations is a hard-won success that has been achieved over the course of three decades, and this stability cannot be taken for granted. Therefore, the Federal Reserve’s policy actions as well as its communications have been aimed at keeping inflation expectations firmly anchored…

I cannot help but be struck by the difference between what I see as the attitude of the current Federal Reserve, anxious not to do anything to endanger its “credibility”, and the Greenspan Fed of the late 1990s, which assumed that it had credibility and that because it had credibility it was free to experiment with policies that seemed likely to be optimal in the moment precisely because markets understood its long-term objective function and trusted it, and hence would not take short-run policy moves as indicative of long-run policy instability. There is a sense in which credibility is like a gold reserve: It is there to be drawn on and used in emergencies. The gold standard collapsed into the Great Depression in the 1930s in large part because both the Bank of France and the Federal Reserve believed that their gold reserves should never decline, but always either stay stable of increase.

And I cannot help but be struck by the inconsistency between the two vibes. The claim that we need not worry about asymmetry because we are willing to undertake radical policy experimentation fits very badly with the claim that we dare not rock the boat because the anchoring of inflation expectations on the upside is very fragile. Combine these with excessive confidence in the current model–with a tendency to make policy based on the center of the fan of projected outcomes with little consideration of how wide that fan actually is–and I find myself with much less confidence in today’s Fed than I, four years ago, thought I would have today.

The grand strategy of rising superpower management

Posted on by Brad DeLong

Munk School Trans-Pacific Partnership Conference: Geopolitics Panel

Revised and Extended: I could now talk about the risks of the Trans-Pacific Partnership. You have already heard a lot about the risks in the previous session here. You have heard about dispute resolution and about intellectual property. You have heard about instituting largely-untested dispute resolution procedures in such a way that they will be very difficult indeed to amend or suspend or replace or adjust in the future.

We all know very well the eurozone’s ongoing experience. We remember that the euro single currency is in its origins a geopolitical project. We remember the origins of the eurozone at Maastricht—the decision of the great and good of Europe that something needed to be done to bind Europe more closely together in the wake of the absorption into the Bundesrepublik of the German East and the collapse of the Soviet Empire. The creation of a single currency was clearly something.

But “we must do something; this is something; therefore we must do this” is a very dangerous syllogism to serve as a basis for any form of technocratic government. The inability of Europe to back itself out of and adjust away from unwise commitments made in the founding of the euro has not been a source of sunny happiness and light in Europe over the past now-eight years.

We all remember that, back in the late eighteenth century, the United States Constitution was at the very forefront of the most advanced intellectual thinking in its ultra-modern and ultra-aggressive innovation policy. The inclusion in the founding constitutional document itself of profound intellectual property protections—the power to by law reserve rights to make and use inventions and discoveries “for a term of years” in order to encourage the useful arts and sciences—was a bold step. But the bold step stopped before writing down the number of years for which rights were to be reserved. The term of intellectual property protection was left to the discretion of the legislature: either none whatsoever, or one day, or seven years, or as long as would encourage inventive and innovative activity—that was for the legislature to decide and revisit and revise as it wished.

We all remember how, back at the end of World War II, John Maynard Keynes and Harry Dexter White at Bretton Woods set about constructing their piece of the international economic institution. Keynes and White, however, did not hard-code policies and quantities into an effectively-unamendable treaty. Rather, they constructed agencies. And they then gave them discretion.

My last trip outside the United States before this trip to Toronto was a trip last December to the Rockefeller villa in Bellagio, Italy, on Lake Como—a trip to discuss Thomas Piketty’s Capital in the Twenty-First Century. Piketty writes about how it is the nature of capitalism that plutocrats and entrepreneurs invest not just in productive capital and beneficial technologies but in political influence in order to rejigger the system of property rights in order to acquire and protect economic rents. How much of what is in the TPP is part of that process rather than a good-faith technocratic effort to construct a better international trade, investment, innovation, and intellectual property-mobilization system for us frogs who live around the pond that is the Pacific Ocean?

All these considerations suggest that the TPP poses considerable risks as a leap into the untested dark. We do not know much about how these dispute and intellectual property provisions will actually work on the ground. And I have no idea how, in a decade, the negotiators of TPP anticipate backing-out of TPP’a mechanisms if on a decade they change their mind about their desirability.

Alternatively to the risks, I could now talk about the potential benefits of the TPP. We heard much less about those in the previous panel.

I could talk about how productivity depends on the division of labor, and the division of labor depends on the extent of the market, and the global trans-Pacific market is the largest we can find—or would, if it included China. I could talk about the benefits of economic integration both in enabling productivity-boosting specialization and incentivizing innovation. I could back up into political economy. I could quote James Madison on how the legislatures of Republican government are always prone to the disease of faction—rent-seeking by special interests—how one important cure for faction is extent of territory that reduces the relative power of each particular faction, and how a set of economic rules that spans an economy the size of the Pacific Ocean will be less vulnerable to rent-seeking by interests that would otherwise merely have to capture the legislature of one national government.

I could talk about how there is $4 trillion in present value in net static economic gains to the trans-Pacific economy from the TPP. And I could point out that those gains are static gains: they do not include the effects of any of the many invention, innovation, investment, spread of ideas, or political-economy virtuous circles that such a $4 trillion productivity boost would produce. I could conclude with observations about how static estimates tend to lowball our assessments of the gains—that the differences between more and less free-trade economies are vastly greater, and the share of those differences plausibly attributable to openness to world trade substantially greater, than estimates produced by the types of calculations that underpin the $4 trillion number.

