Not Only No Wage But Minimal Investment Boosts from Trump-McConnell-Ryan…

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The so brilliant as to be goddess-like Chye-Ching Huang gets this one, I think, wrong: In response to: Jared Bernstein: “For the [Trump-McConnell-Ryan tax] cuts to have more than near-term growth impacts, they’d have to boost biz investment a lot more than we’ve seen so far, though these are early days. Both WSJ and Slate show “muted” investment results…” She writes: Chye-Ching Huang: “My concern is the frame that “growth’ is what we should be focused on. If what we care about is how workers are doing—and GOP lawmakers claimed the 2017 tax law would help workers—we should focus on the metric that directly shows how they’re doing! If the claimed point of tax cuts for corporations was to raise wages, we should first and foremost look at real wage rates to assess the results…

But those economists shilling for Trump-McConnell-Ryan committed not just to wage increases, but to a particular mechanism for wage increases: (1) U.S. a small open economy -> (2) tax cuts produce a huge jump in investment -> (3) faster growth -> (4) factor shares revert -> (5) higher wages.

To see whether this argument makes sense we can—and should—look at this causal mechanism at every one of its five steps.

Simply focusing on (5) alone leaves vulnerability to the parry of “this is a long-run process”. And & being able to say a decade hence that it did not work is of little use in the policy debate now. Better, I think, to say everything:

  1. U.S not a small open economy
  2. No sign of any jump in investment
  3. Growth boost small and driven by Keynesian demand rather than by (nonexistent) supply-side investment jump
  4. No sign of factor-share reversion
  5. No sign of even short-term wage boost

Admittedly, making an argument that complex is far beyond the attention span of your standard NYT insider-access journalist. But do we really have any alternative other than to play our position and make the accurate and correct argument? Just saying “no wage growth” is met with parry “it will come in the long run” and being able to say “we told you so” a decade hence is of limited use in today’s policy debate, no?



#shouldread #publicfinance #equitablegrowth #orangehairedbaboons #economicsgonewrong #playingourposition #highlighted #ontwitter 

Barry Ritholtz: What Minimum-Wage Foes Got Wrong About Seattle

Barry Ritholtz What Minimum Wage Foes Got Wrong About Seattle

Barry Ritholtz: What Minimum-Wage Foes Got Wrong About Seattle: “An initial study said the increase to $15 would cost workers jobs and hours. That didn’t happen…. The increase was an ‘economic death wish’ that was going to tank the expansion and kill jobs, according to the sages at conservative think tanks. The warnings were as unambiguous as they were specific…

…Alas, if only the critics has done their homework first, instead of using scare tactics. Much of the hand-wringing was based upon a deeply flawed University of Washington study… exclud[ing] large multistate businesses with more than one location… such as McDonald’s and other fast-food chains, or Wal-Mart and other major retailers…. There were two other glaring defects…. The first is that its findings contradicted the vast majority research on minimum wages…. Second, there potentially is a problem with having a lead researcher—economist Jacob Vigdor, whose affiliations among others include the right-leaning Manhattan Institute—whose impartiality is open to question. I don’t wish to suggest people cannot have opinions, but researchers need to be open-minded….

We can’t emphasize enough just how wrong many of the initial analyses of the wage increase have been. Cognitive dissonance is a powerful force. If your ideology includes the belief that all government attempts at raising living standards are doomed, then of course you are going to be against mandated minimum wages. The problem occurs when these folks are confronted by facts that are at odds with their belief systems. The options are to either rethink your ideology or alternatively ignore the data. Most participants seem to have done the latter…

#shouldread #minimumwage #labormarket #seattle #equitablegrowth 

Fairly Recently: Must- and Should-Reads, and Writings… (December 28b, 2018)


  1. Comment of the Day: Cervantes: There’s No Process: “Individual-1 told Mnuchin to do something to talk up the stock market and Mnuchin thinks this will have that effect. So he’s an idiot. That’s basically all there is to it. Possibly Individual 1 suggested these specific steps, possibly they’re Mnuchin’s idea. Doesn’t matter since they’re both idiots anyway…

  1. Vastly superior to Tom Holland—and vastly, vastly superior to the likes of Niall Ferguson—on the decline and fall of the Roman Republic: Edward J. Watts: Mortal Republic: How Rome Fell into Tyranny “If the early and middle centuries of Rome’s republic show how effective this system could be, the last century of the Roman Republic reveals the tremendous dangers that result when political leaders cynically misuse these consensus-building mechanisms to obstruct a republic’s functions. Like politicians in modern republics, Romans could use vetoes to block votes on laws, they could claim the presence of unfavorable religious conditions to annul votes they disliked, and they could deploy other parliamentary tools to slow down or shut down the political process if it seemed to be moving too quickly toward an outcome they disliked… #books #history

