Economist's View

Links (8/01/19)

• Why Rate Cuts Don’t Help Much Anymore - Austan Goolsbee
  Now that it has finally happened, don’t expect the Federal Reserve’s long-awaited rate cut to make all that much of a difference for the economy.
• The Invention of Money - The New Yorker
  When the Venetian merchant Marco Polo got to China, in the latter part of the thirteenth century, he saw many wonders—gunpowder and coal and eyeglasses and porcelain. One of the things that astonished him most, however, was a new invention, implemented by Kublai Khan, a grandson of the great conqueror Genghis. It was paper money, introduced by Kublai in 1260. Polo could hardly believe his eyes when he saw what the Khan was doing:
• Is Politics Getting to the Fed? - Robert J. Barro
  In the early 1980s, the chairman of the US Federal Reserve, Paul Volcker, was able to choke off runaway inflation because he was afforded the autonomy necessary to implement steep interest-rate hikes. Today, the Fed is clearly under unprecedented political pressure, and it is starting to show.
• Double-counting of investment - Robert Barro
  GDP counts investment twice – when it occurs and when rental income results. This column proposes an amendment to the national accounting system that only includes investment once. This would ensure that national income accounts do not overstate the resources available for consumption. It also has major implications for the estimation of the capital share in income.
• Economics Isn’t Dismal. It’s Useful. - Justin Wolfers
  Many economists these days view what we are teaching not so much as a specific subject matter but as a set of analytic tools that are relevant beyond the relatively standardized production and pricing decisions of the business world. This perspective has led modern economists to study families, education and health, much as they study business strategy, politics, and finance.
• How economics can raise its game - Tim Harford
  How can economics become a more insightful discipline? Should it aim to be more like physics, with its precision and predictive power? Or should economists emulate anthropologists or historians, immersing themselves in the details of the particular and the unquantifiable?
• How Reforming Antitrust Can Restore a Competitive Economy - ProMarket
  For decades, competition in America has been on the wane, leading to slower economic growth and a gaping chasm of inequality. Antitrust can help reverse the trend, but antitrust doctrines and enforcement actions once thought adequate are proving insufficient. Fixing the problem is urgent.
• The politics of CEOs - VoxEU
  With power over corporate resources as well as stature and prestige in the economic system, public-company CEOs to have sizeable influence over policy and political decisions. This column examines the political donations of more than 3,800 US CEOs of S&P 1500 companies to analyse their political preferences over time, across industries and geographical regions, and by gender. It shows that US public company CEOs have a significant preference for Republicans, who may benefit from public companies’ expanded freedom to spend money on politics.
• Voters, groups, parties, and elections - Lane Kenworthy
  In a representative democracy, a key goal is to ensure that government is “for the people” — that it does what citizens want.1 What are Americans’ policy preferences? What groups and political parties do they identify with? Who do they vote for and why?
• Subsidizing health insurance for low-income adults: evidence from Massachusetts - Microeconomic Insights
  How much are low-income individuals willing to pay for health insurance? And what are the implications for insurance market reforms that propose to change government subsidies? Using administrative data from the pioneer subsidized insurance exchange in Massachusetts over the period 2009 to 2013, this study exploits discontinuities in the premium subsidy schedule to estimate willingness to pay and costs of insurance among low-income adults. The researchers have three main findings.
• The international evidence on forward guidance - VoxEU
  Forward guidance – communication by a central bank about the likely future path of interest rates – usually reduces uncertainty. This column argues that how this is done in practice matters, however, because forward guidance with a short time horizon can raise uncertainty. This occurs if the forward guidance impairs the aggregation of private information in financial markets, thus making market prices less informative.
• How Not to Think About Job Creation - Ricardo Hausmann
  Governments are right to focus on creating more good jobs, because work is the source of most people’s livelihood in every society. But in the majority of cases, the solution lies in policy areas that are not amenable to tools wielded by ministers of labor or education.
• Central Banks Are the Fall Guys - Raghuram G. Rajan
  For decades, the freedom of monetary policymakers to make difficult decisions without having to worry about political blowback has proven indispensable to macroeconomic stability. But now, central bankers must ease monetary policies in response to populist mistakes for which they themselves will be blamed.
• Guest Contribution: “Political Pressure on Central Banks” - Econbrowser