I could then conclude with reflections on on model building and the estimation of the effects of trade deals. That conclusion would start with a reminiscence of a day in 1994: I was sitting in my office in the US Treasury, just before the start of the lame-duck session that was to pass the Uruguay Round. One of then-Treasury Secretary Lloyd Bentsen’s consiglieri walked into my office. He said: “Brad! Your task is to get the Economist to endorse the Uruguay round as a $1 trillion global tax cut! Then no Republican will dare oppose it!” And I found that Robert Cumby and I could indeed do it, and do it relatively straightforwardly.

But this is not a panel on the risks of TPP. This is not a panel on the benefits of TPP. This is not a panel on increasing-returns models and the assessment of trade deals. This is, indeed, not a panel on the political economy of trade policy in the U.S. in the 1990s.

This is a panel on geopolitics.

So let me talk about geopolitics.

And let me talk about the geopolitics of managing our relationship with the immense rising superpower across the great ocean to our west.

(1) Rising superpowers always believe they have the key to the riddle of history. They believe that history is about to reveal that their system is the best, and their elites are extremely unwilling to take even the best-intentioned advice from abroad on how to constitute their internal arrangements. They in fact believe that other countries should learn from them, and adopt their systems—even though, as rising superpowers, they do not or do not yet seek to impose their systems on others.

(2) Rising superpowers have a profound dislike of potentially-hostile bases near their borders, and a profound dislike of other powers’ interfering in what they think manifest destiny has decreed is their sphere of influence. They make their neighbors nervous.

(3) Rising superpowers almost always have territoria irridentia: regions that they believe ought to be under their control, and that only malign manipulations by other powers and historical accidents have left outside their current borders.

(4) Rising superpowers are overwhelmingly focused on making the world economy and society work for them and for their ruling classes.

And (5) managing your relationship with a rising superpower, doing as much as possible to align its and its elite’s core interests with yours, and then appeasing those core interests that cannot be so aligned, is your most important foreign-policy task and objective not just for one but for many generations.

I am, of course, speaking about Henry John Temple and [John Russell2, the third Viscount Palmerston and the first Earl Russell. Lord Palmerston and Lord John Russell were the British Whig mid-nineteenth century grandees who led the multi-generational pivot of the Whig, the Tory, and the subsequent Liberal administrations with respect to the British Victorian-era grand-strategic problem of how to deal with the rising superpower across the great ocean to the west that was the United States.

The mid-nineteenth century United States of America was a rising superpower, aggressively confident of its system. It was, in the words of John Quincy Adams: “the well-wisher to the freedom and independence of all… the champion and vindicator only of her own… [advancing the general cause] by the… sympathy of her example.” Great Britain had nothing to teach, the Americans thought, but rather should admire and learn.

What the rising superpower of the United States would not countenance was hostile bases, or perhaps I should say additional potentially-important hostile bases, anywhere near her borders. The Monroe Doctrine was evolved long before the United States could even begin to enforce it. And the United States certainly did not seek formal empire over Latin America. But it would react aggressively and with hostility to any European power’s intrusion into Latin America. And it would, eventually, seek, in Woodrow Wilson’s words, “to teach the South American republics to elect good men.”

And what rankled the United States in the mid-nineteenth century was the territoria irridentia of Canada—especially British Columbia: “54°40’ or fight!” was the American position on where the northern border of America’s claim to the Oregon Territory should be set. Plus there was the rest of Canada.

But the United States could be guided, and could be very comfortable in a British navy-protected free-trade political-economic order that allowed it to prosper and grow. And the interests of it and its elite could be brought into alignment, in at least major outlines, to the essential strategic interests of Imperial Britain.

In the 1840s, therefore, the Whig government of Lord Palmerston and Lord John Russell did a very unusual thing. The typical way for Victorian Britain to settle a dispute like that of the 1840s over the Oregon Territory would have been to adopt the negotiating strategy of sending a Canadian army and the British navy to burn down the negotiating counterparty’s capital, followed by a dictation of terms. Britain did not do that. It compromised: agreeing to an extension of the latitude line that had previously defined the southern border of Alberta, Saskatchewan, and Manitoba.

In the 1860s, therefore, the Whig government of the Earl Russell and Lord Palmerston did a very unusual thing. Usually Victorian Britain’s commitment to freedom of trade and the seas was lexicographically preferred to all other principles. One could argue over the rights and wrongs of addicting millions of China’s citizens to opiates through the drug trade. But interfering with commerce by seizing and destroying the property of British merchants—even property in the form of opiates—was beyond the pale, and cause for war. Fight first for free trade and protection of property, and deal with the other equities later. But that was not the line taken by the Whig government with respect to the cotton trade during the U.S. Civil War. The line was drawn not at interfering with British ships carrying cotton but at taking Confederate diplomats off of British ships.

And, thereafter, successive British governments, investors, noblemen and noblewomen, merchants, and manufacturers strove mightily to bind the United States to Britain. Material common economic interests and mutual economic interdependence grew. Conflicting political ideal interests fell away. Back in 1775 a core political interest of the United States-to-be was the conquest of Quebec, and Benedict Arnold’s army was sent north. Back in 1812—and for decades thereafter—a core political interest of the United States under James Madison was the conquest of Quebec, and fleets were duly built on the Great Lakes and then duly sunk by Canadian cannon. A very powerful ideal interest back then.