  2. Hyman Minsky: [Stabilizing an Unstable Economy](” title=”hyman-minsky-stabilizing-an-unstable-economy-2008.pdf) #books #finance #macro

  3. Aline Bütikofer, Sissel Jensen, and Kjell G. Salvanes: The Role of Parenthood on the Gender Gap Among Top Earners: “A recent literature argues that a ‘motherhood penalty’ is a main contributor to the persistent gender wage gap in the upper part of the earnings distribution. Using Norwegian registry data, this column studies the effect of parenthood on the careers of high-achieving women relative to high-achieving men in a set of high-earning professions. It finds that the child earnings penalty is substantially larger for mothers with an MBA or law degree than for mothers with a STEM or medical degree… #gender #equitablegrowth

  4. The Committee for a Responsible Federal Budget is only one of many organizations that bought the snakeoil from Paul Ryan. We have a significantly less responsible federal budget as a consequence: Michael Grunwalde: Paul Ryan’s Legacy of Red Ink: “The speaker of the House’s reputation as a budget hawk has somehow survived his actual record… #orangehairedbaboons

  5. Trump Is a Bully, But He Is Your Bully—He is going to bully corporations into giving you good jobs…

  6. Paul Krugman: “Disputes over trade can seem gentlemanly because economists, at least, mostly talk sense. Disputes over macroeconomic policy can’t, because they don’t. Sad!

  7. Menzie Chin: On Recession: Hassett, Prediction Markets, and Markets: “Council of Economic Advisers Kevin Hassett said he is willing to bet, based on the economy and indicators, that there will not be a recession any time soon…. My first observation is  that Hassett’s statement regarding current growth rates surprising. Atlanta Fed GDPNow does indicate 2.9% growth SAAR in 2018Q4 (12/18), but as of 12/14 the New York Fed’s nowcast indicates 2.42% growth, while the St. Louis Fed nowcast is 2.65%. Macroeconomic Advisers today nowcasts 2.6%, latest Goldman Sachs is 2.7% (12/17). I don’t know of any nowcasts for over 3% for 2018Q4 Q/Q SAAR…. The second observation is that the prediction market’s odds on a recession over the next year is not as low as suggested by Hassett’s comments…. The current probability of recession using the term spread is in the 15% range, a bit less than the 30% or so from the prediction markets…

  8. Pseudoerasmus: Labour repression & the Indo-Japanese divergence: “I illustrate the relevance of labour relations to economic development through the contrasting fortunes of India’s and Japan’s cotton textile industries in the interwar period, with some glimpses of Lancashire, the USA, interwar Shanghai, etc….

  9. John Maynard Keynes: Essays in Persuasion

  10. John Maynard Keynes: Essays in Biography

  11. John Steinbeck: The 1930s: A Primer: “Except for the field organizers of strikes, who were pretty tough monkeys and devoted, most of the so-called Communists I met were middle-class, middle-aged people playing a game of dreams. I remember a woman in easy circumstances saying to another even more affluent: “After the revolution even we will have more, won’t we, dear?” Then there was another lover of proletarians who used to raise hell with Sunday picnickers on her property. I guess the trouble was that we didn’t have any self-admitted proletarians. Everyone was a temporarily embarrassed capitalist. Maybe the Communists so closely questioned by investigation committees were a danger to America, but the ones I knew–at least they claimed to be Communists–couldn’t have disrupted a Sunday-school picnic. Besides they were too busy fighting among themselves…

  12. Robert Feenstra, Hong Ma, Akira Sasahara, Yuan Xu: Reconsidering the ‘China Shock’ in Trade: “While previous studies focus on the job-reducing effect of the surging imports from China or other low-wage countries on the US employment, the job-creating effect of exports has receive much less attention. This column employs two approaches—an instrumental variable regression analysis and a global input-output approach—to argue that the negative effects of import competition on US employment are largely balanced out once the country’s job-creating export expansion is taken into account….