  In a recent paper, I use a narrative approach to study political pressure on 118 central banks around the world. I search country reports from the Economist Intelligence Unit (EIU) and Business Monitor International (BMI) for discussions of political pressure on or government interference with the central bank. The reports are designed to give equal attention to each economy and to report at consistent frequency on monetary policy-related developments, allowing for comparability across many countries and over time. For each central bank in each quarter, I code whether: there is no mention of government pressure on the bank, there is report of pressure but the central bank is resisting it, or the bank is reportedly succumbing to pressure. I also record details about the nature of the pressure (e.g. whether the pressure is to ease or to tighten policy).
• Who are you going to believe, me or the evidence of your own eyes? - Stiglitz, Durand, and Fitoussi
  If what experts say has little or no relation to what people feel or can see all around them, it’s inevitable that they stop believing the experts and the politicians they advise, and look for answers elsewhere. This column introduces the work of the High-Level Expert Group on the Measurement of Economic Performance and Social Progress, which argues that we need to develop datasets and tools to examine the factors that determine what matters for people and the places in which they live. Having the right set of indicators, and anchoring them in policy, will help close the gap between experts and ordinary people that are at the root of today’s political crisis.
• Earmarked paternity leave and relative income within couples - VoxEU
  The European Parliament recently proposed a requirement that each parent have the right to two months of non-transferable or ‘earmarked’ paid leave. This column analyses the effects of earmarking parental leave for fathers on the relative income of women within couples. The findings suggest that such reforms have the potential to transform not only household norms but gender inequality more broadly.
• The Change in the U.S. Direct Investment Position - Capital Ebbs and Flows
  The U.S. has long held an external balance sheet that is comprised of foreign equity assets, mainly in the form of direct investment (DI), and liabilities held abroad primarily in the form of debt, including U.S. Treasury securities. This composition is known “long equity, short debt.” Pierre-Olivier Gourinchas of UC-Berkeley and Hélène Rey of the London Business School claim that this allocation has allowed the U.S. to serve as the “world’s venture capitalist,” issuing short-term debt in order to invest in high-yield assets. But the U.S. direct investment position has changed from a surplus to a deficit, with uncertain consequences for the international monetary system.
• Trump’s Secret Foreign Aid Program - Paul Krugman
  Donald Trump often complains that the media don’t give him credit for his achievements. And I can think of at least one case where that’s true. As far I can tell, almost nobody is reporting that he has presided over a huge — but hidden — increase in foreign aid, the money America gives to foreigners. In fact, the hidden Trump program, currently running at around $40 billion a year, is probably the biggest giveaway to other nations since the Marshall Plan. Unfortunately, the aid isn’t going either to poor countries or to America’s allies. Instead, it’s going to wealthy foreign investors.
• Automation, Labor Market Disruption, and Trade Policy - PIIE
  To be clear, the evidence presented here is suggestive, not conclusive. But it underlines the notion that selling voters on the proposition that their problems are due to foreign trade competition when the root cause is technological change risks creating a frustrated electorate that might reach for even more radical measures when protectionism does not alleviate their pain.
• Expanding America’s Expansion - Tyson & Mendonca
  Having undergone its longest expansion on record, the US economy appears to be thriving. But behind the headline numbers is a more complicated story: wages are growing, but not as fast as they should be; and inequalities based on place, race, gender, and other factors remain unacceptably high.
• No such thing as a free lunch in the digital economy - VoxEU
  Online platforms that provide services at zero monetary cost benefit greatly from the data these transactions generate. This column proposes a new method to value these data, based on firm investments in organisational capital. The method also captures the social value of consumer data. Accurate estimates may guide investment and improve national accounts.
• How the lessons from austerity have not been learned - mainly macro
  I don’t want to talk about the likelihood of a recession in the UK, US or Eurozone. Forecasting is a (necessary) mug’s game, where there are just too many variables to make anything like an accurate prediction. It is worth outlining the risk factors, andGrace Buckley does an excellent job here. Instead my concern is the vulnerability in both the UK and the Eurozone to the impact of a recession if it happens. This vulnerability was clearly illustrated by the mistakes made after the Global Financial Crisis, yet in many ways the lessons of that failure have not been learnt.