But what U.S. citizen today feels a pain at the thought that Toronto lies north of the U.S. border? I know I do. I look around this room. and it is painful to me that the Rt. Hon. Chrystia Freeland is Her Canadian Majesty’s Minister of International Trade in Ottawa. I wish she were not in Ottawa but in Washington. I wish she were the eloquent and influential Senator Chrystia Freeland (D-South-Central Ontario). U.S. politics would be much healthier were that the case. But I am unusual. And I digress…

The binding of the rising superpower back in the nineteenth century had many policy and non-policy parts, not all of them conscious or deliberate. but whether it was Cecil Rhodes’s offering free acculturation at Oxford to young members of the American elite, British investors entrusting the House of Morgan with their money, the Dukes of Marlborough offering their sons to daughters of plutocrats Consuelo Vanderbilt and Jenny Jerome, it was effective—so effective that just when Nazi Germany attacked the Franco-British army in 1940 the Prime Minister of Britain was a man who, as a natural-born citizen of the United States, was also perfectly well-qualified to be the American president.

This alignment of American interests and values to British took a long time—from 1850 and 1910: economic ties, cultural ties, plus political ties of mutual deference where strategic issues were at stake. But, as a result, by 1910 Americans by and large perceived Britain as their friend, and the British Empire as by and large a force for good in the world, and its interests as closely-aligned with theirs. This is in striking contrast to how Imperial Britain was perceived in 1850: as the cruel and corrupt ex-colonial power, the heartless aristocrats who had just starved a quarter of all Irishmen to death.

This mattered a lot. And this mattered a lot not just for the wave of prosperity produced up through 1913 by the coming of the Second Industrial Revolution and the First Great Globalization.

This mattered a lot for grand-geostrategic reasons as well. This meant that when Britain got into trouble in the twentieth century—as it did, first with Wilhelm II Hohenzollern and his ministers, second with Adolf Hitler, and third with Josef Stalin and his successors—it had wired aces as its hole cards in the poker game of seven-card stud that is international relations. The willingness of the United States to send Pershing and his army Over There, to risk war with and then to fight Hitler, and to move U.S. tanks from Ft. Hood, TX, to the Fulda Gap. These were all powerfully motivated by America’s affinity with Britain, its geostrategic causes, and its security. And these allowed Britain to punch far above its economic and military weight from 1917 on.

How does this apply to the TPP?

Just like Lord John Russell and Lord Palmerston in the 1840s and thereafter, we face a rising superpower across the ocean to our west. There is a good chance that China is now on the same path to world preeminence that America walked 130 years ago. Alexis de Tocqueville could project before the Civil War that the U.S. and Russia were likely to become twentieth-century superpowers. We can project today that at least one of India and China–perhaps both–will become late-twenty first century superpowers. We have an interest in building ties of affinity now.

My old Harvard professor Benjamin Friedman’s The Moral Consequences of Economic Growth argues that the wiring of human brains is such that the process of becoming richer relative to the reference point provided by our parents and their peers has a large number of beneficial moral as well as material effects. Modern societies are like bicycles: they move forward, or they fall over. Come 2047 and again in 2071 and in the years after 2075, the NATO powers are going to need China and China’s elite to believe and to have material and ideal interests broadly aligned with those of NATO. Thus there is nothing more dangerous for America’s future national security and nothing more destructive to America’s future prosperity than for Chinese schoolchildren to be taught in 2047 and 2071 and 2075 that America tried to keep the Chinese as poor as possible for as long as possible. There is little more dangerous to the NATO powers than a Chinese elite whose values and interests are not broadly consonant with those of America. And there is nothing more conducive to aligning the interests of China and its elite with those of the NATO powers than a China which is (a) growing richer, (b) increasingly entranced by the economic and cultural successes of North Atlantic civilization, (c) treated with respect, and (d) incentivized to strive for victory not in negative-sum military power but in positive-sum economic and technological games of international relations.

The big geostrategic danger, I think, is of a Wilhelmine China. Wilhelmine Germany was a rising economic superpower ruled by a class that had lost its social role. Faced with internal dissent, it contemplated busying giddy minds with foreign quarrels as a way to distract popular attention from internal problems and debates. Needless to say, this ended in total disaster for generations of Germans. But is China’s East China Sea Air Defense Identification Zone and its adventurism in the South China Sea an attempt to cheaply accomplish the primacy-of-internal-politics foreign-affairs strategy that Shakespeare’s Henry IV Lancaster recommended on his deathbed to his son the future Henry V? And, if so, how to lead China’s elite to the realization that, in the words of the computer in the movie “War Games”: “The way to win this game is not to play”?

This is the broadest context in which the North Atlantic—and Asian-Pacific Rim, and Australasian—discussion of the TPP ought to be set.

3360 words

Trekonomics Panel at New York Comic Con: The Annotated Transcript: The Honest Broker for the Week of September 28, 2015

Posted on by Brad DeLong

: Trekonomics Panel at New York Comic Con (October 11, 2015)

I have been playing with FOLD, and having fun. Here I take the transcript of the New York Comic Con “Trekonomics” panel created by the extremely-productive-on-long-airplane-flights Izabella Kaminska, add to it, and annotate it…

Hey! Why hasn’t the Financial Times paid for her to step back from Alphaville and turn her Beyond Scarcity series of weblog posts into a book?

FOLD is great fun–it scratches my itch that the web should have been built on hypercard. I have no idea what its chances of survival in the long run are–or what tools will exist for reading exported FOLD files either. The fact that Berkeley is not providing a great deal of assistance with migrating bspaces files elsewhere in comprehensible form as they shut bspace down is thus yet another reason to put the text of my version of the transcript down here, below the fold (ha, ha, ha):

Trekonomics ComicCon New York Panel (October 11, 2015): Transcript

So on an intercontinental flight when I couldn’t focus on anything having to do with my day job, I went back over Izabella Kaminska’s transcript of the Trekonomics panel:

Izabella Kaminska: FT Alphaville Transcript http://ftalphaville.ft.com/2015/10/12/2142030/you-see-money-doesnt-exist-in-the-24th-century/

listening to the tape myself, and seeing what I could add….