  13. This by the very sharp Henry Farrell seems to me to be largely wrong. Farrell thinks that parties, plural, became “unwilling to compete for voters across tricky political issues”. I see it as right-wing party, singular, taking the neo-fascist turn to which the system was always vulnerable—winning mass support for policies of plutocracy and kleptocracy by mobilizing fear and hatred of a distinct and sinister internal and external other. Four times in the past hundred yeras have we seen this in the United States. Teddy Rooevelt vs. the Malefactors of Great Wealth, Ike Eisenhower vs. the McCarthyites, and Richard Nixon’s Flaws vs. Richard Nixon and Pat Buchanan were three earlier episodes. We won through because of conservative elitss that valued liberty and an open society. We may win through again: Henry Farrell: The Hollowing Out of Democracy: “There are strong similarities between what is happening in the United States, Hungary, the United Kingdom, and France… where democracy is backpedaling rapidly, such as the Philippines. This is the product both of common shocks… and of cross-national reinforcement… the family resemblances are undeniable. What Davies arguably gets wrong though is the significance of these changes…

Fairly Recently: Must- and Should-Reads, and Writings… (December 27, 2018)



  1. We Are with Her!

  2. Note to Self: I need to resolve this. I am profoundly dissatisfied with teaching the origin of business cycles and “general gluts” via John Stuart Mill’s 1829 “excess demand for money is excess supply of everything else”, and in an economy of sticky prices, wages, and debts produces the recessions and depressions that we all know and love so well. It is a quick way to get into the subject. It is a convincing way. But it is not a correct way…

  3. Comment of the Day: Leah Boustan: “First Gilded Age ➡️ Progressivism; Second Gilded Age ➡️ conspiracy theories, nationalism, blaming outsiders. The problem with the Kuznets Curve is that, at some point, inequality gets so bad that it prompts a political reaction but it’s not obvious what reaction will be…

  4. Comment of the Day: Maynard Handley: Ancient Technologies of Organization and Mental Domination, Clerks, Linear B, and the Potnia of Athens: “I think this sort of theorizing about ancient religion is too much based on current monotheic religion which has a very strong us vs them (gods are VERY different from humans) post ~100CE or so vibe. The right way (IMHO) to think of ancient religion (and much of lived medieval European religion vis a vis saints) is that gods played the same role as celebrities in our time. They bigger, better, more outrageous than us. Some of us are lucky enough to be their hairdressers and pool cleaners, a few more maybe saw them one time on the street walking down Rodeo Drive, ad the rest of us have to make do with photos and whatever gossip is being reported right now…

  5. Fall 2018—Smart Things I Wrote Here too Short to Be Highlighted Posts…: How did “Evangelicals” miss the memo that God saves you later only if you save the image of God in your neighbor today?…. It’s not the white working class who have been totally grifted by Trump—it’s those who call themselves “Evangelicals”…

  6. Hoisted from 2012: This Post Got Lost Somehow: Why Next to No Political Reaction to the Second Gilded Age?: Theodore Roosevelt wove his political career out of being head of the Republican party and head of the Progressive Movement… non-Progressive Republican President Taft simply offended him one time too many… Roosevelt decided to blow up the Republican Party and hand the presidency to Woodrow Wilson from 1912-1920…. By the late 1920s Progressivism is rising again—even Hoover is running as a Progressive. Then when the Great Depression comes Franklin Roosevelt comes in and he takes the entire progressive agenda off the shelf and promptly begins to implement it. We haven’t had anything like that over the past thirty years. And here I’m simply going to throw up my hands and say that I don’t know why…

  7. Saddest of all were Ron McKinnon and Jagdish Bhagwati…: Ah, yes. There is a distinct asymmetry between economists who are Democrats and economists who are Republicans…. Paul Krugman: “Thinking about Trump’s attempt to bully the Fed, I found myself remembering the open letter by a who’s who of conservative economists (plus some ‘economists’) accusing Ben Bernanke of ‘currency debasement’. Four years later, Bloomberg went to ask signatories why they were wrong; none of them—not one—would admit having been wrong…

  1. Paul Krugman: “Thinking about Trump’s attempt to bully the Fed, I found myself remembering the open letter by a who’s who of conservative economists (plus some ‘economists’) accusing Ben Bernanke of ‘currency debasement’ Four years later, Bloomberg went to ask signatories why they were wrong; none of them—not one—would admit having been wrong… #economicsgonewrong #monetarypolicy #fiscalpolicy

