Friday , July 19 2019
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Links (6/29/19)

Summary:
Opportunity cost, MMT and public spending - Crooked Timber ... In the “chartalist” reasoning underlyng MMT, the fact that governments can issue their own sovereign currency means that there is no need to “finance” public spending by taxation; rather taxation is a tool used to manage aggregate demand so as to keep the economy fully employed but not at a point where excess demand creates inflation. That (essentially correct) position can easily slide into the (only subtly different, but radically mistaken) view that governments can spend money on anything they like with no need for any increases in taxes or cuts in other spending. As I will argue over the fold, a correct version of MMT makes no such claim. Unfortunately, while avoiding the error themselves, a lot of MMT theorists have not

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  • Opportunity cost, MMT and public spending - Crooked Timber
    ... In the “chartalist” reasoning underlyng MMT, the fact that governments can issue their own sovereign currency means that there is no need to “finance” public spending by taxation; rather taxation is a tool used to manage aggregate demand so as to keep the economy fully employed but not at a point where excess demand creates inflation. That (essentially correct) position can easily slide into the (only subtly different, but radically mistaken) view that governments can spend money on anything they like with no need for any increases in taxes or cuts in other spending. As I will argue over the fold, a correct version of MMT makes no such claim. Unfortunately, while avoiding the error themselves, a lot of MMT theorists have not shown much willingness to set their more naive followers straight. ...
  • It is aggregate demand—recession, weak recovery, catastrophe, and then superweak recovery... - Brad DeLong
    I confess I do not get this from Paul Krugman. Yes, the trade deficit crowds-out traditionally-male blue-collar import-substituting manufacturing jobs, but imports crowd-in traditionally-male blue-collar wholesale trade jobs, and finance traditionally-male blue-collar construction (and capital-goods manufacturing) jobs. If you look at all traditionally-male blue-collar—wholesale, construction, manufacturing, and mining)–what you get is not a story of the trade deficit, but rather a story of (a) macro shocks to aggregate demand, and (b) the long-run technology-and-preferences trend—some of which is automation. NAFTA is nowhere.
  • The S Word, the F Word and the Election - Paul Krugman
    What did you think of the bunch of socialists you just saw debating on stage? Wait, you may protest, you didn’t see any socialists up there. And you’d be right. The Democratic Party has clearly moved left in recent years, but none of the presidential candidates are anything close to being actual socialists — no, not even Bernie Sanders, whose embrace of the label is really more about branding (“I’m anti-establishment!”) than substance. ...
  • America’s Economic Blockades and International Law - Jeffrey D. Sachs
    Trump is often called an isolationist, but he is as interventionist as his predecessors. His strategy is simply to rely more heavily on US economic power than military might to coerce adversaries, which creates its own kind of cruelty and destabilization – and embodies its own brand of illegality.
  • 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? There’s a case to be made either way. ...
  • Managing Alligators and Kangaroos with Market Incentives - Tim Taylor
    "About half a century ago, the American alligator became one of the original endangered species. Today, there are approximately 1.3 million in Florida alone, and residents routinely call nuisance trappers ... to remove gators from swimming pools, neighborhood lagoons, and pretty much any other body of water they find their way into. For the nuisance trappers across the state, markets and commercialization are part of the foundation that helps manage this now-abundant species." Tate Watkins describes the situation in "The Gator Traders: Markets help manage alligators in Florida. What can they teach us about managing other abundant species?" published in PERC Reports, Summer 2019, pp. 32-29). ...
  • Trump Is the Worst Kind of Socialist - Bernie Sanders
    ... That declaration was an effort to frighten Americans and undermine growing support for expanding Medicare and Social Security—two popular programs that have long been derided as “socialist.” Mr. Trump’s declaration hypocritically ignores that he and his Republican colleagues are the nation’s leading purveyors of an insidious form of corporate socialism, which uses government power and taxpayer resources to enrich Mr. Trump and his billionaire friends. ...
  • Self-Inflicted Medical Misery - Paul Krugman
    Over the weekend The Washington Post published a heart-rending description of a pop-up medical clinic in Cleveland, Tenn. — a temporary installation providing free care for two days on a first-come-first-served basis. Hundreds of people showed up many hours before the clinic opened, because rural America is suffering from a severe crisis of health care availability, with hospitals closing and doctors leaving. Since the focus of the report was on personal experience, not policy, it’s understandable that the article mentioned only in passing the fact that Tennessee is one of the 14 states that still refuse to expand Medicaid under the Affordable Care Act. So I’m not sure how many readers grasped the reality that America’s rural health care crisis is largely — not entirely, but largely — a direct result of political decisions.
  • Today’s Inequalities Are Signs That Democratic Capitalism Is Under Threat - ProMarket
    At the launch of the IFS Deaton Review, a 5-year review of rising inequalities in the UK, Sir Angus Deaton decried extreme inequality and the system that allows it. “As it is, capitalism is not delivering to large fractions of the population.”