Welcome!

Felix Salmon: Hello! Welcome! This is the most exciting and most nerdy panel at ComicCon. So welcome! All of you! And you are in for a treat because we have some of the smartest and some of the most awesome people on the planet to talk about the intersection of two things that most people don’t think about: Star Trek and economics.

It’s psychology, though. Star Trek is all about transporters and warp drives and cool bits of technology. But in fact it’s about the most incredibly mind-blowing stuff. And, in Star Trek, that is the economics.

Very quickly, for few people on this panel require any sort of introduction. We have:

  • Manu Saadia. Manu wrote the book called Trekonomics from Inkshares. Preorder your copy. It is a fantastic, fantastic book.
  • Chris Black, who actually wrote for “Star Trek: Enterprise”.
  • Annalee Newitz of Gizmodo and io9, who I believe Star Trek made a Marxist.
  • Paul Krugman, the one and only.
  • Brad DeLong, the world’s greatest economics blogger.

Trekonomics the Book

Felix Salmon: I think there is no one better than Manu Saadia to try to explain what all of us have in common–what we are going to talk about here.

Manu Saadia: The project for the book–it started out drinking beer with Chris. We were discussing whether there is a book about Star Trek economics because there is a book about everything to do with Star Trek: Physics of Star Trek. Ethics of Star Trek. Holodecks of Star Trek. How about the economics? And Chris said: “Well, you should write it.”

In a nutshell, the book tries to take Star Trek seriously. Usually when watching Star Trek we say: “Oh! How would that work?” and we get into this engineering mindset–the technologies, the gizmos. In the book I’ve tried to step out of that particular mindset, and tried to actually describe how it works. And I’ve discovered some rather surprising things. The biggest thing, I believe, that I got out of researching the book and writing it, is that the post scarcity in Star Trek is not driven by technology but a policy choice. And this is where having such a stellar economic panel to discuss this comes in.

A Post-Scarcity Economy

Felix Salmon: What is post scarcity?

Brad DeLong: 400 years ago, in almost all human societies, being rich relative to your neighbours mattered a lot. If you were poor, especially poor and female, chances were you weren’t getting the calories you needed to reliably ovulate. Chances were your children weren’t getting the nutrients that they needed for their immune systems to be protected against the common cold.

400 years ago the great bulk of humanity lived lives that were nasty, brutish, short. They were hungry pretty much all the time. And when they weren’t hungry they were wet, because the roof leaked. And when they weren’t wet they were probably cold, because damp-proofing hadn’t been invented.

Now we, here, in the prosperous middle class in the North Atlantic are moving into another society.

Gene Roddenberry tried to paint our future by saying: “Wait a minute! What’s going to happen in three centuries? In three centuries we are going to have replicators. Anything material, gastronomic that we want–indeed, anything experiential with the holo-deck we want–we are going to have. What kinds of people will we be then and how will we live?

We are quite far on that transition already. Whenever I go, say, to the middle of the country, I find myself terrified: I’m rarely the fattest person in the room. That means, right now, that here in the United States what used to be the principle occupation of the human race–farming–is at satiation. We are down to 1 per cent of our labour force growing essential nutrients. (Time spent growing eggplants which are harvested when they are four-inches isn’t really spent growing food. That’s art.) We have about three times as many people in our medical and health-support professions working to try and offset the effects of excessive calories as we do growing calories and nutrients. Thus we are now rapidly approaching a post-scarcity economy.

And it is not just for food. If you go and look at containers coming in from China, we are approaching it with respect to things physically-made via manufacturing processes as well. And that’s one of the things Star Trek is about.

Are Robots Free? Is the Federation an Exploitative Colonial Empire?

Annalee Newitz: One of things I find interesting about Star Trek is that it does try to imagine a post-scarcity economy, where there is no money. People don’t work because they have to, but because they want to. However, there are all these hints that we get — especially in Star Trek the next generation, my favourite series — that there’s a lot of ways that the post-scarcity economy is supported by other types of economies. Economies that we might consider to be part of the past.

That’s why one of the most interesting episodes to think about is “Measure of a Man”, from the second season of Next Generation, where the question comes up whether Data, our favourite android with a positronic brain, is actually his own person or is in fact property. This is a question which comes up again in Voyager when the holographic doctor, who is unquestionably an autonomous human being, is also considered property. He writes basically the “Communist Manifesto”, and encourages all his fellow holograms which are being horribly oppressed and enslaved to have a revolution.

This is going on at the periphery of Star Trek all the time. Any time you get off the Enterprise, the wonderful utopian Enterprise, which did in fact inspire me to become a Marxist as a student–because I did believe “wow, we really could get to a world which was better than this one”–we are constantly being reminded that there may be other systems of labour, like slavery, or things that are closer to wage-slavery, which are supporting this wonderful life that the Federation enjoys, and which Picard and team enjoy on their really clean ship.

So that’s one of the things about Star Trek: it allows us to have that kind thought experiment of what would it be like if we did get past capitalism? Or if we did have a system of capitalism which was more restrained by government and regulation–whatever the hell the Federation is, the government, the military, the UN? But at the same time, we are forced to recognise that there are these differences in what people have access to, and hence the labour they perform. And some of them are being treated like property. Some of them are chattel. So that’s always the good part of the thought experiment.