  2. Terry Bisson: They’re Made of Meat

  3. Menzie Chinn: “Top US Economist Stephen Moore: Powell Should Resign”: “Sunday (12/23/2018)… Stephen Moore…. [Trump] ‘was infuriated that the Fed, through very tight monetary policy, reversed the economic expansion. Donald Trump wanted to drain the swamp. Well, John, the Fed is the swamp. The big question now that’s been debated about is whether Donald Trump has the authority as president to replace the Federal Reserve Chairman. The law says he can replace the Federal Reserve Chairman for cause. I would say, well, the cause is that he’s wrecking our economy…. (12/16/2015) Stephen Moore: Fediculous: Years Of Loose Money Destabilized The Economy**: The Fed is expected to bid farewell to seven years of its zero interest rate policy…. The high from easy money, just as with any hallucinogenic drug, has been temporary at best and likely damaging in the longer run…. Over time, prices and output economy-wide adjust to the larger volume of money. The printing press, alas, is not a job creator. If it were, Mexico and Argentina would be the richest countries in the world, and people would be lining up at the U.S. southwest border to get out rather than to get in…#economicsgonewrong #orangehairedbaboons #monetarypolicy

  4. Stephen Moore: Fediculous: Years Of Loose Money Destabilized The Economy

  5. Hendrik Bessembinder: Do Stocks Outperform Treasury Bills?: “The majority of common stocks… since 1926 have lifetime buy-and-hold returns less than one-month Treasuries. When stated in terms of lifetime dollar wealth creation, the best-performing 4% of listed companies explain the net gain for the entire US stock market since 1926…. The important role of positive skewness… skewness in monthly returns and to the effects of compounding. The results help to explain why poorly diversified active strategies most often underperform market averages… #finance #behavioral

  6. Irwin Collier: Chicago. Unions and wages problem set. Murphy, 2008: Suresh Naidu: “didn’t know Murphy was so into comparative labor institutions: obviously A+B) is scandinavian-style economy-wide collective bargaining, with C) put in small open economy, and D) is trades/craft unionism a la Anglo-American model…

  7. Vagrant Cow: “Humans are just monkeys with car keys. Adjust your expectations accordingly…

  8. Cosma Rohilla Shalizi and Andrew C. Thomas: Homophily and Contagion Are Generically Confounded in Observational Social Network Studies: “Homophily, or the formation of social ties due to matching individual traits; social contagion, also known as social influence; and the causal effect of an individual’s covariates on their behavior or other measurable responses. We show that, generically, all of these are confounded with each other. Distinguishing them from one another requires strong assumptions…. We sketch three constructive responses… to randomize over the network, to place bounds on unidentifiable effects, and to use the division of the network into communities as a proxy for latent homophily…

  9. Sign me up with Jacob Levy here: by publishing Francis Buckley, Cato is not providing a forum for but rather assisting in an attack on reasonable public discourse and discussion, along the lines of Henry Farrell and Bruce Schneier’s arguments about Common-Knowledge Attacks on Democracy: Jacob T. Levy: “Make America Free Again” Isn’t Trump’s Agenda: “I cannot, however, let Francis Buckley’s apology for Donald Trump, for whom he has previously worked as a speechwriter, pass without comment, as it is marked by grave falsehoods. It is false in its particulars, for example, that, ‘on average immigrants are less educated than they were in the past’… And it is false in its larger central claims. Among these are that the Trump presidency stands for the rejection of the privilege of inherited wealth; a return to respect for the rule of law; and equal opportunity to prosper rather than ‘the old boy network’, deal-making, and cronyism. I hardly know where to begin…

  10. Let me shill for our other weblog at Equitable Growth: Competitive Edge: (I would point out that “the Octopus” is usually the Southern Pacific Railway, not Standard Oil. You can argue the merits with respect to whether Standard Oil’s monopoly was a net plus by society; nobody argues the merits for the Southern Pacific except for those paid to do so, and the crazed.): Terrell McSweeney: Competitive Edge: Antitrust Enforcers Need Reinforcements to Keep Pace with Algorithms, Machine Learning, and Artificial Intelligence: “The Washington Center for Equitable Growth is launching a new blog titled ‘Competitive Edge’… on a broad range of topics: potential areas for antitrust enforcement, concerns about existing doctrine, practical realities enforcers face, proposals for reform, and broader policies to promote competition…. The octopus image, above, updates an iconic editorial cartoon first published in 1904 in the magazine Puck to portray the Standard Oil monopoly…

  11. Yastreblyansky: The non-general in his labyrinth: “Baker and Haberman also find some sources to say things are going just fine: ‘”It’s absolutely fair to say that it’s better to have Nancy Pelosi as a foil than Paul Ryan as a foil”, said Marc Short, the president’s former legislative affairs director….. “The reality is the Democrats could overplay their hand.”… Fred Fleitz, who worked for nearly six months this year as chief of staff for John R. Bolton, the current national security adviser, said the new team is more cohesive and better suited to Mr. Trump than one constantly undermining him.’ (Fleitz has actually fled the White House, in the wake of the Trump mismanagement of the Khashoggi murder, and gone home to Frank Gaffney’s Center for Security Policy, but I’m glad he found something nice to say.) But… a president going to work later every day, and keeping the TV on in the office so he can be watching Fox whenever an ongoing meeting gets boring or irritating, and seeing himself surrounded by enemies even inside the family, really is a picture of someone getting less and less capable of coping… as failure succeeds failure…

