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Showing posts from September, 2016

Who won the debate?

Making Merica Great! (Stand at the Bloomsburg Fair, in central PA)
This is always a complicated question, since most people tend to think that their candidate won. And you may ask: who cares? After all debates have probably limited impact on the elections outcome anyway. But I think it is important to note that while most of the media (yes, I follow the liberal media) suggests that Hillary won (see here or here or here), one should take those results with a grain of salt.

I think the initial round on trade was clearly better for The Donald. Not only because he sounded more concerned with lost jobs, and deindustrialization in the Rust Belt, which he did (she said that she wants to bring back the 1990s; "I think my husband did a pretty good job in the 1990s. I think a lot about what worked and how we can make it work again..." were her precise words), but also because that is the main constituency for the debate. He was not trying to win the votes of African-Americans or Hispa…

The Trouble with Paul Romer's Angriness

Count to 10
The paper by Paul Romer, The Trouble with Macroeconomics, has been in the news, and many bloggers have posted about it (Lars Syll here, to name one) and some of the major newspapers (for example, here and here). This follows his previous critiques on what he referred to as mathiness. It's also important since now Romer is the World Bank's chief economist. In all fairness, the only refreshing thing in the paper is the sarcasm, and the internal sociological critique of the profession that "places an authority above criticism."

This paper is better than the previous one on mathiness. He clearly notes that Real Business Cycle (RBC) models including in the synthesis version with New Keynesian models, the Dynamic Stochastic General Equilibrium (DSGE) models he discusses, use productivity shocks as something akin to phlogiston. He's not wrong. My favorite quote is this one also by Ed Prescott, Romer's bête noir, who argues that:
"In the 1930s, ther…


Marginalist ReOrientation
Slow posting for a while. Too many things happening that I didn't comment on, but I'll try to weigh in on the paper by Paul Romer on the trouble with macro. At any rate, the paper DisORIENT: Money, Technological Change and the Rise of the West has been published.

The Federal Reserve Must Rethink How it Tightens Monetary Policy

By Tom Palley

After more than 7 years of economic recovery, the Federal Reserve is positioning itself to tighten monetary policy by raising interest rates. In light of the wobbly reaction in financial markets, an important question that must be asked is whether raising interest rates is the right tool.

It could well be that the world’s leading central bank is going about the process of tightening in the wrong way. Owing to the dollar’s preeminent standing, that could have severe global repercussions.

Just as the Fed has had to rethink how it combats recessions, so too it must rethink how it transitions from an easy monetary policy stance to a tighter stance.

Read rest here.

On the blogs

Drivers of inequality: Trade shocks versus top marginal tax rates -- Douglas Campbell and Lester Lusher suggest than in the US inequality was caused by the tax policies that began with Reagan, and not globalization. Seems reasonable (a post from almost precisely 4 years ago)

Economists Who’ve Advised Presidents Are No Fans of Donald Trump -- Greg Mankiw's blog linked to this piece. I doubt that Feldstein is right. Yeah, Reagan "showed a real understanding of economics and international affairs." Funny thing is that the Donald's views on trade, because of his economic populism, might be more reasonable than the economics profession's dogma on free trade (my reply to Mankiw on free trade here). And nope I'd never vote for the Donald either, if you ask me

Meritocracy vs. Freedom -- Chris Dillow on Theresa May, but also on some deeper and more relevant, on whether free markets are compatible with meritocracy

On Keynes and the Evolution of Keynesian Economic at the Economic Rockstar Podcast

I was interviewed by Frank Conway from the Economic Rockstar podcast on Keynesian economics. Listen to the whole podcast here.

220+ Law and Economics Professors Urge Congress to Reject TPP

Letter sent to Congress asks for rejection of the Trans-Pacific Partnership (TPP), in particular its Investor-State Dispute Settlement (ISDS) clause, which is the mechanism that gives power to corporations to challenge governments regulatory policies. It's important for society, here and in developing countries, to protect itself from the excessive power that Free Trade Agreements (FTAs) bestow on corporations.