What Were the Writers Thinking?

Felix Salmon: Is that what the writers were thinking about? Or how did people come up with these interpretations.

Chris Black: Yes. Well. It’s funny. We didn’t think about a lot of that stuff consciously. And I worked on Enterprise, so it was at the end of the long-run of the franchise. That universe had been well established. To hear this conversation, to hear this book has been written so thoughtfully and profoundly is really gratifying. There were larger issues that came into play than people consciously thought about.

The practical reality of trying within the production schedule of producing 24 hours of network television a year. You were constantly scrambling to get good entertaining scripts written to place in front of the camera. We were, first and foremost, trying to write what we thought were thoughtful exciting adventure stories for Captain Archer and the crew. So we weren’t consciously thinking about how these characters were being motivated by the needs of a post-scarcity economy. But, because that universe had already been established, we all wanted to be respectful of that universe. We were all very grateful and privileged to be invited into this universe.

So we took the responsibility of keeping Gene Roddenberry’s vision intact and moving it forward. We took that very very seriously. We were very conscious of not violating those rules. We were very conscious of doing our best, not always succeeding, in keeping those characters in the world that had been established.

But at the same time no.

This is a very long-winded answer to the question, but the answer is no.

Are the Catering Carts of Hephaestos Citizens?

Felix Salmon: Paul, how do you analyze the Star Trek universe in an economic perspective? Does economics even make sense in conditions of post-scarcity?

Paul Krugman: I am a bit of a ringer here. I watched the original series when it came out. I watched a fair amount of Next Generation. Then I dropped off afterwards. I’m an Asimov guy more than a Star Trek guy. What can I say?

Do we accept the premise of a post-scarcity society? That’s a boring point, which then leads to a more interesting point. First of all, there’s a long history of people saying: “We’re much richer than our ancestors were, and if you go just a little bit further you’ll get to the point where there won’t be an ‘economic question’–post scarcity.” John Maynard Keynes wrote an essay about that saying that if the world got as rich as it is right now, people would no longer be interested in money. John Kenneth Galbraith wrote in his New Industrial State that the standard of living of the average American worker is already so high that it’s only propaganda that makes them want more. To this, Robert Solow responded: “Well, it doesn’t look that high to me. But maybe things look different from Gstaad, where Galbraith vacations.”

In Star Trek they have a replicator that can make any thing you want. But it can make any thing you want. Even now, we spend only 30% of our income on goods. We spend the rest–70%–services. Replicators won’t help with that. We have essentially no farmers. We have fewer and fewer manufacturing workers. But we have lots and lots of nurses.

Here is the more interesting point: We can imagine a world where all services are provided as well. We have robots or something to do the services. But in order to do the full range of stuff we want they have to be very intelligent. In which case, aren’t those then people? The actual issue is: A world where you have servitors of some kind who will give you everything you want is a world where it’s very hard to tell the difference between servitors and slaves. So I think there’s–arguably–a dark side to the abundance theory.

The other thing to say is this: There’s this great show where Jean-Luc Picard lectures a man from the 21st century, saying: “We’ve moved to a world where people don’t seek money they seek reputation and honour.” Well Brad and I live in the academic world, where pretty much that’s how it works….

Status-Based Meritocracy and Its Discontents

Felix Salmon: That’s absolutely true. So the post-scarcity economy is not utopian. It’s actually not that pleasant–this meritocracy of the Federation?

Manu Saadia: It’s horrible.

It’s not horrible horrible. But I always thought Star Trek looked like a weird cross between the MIT Faculty Club and the Red Cross. It’s very humanitarian. But at the same time I know for a fact–the professors here know what I’m talking about–that the world of meritocracy and academia is extremely harsh and cutthroat. You’re on top one day, but you’re always afraid and watching your back, because someone else is going to come and unseat you.

So what you see on the show, in the Next Generation, is really the 1 per cent. Those who are the ultra-achievers in that society. You barely see the other side of it–the 99% who lead lives of comfort and abundance, but not necessarily the most interesting. So it seems to me to be very harsh.

As a kid watching the Next Generation, I always identified very much with Wesley Crusher. He lived in a world where he had to achieve. He had to become the person that the adults wanted him to become. He actually didn’t want to. That’s the part that’s hard. You’re driven to achieve. But it’s not at all clear you will achieve. Which is the problem of a meritocratic world. It’s not all fun and games.

Scripting Drama with a Harmonious Starship Crew

Felix Salmon: On the one hand Star Trek is that rarest of beasts–utopian science fiction. On the other hand, it’s meritocratic and people work very hard for reputation. It’s very hard for a meritocratic world to be utopian. A meritocracy is a horrible place to live in. So what about the 99% of people in the Federation who live in places like earth–are they happy?

Chris Black: Are they happy? I don’t know. I look at this through the lens of the show. What people wanted to see, and what we focused on, was the adventures of the people on the ship. This doesn’t exactly answer your question, but in terms of the meritocracy of it all you are seeing people at the top of their game. This is the 1/1000th of the 1 per cent who get to crew the first experimental warp 5 spaceship and get to go to out of space. Look at Apollo: 400,000 people worked on that program. The stories you hear again and again are the stories of the dozen guys who went to the moon.

That was the mandate of the show.

The funny thing was that there was an inherent conflict in trying to write the show. You had a group of people–Starfleet officers–and this was a mandate given to ud–that these people have a singular purpose in mind. They get along. They don’t get into petty conflicts and arguments.

That immediately took 90% of the drama out of the show.