  12. Damon Jones: @nomadj1s: “Highlights from the #econlife panel 9/25/18. Questions & advice on The Job Market™. Featured panelists: @paulgp, @PJakiela, @seema_econ, & @NWPapageorge…

  13. Paul Krugman: Hard-Money Men, Suddenly Going Soft: “I have been insufficiently cynical about modern conservative economics…. While I yield to nobody in my appreciation of the right’s fiscal fraudulence, I took its monetary hawkishness seriously. I thought that all those dire warnings about the inflationary consequences of the Federal Reserve’s efforts to fight high unemployment, the constant harping on the evils of printing money, were grounded in genuine—stupid, but genuine—concern. Silly me. It’s no surprise that Individual-1, who lambasted the Fed for keeping interest rates low while Barack Obama was president, is demanding that it keep rates low now that he’s in the White House. After all, nobody has ever accused Donald Trump of having consistent, principled views about monetary policy (or anything else). But it is a shock to see so many conservative voices—including, incredibly, the editorial page of The Wall Street Journal—echoing Trump’s demands… #orangehairedbaboons #econmicsgonewrong

This Post Got Lost Somehow: Why Next to No Political Reaction to the Second Gilded Age?: Hoisted from 2012

Il Quarto Stato

Hoisted from 2012: Brad DeLong: Why Next to No Political Reaction to the Second Gilded Age?: Oh dear, that’s a really tough question. So let me make it tougher by sharpening it and give it historical context. During the Gilded Age of the 1890s and 1900s you had strong political movements saying “something is going remarkably wrong with this, this isn’t the country we thought we were going to live in”. The way that the historian—I’m blanking—Ray Ginger? Harley Shaiken: Yes, Ray Ginger. Brad DeLong: Ray Ginger put it in two absolutely brilliant books—Altgeld’s America and The Age of Excess—even the Republicans thought that they wanted to live in Abe Lincoln’s America, where when you are young you split wood into fence rails and go to law school at night and when you are middle-aged you become a lawyer and get rich and when you are old you enter politics and save the Union and free the slaves. They wanted to live in that kind of world, of upward mobility, in which opportunity is wide open even to the son of a penniless and not very successful rural farmer. But by 1890 they discovered that they weren’t living in Abe Lincoln’s America at all…

…As a result in the First Gilded Age you had two political movements. The Democratic, left, farmer, labor, semi-socialist, Populist Movement on the one hand. The mixed bipartisan Democratic and Republican, urban, Progressive Movement on the other. Both of them were desperately eager to change America, to repair the flaws of the Gilded Age, to reduce inequality, to make the economy work for everybody—or at least for every white guy—and even to grant women the vote.

They wanted this so much so that someone like Republican President Theodore Roosevelt—as aggressively a partisan an animal as you would ever see—would place his loyalty to the Republican cause second to his loyalty to his progressive principles for American reform. He was happy denouncing Democrats as communist anarchists, but equally happy denouncing rich republicans as “malefactors of great wealth” who desperately needed to be controlled.

Theodore Roosevelt wove his political career out of being head of the Republican party and head of the Progressive Movement. And at the end non-Progressive Republican President Taft simply offended him one time too many, and Roosevelt decided to blow up the Republican Party and hand the presidency to Woodrow Wilson from 1912-1920.

That was the history of America from 1880-1920 or so. After 1920 you do get a Republican Gilded Age resurgence under Harding, Coolidge, Hoover—very corrupt, especially under Harding. But by the late 1920s Progressivism is rising again—even Hoover is running as a Progressive. Then when the Great Depression comes Franklin Roosevelt comes in and he takes the entire progressive agenda off the shelf and promptly begins to implement it.

We haven’t had anything like that over the past thirty years.

And here I’m simply going to throw up my hands and say that I don’t know why.

It’s in a great mystery to me. As an economic historian I like to look at political economic patterns from the past and to say we should learn from these and generalize them and take them as providing some insight into the present and the future. In general, we economic historians are extraordinarily successful. There are lots of lessons to be drawn from the first age of globalization for the second. There are lots of lessons to be drawn from the high school-ization of America for the college-ization of America and for education elsewhere in the world. There are lots and lots of lessons to be drawn from the Great Depression for today.

