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Worthy Reads from December 13, 2018: Hoisted from the Archives

Summary:
It is very important to try to make the future world a more “American“—that is: free, Democratic, market—than a “Chinese“—that is: controlled, authoritarian, hierarchical—world. But the sharp Ed Luce's criticisms of Pompeo and Trump will have no purchase on the Republican senators who currently empower Trump, for they are frying different fish. What arguments would have purchase on them?: Ed Luce: The Double Life of Trumpian Nationalism: “Mr Pompeo did the world a favour... crystallised the dissonance that runs through the Trump administration. Mr Trump’s aim is to contain China’s global rise. He also wants to remove the tools with which to blunt China’s rise. He offers with one hand what he removes with the other. Mr Pompeo called for a new global liberal order of 'noble nations'. In the

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  • It is very important to try to make the future world a more “American“—that is: free, Democratic, market—than a “Chinese“—that is: controlled, authoritarian, hierarchical—world. But the sharp Ed Luce's criticisms of Pompeo and Trump will have no purchase on the Republican senators who currently empower Trump, for they are frying different fish. What arguments would have purchase on them?: Ed Luce: The Double Life of Trumpian Nationalism: “Mr Pompeo did the world a favour... crystallised the dissonance that runs through the Trump administration. Mr Trump’s aim is to contain China’s global rise. He also wants to remove the tools with which to blunt China’s rise. He offers with one hand what he removes with the other. Mr Pompeo called for a new global liberal order of 'noble nations'. In the same breath, he called on them to pursue their go-it-alone destinies. Nowhere in his speech did the words 'west' or 'western' occur. Countries that abandon mutual endeavours do not naturally see eye to eye...

  • This is a brilliant and very important fact. I know that I had not previously recognized the degree to which those who invest in stocks but who do not diversify their portfolios simply go bankrupt. The very strong and striking outperformance of diversified stock portfolios thus appears more rationalizable if marginal investors in stocks are paying this non-diversification tax: Terry Smith: Busting the myths of investment: Do equities outperform bonds?: “The degree of concentration of returns is still startling. Just five companies out of the universe of 25,967 in the study account for 10 per cent of the total wealth creation over the 90 years, and just over 4 per cent of the companies account for all of the wealth created.... The study also looks at returns decade by decade and reaches more or less the same conclusion...

  • All the people who say that it is really not that important to get inflation up leave me flummoxed. I try to determine what they think will happen when the next recession comes. I fail: Joseph E. Gagnon (PIIE) and Takeshi Tashiro: Abenomics Is Working, Don’t Stop Now: “Japan is on track for its longest postwar economic expansion, with female labor force participation and corporate profits at record highs and unemployment at a 25-year low.... [Is] the goal of raising inflation to 2 percent is really necessary?...

  • To what extent is geographic divergence the result of rent-seeking land-use planning run amok?: Simon Wren-Lewis: Helping the Left Behind: Its (Economic) Geography, Stupid: "Martin Sandbu points us to a report from the Brookings Institution.... 'For much of the 20th century, market forces had reduced job, wage, investment, and business formation disparities between more- and less-developed regions. By closing the divides between regions, the economy ensured a welcome convergence among the nation’s communities.' But from the 1980s onwards, they argue that digital technologies increased the reward to talent-laden clusters of skills and firms...

  • It is becoming increasingly clear that the best road forward for the American worker on trade is to (a) join the TPP and (b) keep NAFTA: Gary Clyde Hufbauer and Jeffrey J. Schott: Under the Hood, the USMCA Is a Downgrade for North America: "Trump... called the North American Free Trade Agreement (NAFTA) the worst trade deal ever made. Trade negotiators have branded its intended replacement... a 'modernized' improvement.The upgrades draw heavily from the Trump-abandoned Trans-Pacific Partnership.... The deal also includes costly new regulations and requirements that discourage investment, especially in the auto sector... higher prices for cars at a time when auto sales are flagging. Ford and GM are already laying off workers.... The USMCA limits trade more than promoting it...