Everything had to come from an external source. And you didn’t exactly want every threat, every week, week in and week out, to be about some hostile, greedy, or malicious alien race. What you wanted was for the drama to come from within the ship–from conflict between these characters that didn’t always get along.

Look at the original series. Spock and McCoy didn’t get along at all. McCoy would sometimes say the most outrageous racist things to Spock. There was mutual respect and friendship at the end of the day. But there was also amazing conflict. And that was what made those ST:TOS shows so amazing and so entertaining to watch.

We were constantly trying to balance that storytelling–how to get these characters, this crew, on this ship, in conflict with each other, and so fight this mandate from above. I don’t know how many times I sat in the producer’s office and heard him say: “They’re Starfleet officers, they get along.” And I would say: “Then there’s no scene!”

Manu Saadia: There is a brawl between Star Fleet officers on “Deep Space 9”. But you don’t see the brawl–you just see the result of the brawl.

Chris Black: What I was always trying to fall back on was that “Enterprise” was hundreds of years before ST:TOS. So people weren’t getting along yet.

Scarcity: Survival vs. Status

Felix Salmon: Brad, you are an academic in a meritocratic world. Is there anything utopian about meritocracy? 2016 is not the only anniversary of “Star Trek”, but also the 500th anniversary of Utopia by Thomas More. Are we as far from utopia today as we were 500 years ago? Or is it just this thing–that there’s always going to be this conflict, as Paul was implying. Or is there something different now? Thanks to Star Trek, can there be policy choices which mean we can get through it?

Brad DeLong: First let me put in a plug for hyper-intellectualised prosperous academic meritocracy.

The status insult of having Larry Summers look at me across the table at the Treasury in early 1995 and said: “How did you get what demand for pesos would be after NAFTA so wrong, Brad?” I think that was my career nadir. It was the worst analysis I have ever conducted as an economist. That status insult burns.

But that burns considerably less than watching your children starve to death because you don’t have the resources to feed them.

We are problem-solving, puzzle-solving, advantage-grabbing, status-seeking mammals. Fortunately, we also very much like to get involved in gift-exchange relationships with each other. And so we can all hang together, mostly, in a 7.2bn-person society.

We will find puzzles to solve. We will find and make sources of stresses and conflict and striving. But the sharp point of what we’re most worried about–that is is very different in a post-scarcity society.

The plutocrats of New York are more interested right now in who happens to have the best apartment with a better view of Central Park than in where the next meal is going to come from. That is a considerable gain.

We will make our status differences important and powerful to us psychologically, but we should be able to move beyond that. As Adam Smith wrote, the interesting thing about humanity and the strivers is: The strivers work like dogs for their entire life, so that when they are retired they can sit in the sun–and be happy and comfortable in the parks of central London. But they could have done that anyway in their 20s. They could have sat in the sun then, and they would have got more fun out of it.

What Do the Simple Folk Do?

Felix Salmon: Are we always going to be competing for positional goods? Or could a post-scarcity world of abundant goods and services and no money somehow change human psychology so that this constant search for positional goods just evaporates?

Paul Krugman: When listening to Brad, I think of the old line about how fights in academia are so bitter because the stakes are so small. And the stakes are small–whether you are considered to be the 3rd best or the 15th best international-trade economist in the world is, aside from ego, worth nothing at all. And that is a good thing. And that status-competition is always going to be for ego-status only in a really restricted universe.

The people who are engaged in ferocious status competition–these are the people that are going to be featured on a TV show because it’s interesting, but the 99.9% of the Federation are people who are doing other things. What is that exactly? I’m not sure it makes good drama.

It’s kind of interesting to ask, however: What exactly would they be doing? Where Picard explains what motivates us, that’s actually what motivates people like him. And there are very few people like him. So what is the rest of the civilised universe doing? I suspect that they are enjoying life–probably doing cosplay and things. That would probably be an interesting thing to explore.

Colonized by Vulcans

Brad DeLong: But even cosplay would be a source of status. Have you seen the costumes Annalee Newitz and her minions have been posting from here?

Annalee Newitz: And I’m cosplaying as an economist right now.

One of the things that’s really interesting about what you were raising, Paul ,with what happens with ordinary people, is that there’s this really funny story about the timeline in Star Trek. It is established in the Next Generation shows. What happens is that earth is plunged into a war–maybe it’s the Eugenics Wars, maybe it is something else. In the first episode of next generation Q torments the crew by saying: “We’re going to go back in time” to the world of our future, which is a medieval world, ruled by religious creepozoids. There is this cyclical view of history. This highly-industrial organisation has fallen back to a medieval state. They’re living in extreme poverty. There’s disease and famine. It is evil. And, then, some white dude figures out how to build a rocketship by the skin of his teeth, erupting out of this medieval world of scarcity–not coming out of a hyper-industrial society.

And then the Vulcans arrive.

So I am left wondering: What really happens to humans as we transition to this post-scarcity world? Basically we are colonised by Vulcans. So really it’s not that humanity evolves, it’s basically we’re colonised.

Brad DeLong: It’s not colonisation, we’re the Vulcans’ pets.

Annalee Newitz: That’s colonisation, buddy.

Felix Salmon: I was colonised by my cat a long time ago.

Are We the Vulcans? Who Are the Vulcans?

Manu Saadia: I always took the more optimistic view that we are the Vulcans, or we have to become the Vulcans. There is something about humanity that has to be changed.

If we are going to be colonised, I’d rather be colonised by Vulcans anyway.