But the political economy of Gilded Ages? Why the first Gilded age produces a Populist and a Progressive reaction and the second, so far, does not? There I throw up my hands and say that my economic historian training betrays me. I have no clue as to what is going on here….


#shouldread #history #gildedage #secondgildedage 

We Are with Her!


Looking Forward to Four Two More Years During Which Most if Not All of America’s Potential for Human Progress Is Likely to Be Wasted:

  • With each passing day Donald Trump looks more and more like Silvio Berlusconi
  • Bunga-bunga governance
  • With a number of unlikely and unforeseen disasters
  • And a major drag on the country
    • Except in states where his policies are neutralized.

Nevertheless, remember: WE ARE WITH HER!

#workingmemory #socialjustice #politics #moralresponsibility 

Fairly Recently: Must- and Should-Reads, and Writings… (December 24, 2018)


  1. Note to Self: America’s Equities Are Worth 20% Less than They Were Worth Three Months Ago…

  2. The Great American Tax Heist Turns One: No Longer Live at Project Syndicate: Let me hammer this point again: the failure of any of Barro, Bhagwati, Boskin, Calomiris, Cogan, Holtz-Eakin, Hubbard, Lazear, Lindsey, Mankiw, Rosen, Shultz, Taylor, and a hundred-odd others to write about—or even express curiosity about why—their confident predictions of a year ago that the Trump-McConnell-Ryan corporate tax cut would generate a huge investment boom—that silence speaks very loudly about the genre in which they viewed their forecasts back at the time…

  3. For the Weekend: Mary J Blige: Real Love

  4. Weekend Watching: Barry Eichengreen: The Economic Consequences of Mr. Trump

  1. Jon Schwarz: The 10 Most Awful Articles in the Weekly Standard’s Short Life V: “‘Breaking the Climate Spell’ by Rupert Darwell, 2017. The Weekly Standard has published dozens upon dozens of articles ridiculing anyone who believes climate change is real and a serious problem. But perhaps their best work on the subject is this…. ‘Trump is breaking the spell of inevitability of the transition to renewable energy’, Darwell writes excitedly. ‘The impression of irresistible momentum has been one of the most potent tools in enforcing compliance with the climate catechism. Like socialism, the clean-energy transition will fail because it doesn’t work’. Don’t get mad, snowflakes, that’s just science… #journamalism #orangehairedbaboons #moralresponsibility

  2. If the Fed had had a 4%/year inflation target for the past decade, odds are that right now the Federal Reserve would be in a situation without great workers. But it hasn’t, and it isn’t: Mohamed A. El-Erian: Fed Rate Hike: Powell Tries to Balance Growth and Volatility: “Fed’s No-Win…. Powell increasingly must make the best of factors mostly outside his control, increasing fears of a policy mistake… #monetarypolicy

  3. Narayana Kocherlakota: The Fed’s Risky Plan to Boost Unemployment – Bloomberg: “The Fed is planning to raise its interest-rate target above its long-run level of around 2.8 percent. We can actually see this happening in the Fed’s rate forecasts for the next three years…. The Fed is planning to eliminate over a million jobs — and put millions more at risk — in order to avoid a tiny deviation from its inflation target. I’ll leave it for readers to judge whether this is a desirable gamble… #monetarypolicy

  4. It was a huge mistake for the Federal Reserve to nearly invest the yield curve in 2007. In fact, I cannot think of any reason why a central bank with inflation not well above target would ever seek or tolerate such a near-inverted yield curve: Joe Rennison: Yield Curve Hits New Cycle Low in Wake of Fed Meeting: “The difference between two- and 10-year Treasury yields, a common permutation of the so-called yield curve, sank below 10 basis points for only the second time this year, and hit 9.87 basis points in morning trading on Thursday. It’s the lowest level for the measure since June 2007…

  5. Popehat: Alan Dershowitz Is Lying To You: “Trading on his reputation as a legal titan, he’s offering normative views (what the law should be) as descriptive views (what the law is.)… Alan Dershowitz, in describing the Special Counsel investigation, is posing as a subject-matter expert but acting like an advocate—and a dishonest one… #orengehairedbabooons

  6. Josh Chafetz: “Never tweet is looking better and better as life advice: “‘The entire party supports Trump, which is why we are considering canceling a party primary to make sure he doesn’t lose it.’ Special shout-out to all the people who thought… [this] was a sincere statement of my own views. Keep doing what you do. You make this website the wondrous place. Never tweet is looking better and better as life advice… #journamalism #orangehairedbaboons