Links (7/22/19)

• Why Critics of a More Relaxed Attitude on Public Debt Are Wrong - Blanchard and Ubide
  Both of us have recently developed arguments for a more relaxed attitude toward public debt and deficits (for example, this address by Blanchard at the European Central Bank Policy Forum, this joint discussion at PIIE, and this essay by Ubide on Vox). Not surprisingly, several counterarguments have arisen, some of which we accept, some of which we don’t. This blog addresses two arguments that we reject.
• Acknowledging and pricing macroeconomic uncertainties - Hansen and Sargent
  False pretences of knowledge about complicated economic situations have become all too common in public policy debates. This column argues that policymakers should take into account what they don’t know in their decision making. It describes a tractable approach for acknowledging, characterising, and responding to different forms of uncertainty, by using theories and statistical methods available at any particular moment.
• Costs of recession - Stumbling and Mumbling
  The Resolution Foundation’s James Smith has written a nice paper on the likelihood of recession and the fact that, with monetary less able to support the economy, we need to think about alternative ways of tackling recessions. I just want to amplify what he says in two ways.
• State and Local Taxes Are Worsening Inequality - The New York Times
  Most states lean heavily on lower-income families. An Illinois referendum is a step toward correcting the problem.
• The Great Crypto Heist - Nouriel Roubini
  Cryptocurrencies have given rise to an entire new criminal industry, comprising unregulated offshore exchanges, paid propagandists, and an army of scammers looking to fleece retail investors. Yet, despite the overwhelming evidence of rampant fraud and abuse, financial regulators and law-enforcement agencies remain asleep at the wheel.
• Trade wars may ‘bloc up’ world trade - VoxEU
  Against the backdrop of new tariffs imposed by the Trump administration and retaliation from targeted countries, notably China, the trade wars of the 1930s have received renewed attention. This column argues that they mainly served to intensify a pre-existing trend towards the formation of trade blocs. The trade wars of the present day may therefore serve a similar purpose as those in the 1930s, that is, the intensification of China- and US-centric trade blocs.
• Paid family leave and breastfeeding - VoxEU
  Mothers in the US breastfeed their infants at higher rates today than at any point in documented history, but low-income mothers have become less likely to do so. A leading reason for mothers to stop breastfeeding is the need to return to work. This column uses data on over 270,000 mother-child pairs in California, which implemented paid family leave in 2004, to examine the relationship between paid family leave and breastfeeding. It finds that paid family leave significantly increases overall breastfeeding duration, suggesting that paid family leave may lead to longer-term health improvements for children and mothers, particularly among disadvantaged families.
• Modern money theory and its challenges - VoxEU
  Modern monetary theory (MMT) has recently gained prominence in light of doubts about the effectiveness of monetary policy in addressing economic shortfalls. This column assesses the implications of implementing the theory’s policy prescriptions, and the challenges it presents in the case of Japan – an economy that some have argued has already been subject to such policy. Japan’s labour shortages and low inflation mean modern monetary theory’s fiscal stimulus suggestions may be harder to implement than they initially seem.
• Win or lose: Rigged card game sheds light on inequality, fairness - EurekAlert
  After noticing that card game winners attributed the game's outcome to skill and losers blamed their defeat on the rules, doctoral students Mario Molina and Mauricio Bucca decided to conduct an experiment. Working with Michael Macy, the Goldwin Smith Professor of Arts and Sciences and director of the Social Dynamics Laboratory, they adapted their idea into the Swap Game, a simple card game they rigged to favor either winners or losers, in a study designed to measure perceptions of inequality. They found that winners were far more likely to believe the game's outcome was fair, even when it was heavily tilted in their favor
• Understanding the Average Impact of Microcredit - Microeconomic Insights
  The global microloan portfolio is now worth over 102 billion dollars and is growing yearly. This research estimates the impact of the policy and the extent to which this impact is different across different contexts. It finds that overall, the best existing evidence suggests that the average impact of these loans is small and that in the future, it may be beneficial to seek alternative approaches to improve the lives of poor households in the developing world.
• Interview: Enrico Moretti - Federal Reserve Bank of Richmond
  Moretti's interest in American geographical sorting began during his days as a Ph.D. student at Berkeley, where he arrived after his undergraduate education in his native Milan. At first, he just wanted to fill in some blanks in his knowledge of America. "I started looking at data from the U.S. census," he says. "Just out of curiosity, wanting to know more about this country, I started looking at the different city averages of whatever the census could measure — earnings, level of education of the workforce, the type of industry. I suspected there were big differences, but I didn't know how large the differences were." He went on to write his Ph.D. dissertation on the benefits in terms of higher earnings that less-educated workers obtain from being in a city with a large share of workers with college degrees.
• Global Perspective on Markets for Sand - Tim Taylor
  Trivia question: If measuring by volume, what mined product is the largest? The answer is "sand and gravel," sometimes known in the geology business as "aggregates." In particular, aggregates are used for concrete and asphalt, and demand for these products from China and other emerging markets has skyrocketed. Sand is also used as part of hydraulic fracturing, so in the United States demand from that source has surged as well. And sand and gravel are also widely used for purposes ranging from land reclamation and water treatment to industrial production of electronics, cosmetics and glass.

Summer is Here

My one month old granddaughter Summer.

Both of her parents were economics majors, as were all four of her grandparents.