Brad DeLong: Vulcans are not idealized, but rather extreme versions of Vulcans in both directions. Leonard Nimoy always said that he played Spock not as a being without emotions, but rather as a being whose emotions were so terribly and completely strong that he could not give into them at all–could not react emotionally in any situation, because then after the mood swing had passed he would greatly regret whatever he had done. The Vulcans were a civilisation desperately trying to figure out how to behave in a civilised manner.

Gorillas–you know you cannot keep more than one adult male gorilla in a zoo enclosure. With chimpanzees in zoos–admittedly a very artificial environment–you really cannot keep more than ten adult males in an enclosure. We humans are doing somewhat better. I think Roddenberry’s point in creating the Vulcans–creating the character of Spock–was that we are not doing well enough.

Felix Salmon: Chris?

Chris Black: I think the interesting thing about Spock was that he was only half-Vulcan. You had the best of both worlds, this character in conflict. This sense of what humans wanted to be, and what they were fighting against being.

We would cast Vulcan characters on “Enterprise.” The actors would come in, and they often-time would read the part as very robotic. And we kept having to give them the note that this character is not devoid of emotions, this character has emotions but really needs to keep them under control, needs to keep them in check. This was a somewhat subtle distinction, but we found it a very important distinction when actors would try to play Vulcan characters.

Felix Salmon: Is that utopian or not? This world where we have emotions but we are constantly trying to keep them tacked down and never showing them–that doesn’t sound very utopian to me.

Brad DeLong: It does have a certain appeal to pubescents, especially perhaps males, trying to figure out what is happening to them…

Chris Black: Conflict is the source of drama, and Spock was continually in conflict with not just the other characters on the ship, but most of all with himself. That was what made him so interesting.

Brad DeLong: God! Leonard Nimoy was great!

Paul Krugman: People have an amazing ability to be unhappy. That is most of why utopias do not work if you try to envision them. You imagine that if only you could get people to accept things and take glory in the goodness of everyday life. Some people will do that. But not all.

Looking at utopias in our imagination, there are not that many. There are a few. Ursula K. LeGuin’s The Dispossessed comes to mind. But even there there is a lot of hidden hierarchy.

The point is that if you look at utopia–the problem isn’t scarcity, it’s people.

Manu Saadia: The Dispossessed–it’s horrible. It really is horrible. The pettiness and the conflicts…

Brad DeLong: She was a U.C. Berkeley faculty brat. I’ve often wondered if PDC is California Hall…

Iain M. Banks’s Culture Novels

Annalee Newitz: The Iain M Banks Culture novels are another example of a post-scarcity world. In them, we see a lot of the same problems we see in Star Trek. There are these beautiful ships. But at the edges, there’s slavery and imperialism and racism. People are constantly struggling with those issues–even though they can transcend them at any time.

Paul Krugman: Iain M Banks–I hope lots of you have read them. If you have not, you really should. The Culture novels are amazing. Everyone should read them. And in some ways he does take on these issues.

Brad DeLong: Do not read Use of Weapons first. Do not read Use of Weapons first. It should only be read by a trained professional…

Paul Krugman: Use of Weapons is extraordinary.

All of the Culture novels are really concerned with the fringe of the fringe of the fringe. Special Circumstances is that the one part of society which isn’t functioning like the rest. It does what Star Trek does–it has someone who is recruited from outside who gets to wander around one of these ships and gets to see what life is like for ordinary people. And they do have a solution to the problems. But the solution to the problem of limitless abundance without slavery is that there are in fact these super-intelligent Minds. They supply all the needs for the mere organic guys by basically–it barely requires a finger nail’s worth of attention. They can give you everything you need without them worrying about it. And that solves it.

People do seem to be somewhat more balanced in that kind of environment than they probably would be in practice.

Annalee Newitz: But also everyone’s a cyborg. They all have neural nets.

Paul Krugman: And they have built-in drug-dispensing mechanisms in their brains–I could use that.

Annalee Newitz: They can restrain their emotions.

Isaac Asimov’s Robots, Earthlings, and Spacers

Manu Saadia: To understand Star Trek’s economics you need to go back to Asimov. It’s very much very directly connected–not so much the Foundation part but the robot stories. If you read The Robots of Dawn and the later novels, Asimov describes a society beyond earth where robots take care of everything. You have these people living on their gigantic estates. They are enjoying life and not doing much.

Paul Krugman: And they’re completely neurotic screwed up people. The books are all about luxury and isolation.

Annalee Newitz: It’s also made the robots moronic too. The robots are so tightly constrained by the rules of submission imposed on them by the Three Laws.

Manu Saadia: I believe Asimov wanted to make the case for humanity. The people on earth are hard-scrabble. They are counterposed to the dissolute spacers who live with every comfort and do not accomplish much. Asimov was this Russian immigrant. There is something strong about the morality of hard work.

Paul Krugman: It is so obvious that earth vs. spacers is Brooklyn vs. Scarsdale.

Manu Saadia: The structure of the society of the spacers is, if you look at the Federation, especially in the Next Generation, very close. It seems to me that this is the logical thing: you have robots that take care of almost everything, and people are kind of floating around not doing very much. Except for the sociopaths who want to become Starfleet officers.

Felix Salmon: But they do not become like the blobs from Wall-E. That is what many people think would happen to us if we could have anything we wanted. We would just become fat blobs on Lazyboys. There are not any fat blobs on Lazyboys in Star Trek–at least not on the Enterprise.

Regency Romances

Brad DeLong: What of those who are not the maladjusted people who become Star Trek officers, who go off and put themselves in real danger by facing challenges at the fringe of the society as they compete for status?