  7. Matthew Yglesias: Paul Ryan’s Farewell Address: Transcript Shows Nonsense on Poverty: “Leaving Congress with a legacy of empty words…. A perfect capstone to Ryan’s career: Rich people get tax cuts; poor people get pious words and misleading rhetoric…. It’s important… to correctly understand the hierarchy of Ryan’s priorities. Ideas to help the poor, like the EITC, need to take a back seat to deficit concerns. Tax cuts for the rich, however, are worth doing even when they increase the deficit. And when it comes time to cut the deficit, the best way to do it is to take away poor people’s health insurance. Under the circumstances, America’s struggling families should feel lucky that Ryan never really got around to implementing his vision for their future… #orangehairedbaboons

  8. The Fed ought to pursue a symmetric 4%/year inflation target. It cannot even successfully communicate and pursue a 2%/year symmetric inflation target. And Tim Duy is an unhappy camper: Tim Duy: Fed Hikes Rates, Market Tumbles: “The implication here is that there is substantial downside risk to the economy. So much that the Fed is reducing its forecasts across the board. So much so that the Fed anticipates they will fall short of their inflation target yet again. And yet they continue to hike rates and signal more rate hikes to come. It is an unnecessarily and explicit hawkish message that is an artifact of a communications strategy that only made sense when you could reasonably promise zero rates for an extended period… #monetarypolicy

  9. Antonio Fatas: How low is low for Chinese GDP growth? ~ Antonio Fatas on the Global Economy: “The deceleration of GDP growth rates in China can be seen as a natural evolution of the economy as it follows its convergence path, in particular if we use recent decades in South Korea as a benchmark…

  10. Barry Ritholtz: Transcript: Bethany McLean (Enron & Fracking): “I was naïve then. I never would’ve guessed that a company could be so riddled with overstatements and outright fraud as Enron was…. The piece was skeptical… pointed out problems in Enron’s business… lack of cash flow… burgeoning debt load… nobody understood how this company actually made its money. But if you would ask me at that time that I—would be bankrupt in six months or nine months, I would have said ‘What? No’…

  11. James Montier: The Late Cycle Lament: The Dual Economy, Minsky Moments, and Other Concerns: “Clinical studies have found one group of people who perceive reality the way it truly is. These are the clinically depressed, which is of course why they are clinically depressed! This leaves us with an unenviable choice–either be happy and deluded, or sad and accurate…

  12. Karl Smith is correct: to solve the “skills gap”, create an economy in which companies have an incentive to solve the “skills gap”: Karl Smith: @karlbykarlsmith: “Meh. Turn demand up to 11, watch gap solve itself…” Noah Smith: @Noahpinion: “YESSSSS…” : Joe Nocera: How to Turn a Community College into an Economic Engine: “Bridging the skills gap starts with a conversation between community colleges and employers… #labormarkets #equitablegrowth

  13. Ernie Tedeschi: Unemployment Looks Like 2000 Again. But Wage Growth Doesn’t: “Trying to solve an economic mystery: This is, to put it mildly, a mystery. If workers are as scarce as the unemployment rate and many other measures suggest, employers should be raising wages to compete for them…#labormarkets #equitablegrowth

  14. Binyamin Appelbaum : “As the old saying goes, there are no efficient market hypothesists in foxholes. They gave a guy a Nobel Prize for writing that financial markets are efficient. I’ll never find that not funny.” *Noah Smith: “EMH is the best investing advice you or most people will ever receive.”… *Brad DeLong: EMH is a reasonable theory of short run returns. It is a lousy theory of values. And it is an even lousy her theory of price movements. Fans and co’s inability to distinguish between those three at all was what convinced me they were morons… #twitter #economicsgonewrong #finance

  15. WTF?!?!? Steven Mnuchin on Twitter Today I convened individual calls with the CEOs of the nation s six largest banks See attached statement Paul Krugman: “This is amazing.: It’s as if Mnuchin was trying to create a panic over something nobody was worried about until this release. Alternatively, Mnuchin could just be an idiot. Not just me… #finance #orangehairedbaboons

  16. And a happy Feast of Sunreturn to you too: Brendan Greeley: There’s No Process Left at the White House: “Literally on the night before Christmas, after determining that a thing that is not a problem is not a problem, the Secretary of the Treasury of the United States of America is convening the President’s Working Group on Financial Markets, an organisation that doesn’t really exist. It doesn’t have an office, or legal authority, or even employees. There’s an executive order from 1988 that says the president can tell several department and agency heads to get together and talk… Whatever the working group used to periodically do, it’s been replaced since the financial crisis by the formal work of the Financial Stability Oversight Council. Mr Mnuchin could just as easily call on the order of the garter to take up arms and defend the realm. He’s throwing glitter on a football. This isn’t how any of this is done… #oranghairedbaboons