  • Having destroyed the economy of Greece, it looks like the European Union is now moving on to Italy. Truly years that the locust hath eaten: having destroyed if economy of Greece, it looks like the European Union is now moving on to Beverly. Truly years that the locusts have eaten in: Adam Tooze: Italy: How Does the E.U. Think This Is Going to End?: "Over the past 10 years, Italy’s gross domestic product per capita has fallen... unique among large advanced economies.... More than 32 percent of Italy’s young people are unemployed. The gloom, disappointment and frustration are undeniable. For the commission to declare that this is a time for austerity flies in the face of a reality that for many Italians is closer to a personal and national emergency...

  • We really should not shape our macroeconomic policy under the dominant influence of that truly exceptional decade that was the 1970s: J. Bradford DeLong (2000): America’s Historical Experience with Low Inflation: Hoisted from 1999: "The inflation of the 1970's was a marked deviation from America's typical peacetime historical pattern as a hard-money country. We should expect America to continue to be a hard-money--low inflation--country in the future, at least in peacetime. The low rate of future inflation that we thus forecast changes the balance of macroeconomic risks and opportunities. The risk of debt-deflation-mediated recessions is somewhat higher because a low trend rate of goods-and-services price index inflation somewhat increases the chances of deflation. But it does not raise such risks as much as one might think...

  • I think this is wrong. I think the lower level of the neutral rate of interest and the fact that the Fed has not pursued its 2% per year inflation target symmetrically have consequences. Those are that medium-term risks are overwhelmingly asymmetric on the downside. What does Rich Clarida think he is going to do to stem the next recession when it comes?: Rich Clarida: Data Dependence and U.S. Monetary Policy: “As the economy has moved to a neighborhood consistent with the Fed’s dual-mandate objectives, risks have become more symmetric and less skewed to the downside than when the current rate cycle began three years ago. Raising rates too quickly could unnecessarily shorten the economic expansion, while moving too slowly could result in rising inflation and inflation expectations down the road that could be costly to reverse, as well as potentially pose financial stability risks. Although the real federal funds rate today is just below the range of longer-run estimates presented in the September SEP, it is much closer to the vicinity of r-star than it was when the FOMC started to remove accommodation in December 2015. How close is a matter of judgment, and there is a range of views on the FOMC...

  • Much too optimistic from the Economist. The new policy options are not that powerful: Economist: What to do if the usual weapons fail: "If the usual weapons fail, there are plenty of new policy responses for governments to turn to. From the robots that help care for an ageing population to holographic pop stars, the future always arrives early in Japan. Economic policy is no exception. When the massive Japanese financial bubble of the 1980s imploded, the Bank of Japan (BOJ)... tested many of the policies, such as QE, that would enter the toolkit of other central banks during the financial crisis. Yet Japan was seen as an example of central-bank incompetence, until smug Western central banks discovered after 2008 that getting an economy to perk up when interest rates were near zero was harder than it looked...

  • What ought to be the conventional wisdom about the importance of the American union movement: Noah Smith: Unions Did Great Things for the American Working Class: "Politically and economically, unions are sort of an odd duck. They aren’t part of the apparatus of the state, yet they depend crucially on state protections in order to wield their power. They’re stakeholders in corporations, but often have adversarial relationships with management. Historically, unions are a big reason that the working class won many of the protections and rights it now enjoys...

  • Bradford DeLong
    J. Bradford DeLong is Professor of Economics at the University of California at Berkeley and a research associate at the National Bureau of Economic Research. He was Deputy Assistant US Treasury Secretary during the Clinton Administration, where he was heavily involved in budget and trade negotiations. His role in designing the bailout of Mexico during the 1994 peso crisis placed him at the forefront of Latin America’s transformation into a region of open economies, and cemented his stature as a leading voice in economic-policy debates.

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