If we want to be looking at what post-scarcity life is really like, perhaps we should be looking not at Star Trek but at Regency Romances. The Regency aristocracy is a historical previous culture of material abundance where people neverthless find very important and interesting things for themselves to do. There is no serious material conflict or scarcity in a Regency Romance novel.

You could say there are three standard focuses of narrative conflict: fear of violent death, scarcity of resources, and who is going to sleep with whom. In a society of abundance, like in a Regency novel, who is going to sleep with whom becomes the focus of the plot. Plus there is a secondary focus: the demonstration of human excellence, via proper appreciation and display of fashion.

Maybe that is what all the people in the Federation who are not Star Trek officers are doing.

Paul Krugman: Regency Romance society is cosplay, just a slightly different version.

Annalee Newitz: But don’t you think it’s possible, Brad, that what most ordinary people are doing is living on Bajor. After having been screwed over by the Cardassians, they are now being screwed over again by the Federation. Maybe that’s more what the rest of the society is like?

Brad DeLong: Add in Bajor, and what we have is no longer Roddenberry’s dream of a society of abundance.

Instead, Federation-plus-Bajor is a metaphor for the world we actually have today. That is the world in which we have the upper-middle class of America, plus others–700mn approaching post-scarcity. But the rest–out of our 7.2bn people living today, we have:

  • 2bn of us lead lives which are, frankly, indistinguishable or barely distinguishable from the lives of our pre-industrial ancestors.
  • 4.5bn of us live lives that look to us here like the standard of living people had in the 1970s and 1950s, 1920s and 1880s. But on all of their TVs and smartphones they can see us 700 mn of the Lucky 10%.

I got off the plane today from Lima, Peru. A wonderful city, marvelous culture, lots and lots of people–all of them working at least as hard as anyone in New York. Only about 1/8th as rich. We may be approaching material abundance in terms of manufactured goods, and calories and nutrients.

They are very far.

We Have a Short Amount of Time for Questions

Felix Salmon: We have a short amount of time for questions. I give the first question to Izabella Kaminska because I can.

Brad DeLong: Abuse of power via social networks in a post-scarcity society!

Annalee Newitz: This is a meritocracy, right?

Izabella Kaminska: In the 24th century, will the Federal Reserve have raised interest rates?

Brad DeLong: Social credit! Quantitative easing for the people! Monetary policy via direct crediting of seigniorage to everyone’s bank account, in equal shares!

Izabella Kaminska: My real question: Perhaps we are moving into something we could call a post-scarcity world–or at least post-scarcity of material goods. If not Star Trek, in the Q Continuum. In that world, how do you account for positive forward interest rates?

Brad Delong: The Q Continuum–where they can make anything they want, even entire universes, by exerting their minds. What’s the Wicksellian natural rate of interest?

Paul Krugman: I think that in a world without prices of any kind, you do not have interest rates. It’s the reward for accepting the delay of your gratification. But everyone is totally gratified.

Izabella Kaminska: So there just is no interest rate?

Paul Krugman: That’s right. But I do not believe that ever happens. No matter how productive we get, there is always something else that people are going to want.

Brad DeLong: And how hard are you working so you can have an apartment on rather than just off Riverside Drive?

Paul Krugman: I actually do have an apartment on Riverside Drive–but the windows look east rather than west.

[Thereafter the file is inaudible…]

A Reader’s Guide to the Secular Stagnation Debate: The Honest Broker for the Week of October 12, 2015

Posted on by Brad DeLong

The very sharp and energetic Peter Passell, who runs the Milken Institute Review these days, commissioned me to write a reader’s guide to the secular stagnation debate. I set it up as a four-corner cage match–Bernanke, Rogoff, Krugman, and Summers–and I am proud of it. (But I have to offer apologies to those–Koo, Blanchard, Feldstein come most immediately to mind, but there are others–who have their own serious positions that are not completely and satisfactorily understood as linear combinations of the four I chose to be my basis vectors.) It is out:

J. Bradford DeLong (2015): The Scary Debate Over Secular Stagnation, Milken Institute Review 2015:IV (October) pp. 34-51:

Bernanke… says we have entered an age of a “global savings glut.”… Rogoff… points to the emergence of global “debt supercycles.”… Krugman warns of the return of “Depression economics.” And… Summers calls for broad structural shifts in government policy to deal with “secular stagnation.” All… are expecting a future that will be very different than the second half of the 20th century, or even the so-far, not-so-good third millennium. But they… [differ on] optimism or pessimism… [and on whether] cautious repairs or an abrupt break with policy as usual [are needed. This] is, I believe, the most important policy-relevant debate in economics since John Maynard Keynes’s debate with himself… which transformed him from a monetarist to the apostle of active fiscal policy.

I think Summers is largely right, but then, I would, since I have been losing arguments with him since I was 20. What’s needed here, though, is not a referee’s decision, but a guide to the fight…

Briefly:

  • Bernanke sees anomalies in portfolio decisions by emerging-market central banks and plutocrats that have generated a global savings glut in the relatively short-run.
  • Rogoff sees overleverage as having created a medium-run period of stagnation that requires active debt-liquidation policies to shorten it.
  • Krugman sees the end of the era of moderate inflation as bringing about a return to “Keynesian” economic structures that require activist fiscal policy.
  • Summers sees deeper problems that call for more in the way of government’s acting as investment-spender, risk-bearer, safe asset-supplier, and bubble-preventer of last resort, and thus extend its proper role beyond that of Keynesian demand-management policies toward what Keynes called a “comprehensive socialization of investment”.

All are serious and live possibilities…