The Great American Tax Heist Turns One: No Longer Live at Project Syndicate

Let me hammer this point again: the failure of any of Barro, Bhagwati, Boskin, Calomiris, Cogan, Holtz-Eakin, Hubbard, Lazear, Lindsey, Mankiw, Rosen, Shultz, Taylor, and a hundred-odd others to write about—or even express curiosity about why—their confident predictions of a year ago that the Trump-McConnell-Ryan corporate tax cut would generate a huge investment boom—that silence speaks very loudly about the genre in which they viewed their forecasts back at the time:

Clowns (ICP)

A year ago there were a substantial number of economists who were assuring us that the Trump-McConnell-Ryan corporate tax cut was not just a giveaway to rich stockholders but would provide a sustained and substantial boost to investment in America that would boost productivity by:

And Kevin Hassett and Greg Mankiw told us that these productivity gains would primarily boost wages not profits—because the relevant model was not one in which the tax cut raised after tax profit and interest rates but rather one in which foreigners would flood America with savings, lending to and investing in this country on a large scale to finance the bulk of this surge and investment.

These were primarily long-run predictions, and, of course, the long-run is not here yet.

But the long-run only arrives when the succession of short-runs cooperates, and these economists nailed their long-run prediction to the short run by claiming we would see higher investment in America strong enough to boost growth by 0.4%/year—that is 80 billion dollars per year—more than we would have seen otherwise. And to gain that boost to productivity from higher investment spending would require roughly an extra 800 billion in higher annual investment—a jump from its current 17.5 percent to about 21.5 percent of GDP.

We do not know what growth this year and next year would have been otherwise. But we can look at investment in America: Has it jumped up by 800 billion dollars this year, and is it projected to stay at the same jumped-up level next year? The answer is: no.

Gross Private Domestic Investment Nominal Potential Gross Domestic Product FRED St Louis Fed

And we can look at investment by foreigners in America—although we already know that it could not have financed any material part of an 800 billion surge in annual investment in America because there was no such surge in investment. Indeed, there has been no such surge in investment in America.

Back when all these 100-odd economists from Barro through Taylor were setting out their claims, these drew sharp dissents from not just economists associated with former Democratic administrations but from scorekeepers like the Tax Policy Center whose entire model of operations rests on pleasing not politicians and donors but rather making the best forecasts they can. The disagreements in turn drew an anguished cry from reporter Binyamin Applebaum:

I am not sure there is a defensible case for the discipline of macroeconomics if they can’t at least agree on the ground rules for evaluating tax policy. What does it mean to produce the signatures of 100 economists in favor of a given proposition when another 100 will sign their names to the opposite statement? How does Harvard, for example, justify granting tenure to people who purport to work in the same discipline and publicly condemn each other as charlatans? How are ordinary people, let alone members of Congress, supposed to figure out which tenured professors are the serious economists?…

I think we can now answer Applebaum’s question. The 100-odd economists from Boskin to Taylor made analyses and offered predictions. These analyses have proven wrong. These predications have proven false. To anybody engaged in an intellectual discipline, it is very interesting when you get something wrong—it is a sign that you have something to learn. And so, in every intellectual discipline, you try to learn it: you study it, analyze it, debate about it, in the hope of making yourself smarter—if, that is, you see yourself as a thinker.

There has been none of that.

There has been silence.

There has been silence because the absence of the promised 800 billion surge in investment in America this year continued through next year and beyond is not something anybody is surprised to see. A model in which investment in America can easily and rapidly jump up (or down) as foreigners flood or reverse large-scale investment in America is not a useful model. Individuals do not substantially boost or curb their savings as tax changes boost or reduce after-tax profit rates. Yes, a higher profit rate makes savings more profitable. But a higher profit rate also makes the income from your past savings higher, and so reduces the need to save. The two roughly balance out. And those writing opens and releasing studies boosting last year’s Trump-McConnell-Ryan corporate tax cut knew this, or ought to have known this. And they see no need to study this year why their forecasts made last year were wrong because they already knew.

So I say to Binyamin Applebaum, and to other reporters who wrote up—much less critically then they should have—what the corporate tax cut-boosting economists from Barro to Taylor and company were saying last year: remember: “fool me once, shame on you; fool me twice, shame on me”.


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#macro #economicgrowth #fiscalpolicy #highighted #orangehairedbaboons #moralrsponsibility #highlighted