Top 10 economic books of the 20th century

Find the errors
Lars Syll had a while ago a top 10 list of econ books. So here is my list of the best from the 20th century. Some are there because they are influential, some because I think they are truly the best, and all because in some way they influenced my views. The list by chronological order:

1. Imperial Germany and the Industrial Revolution (1915) by Thorsten Veblen
2. The General Theory of Employment, Interest and Money (1936) by John Maynard Keynes
3. The Great Transformation (1944) by Karl Polanyi
4. American Capitalism: The Concept of Countervailing Power (1952) by John K. Galbraith
5. The Theory of Economic Dynamics (1954) by Michal Kalecki
6. The Production of Commodities by Means of Commodities (1960) by Piero Sraffa
7. Essays in the Theory of Economic Growth (1962) by Joan Robinson
8. The Crisis in Keynesian Economics (1974) by John Hicks
9. Stabilizing and Unstable Economy (1986) by Hyman Minsky
10. An Essay on Money and Distribution (1991) by Massimo Pivetti

There …

Phishing for phools

I've been trying to read this. Not a huge fan of the field of behavioral economics (or here; subscription required). Don't get me wrong, yes, it provides some critiques of elements of the mainstream (marginalist) approach, regarding essentially the notion of individual rationality, as did the work of, say, Herbert Simon, in the past. People don't tend to act in a rational way, at least not in the substantive way that is prescribed by the mainstream.

Evidence on the notion of universal selfishness is weak. Experiments have undermined the notion that the primary motivation of human action is self-regard. The ultimatum game, which has been played in many different countries and cultures, suggests that humans have a strong preference for fairness. Sam Bowles, who provides a short blurb for the book's back-cover, is one of the several progressive economists that thinks that the critique of rationality developed by behavioral economics is revolutionary, and that it is the s…

On the blogs

BREAKING NEWS: SRAFFA’S DIARIES NOW ONLINE!!! -- From Carter Scott at Heretical Sraffa

The euro disaster — Wynne Godley was spot on already back in 1992! -- Lars Syll on Wynne and Europe's misguided policies. I had discussed Wynne's views here
Reinventing IS-LM: The IS-LM-NAC Model and How to Use It -- Roger Farmer wants to resurrect the confidence fairy. I don't think it's a good idea. But I do like the ISLM
After neoliberalism: a snippet -- by John Quiggin, who might be too optimistic about the end of soft neoliberalism in a second Clinton coming

On the return of the natural rate of interest

The natural rate is an old concept, well explained in Wicksell, that almost vanished (Keynes was explicitly against it, even though he partially failed to get rid of it), and has made a come back with the Neo-Wicksellian model that dominates macro today (misnamed New Keynesianism). Below the estimates published in the speech by John Williams.

Note that what seems to drive the natural rate of interest is the basic rate determined by the central bank. Either the fall of the natural rate caused the crisis, or more plausibly, the crisis forced the central banks to reduce the basic rates, and the average of the fed funds rate (which is essentially how they get the natural rate) has subsequently fallen. The same goes for the twin concept of the natural rate of unemployment that keeps falling.

Interesting thing is that for a while the very concept had lost some of its prominence. After the Keynesian Revolution, and particularly after the capital debates, mainstream economists were more caut…

151,000 jobs created last month

Jobs numbers out today. Employment increased by 151,000 in August, and the unemployment rate is still at 4.9% according to the Bureau of Labor Statistics (BLS) report. This suggests that the slow recovery continues, and that to hike the rate of interest as it seems Janet Yellen suggested last week at Jackson Hole would be a mistake. By the way, Bill Gross, which sometimes sounds reasonable on spending and the effects of fiscal policy (or did in the past) suggested as an innovative solution the need for hiking rates twice before the end of the year. That signals, I think, what the market want, namely higher remuneration. But it would be a terrible idea. Even if the conventional story, best explained by John Williams from the San Francisco Fed, is deeply flawed. That is, the notion that the natural rate of interest (yeah, that concept) is now very low.