  • Trade and Exchange Rates - IGM Forum
    Question A: Mexico's persistent bilateral trade surplus with the United States implies that Mexico is following policies that keep the peso artificially weak against the US dollar. ...
  • Black workers are being left behind by full employment - Brookings
    The unemployment rate is 15.8% in Newark, N.J. It’s an alarming 17.4% in Detroit. And in Flint, Mich. more than a quarter of the population is unemployed. If these numbers referred to the white unemployment rate, our leaders would be doing everything possible to improve it. But these rates represent black unemployment, and no one is sounding the alarm.
  • How to put the long-term unemployed back to work - The Washington Post
    The current U.S. job market is, by most measures, in great shape. Unemployment, at 3.6 percent, stands at a 50-year low. Underemployment, which includes 4.4 million (about 3 percent of the employed) part-timers who want full-time jobs, is 7.1 percent, its lowest since late 2000. Any way you cut it, that’s a tight national labor market. Yet, amid all those strong numbers, more than 1 million people, about a fifth of the unemployed, were long-term unemployed last month, meaning they had been looking for work for more than half a year. Millions more remain out of the labor force...
  • How Large Are Default Spillovers in the U.S. Financial System? - Liberty Street Economics
    When a financial firm suffers sufficiently high losses, it might default on its counterparties, who may in turn become unable to pay their own creditors, and so on. This “domino” or “cascade” effect can quickly propagate through the financial system, creating undesirable spillovers and unnecessary defaults. In this post, we use the framework that we discussed in “Assessing Contagion Risk in a Financial Network,” the first part of this two-part series, to answer the question: How vulnerable is the U.S. financial system to default spillovers? ...
  • Notes on Excessive Wealth Disorder - Brad DeLong.
    I am hearing from a number of people that columns like this one and its ilk by Paul Krugman and our other compadres are bloodless, and ineffective. They do not convey any sense of what is happening. So let me make it more concrete...
  • Consumers’ and Economists’ Differing Inflation Views Can Complicate Policymaking - Dallasfed.org
    Economists and consumers likely think of different concepts when they consider inflation. Economists typically focus on the underlying trend that monetary policy can steer. U.S. consumers appear to think instead about unpredictable changes in prices most relevant to their regular decision-making. ...
  • Professors need to be entertaining to prevent students from watching YouTube in class - EurekAlert
    Students think it is instructors' responsibility to ensure they don't surf the web in class, according to a new study. ...
  • Is Slow Still the New Normal for GDP Growth? - FRBSF
    Estimates suggest the new normal pace for U.S. GDP growth remains between 1½% and 1¾%, noticeably slower than the typical pace since World War II. The slowdown stems mainly from demographic trends that have slowed labor force growth, about which there is relatively little uncertainty. A larger challenge is productivity. Achieving GDP growth consistently above 1¾% will require much faster productivity growth than the United States has typically experienced since the 1970s.
  • On the socially optimal labour share of income - VoxEU
    The worldwide decline of the labour share is worrying, because the labour share is thought to be too low. This column attempts to derive an estimate of the socially optimal labour share. The calibration implies that the socially optimal share is 17% higher than the historical average.
  • Distance learning in higher education - VoxEU
    Distance learning technologies are attracting attention as demand for higher education grows around the world, but credible evidence on their effects on students’ outcomes is scarce. This column studies the impact of online live streaming of lectures on student achievement and attendance in a experiment with first-year undergraduate students at the University of Geneva. It finds that students use the live streaming technology only when events make attending class too costly, and that attending lectures via live streaming lowers achievement for low-ability students but increases it for high-ability ones.
  • Price and wage setting when accurate decisions are costly - VoxEU
    Recent low inflation is motivating new research to better characterise how individual firms and workers set prices and wages. This column describes a new approach which emphasises that the costs of decision making may limit the precision of price and wage changes. As well as making better sense of price and wage changes in microeconomic data, this new approach also strikes a middle ground between two leading models of monetary policy transmission, improving our quantitative understanding of the short-run effects of monetary policy on output and the short-run trade-off between inflation and unemployment.
  • Inflation and exchange rate targeting challenges under fiscal dominance - VoxEU
    Countries have significantly increased their public-sector borrowing since the Global Crisis. This column documents several potential fiscal dominance effects during 2000-17 under inflation targeting and non-inflation-targeting regimes. A higher ratio of public debt to GDP is associated with lower policy interest rates in advanced economies. In emerging economies under non-inflation-targeting regimes, composed mostly of exchange-rate targeters, the interest rate effect of higher public debt is non-linear and depends both on the ratio of foreign currency to local currency debt, and on the ratio of hard currency debt to GDP.
  • The Case for Strengthening Automatic Fiscal Stabilizers - Cecchetti & Schoenholtz
    For decades, monetary economists viewed central banks as the “last movers.” They were relatively quick and nimble in their ability to adjust policy to stabilize the economy as signs of a slowdown arose. In contrast, discretionary fiscal policy is difficult to implement quickly, so any stimulus typically comes too late. In addition, allowing for the possibility of a constantly changing fiscal stance adds to uncertainty and raises the risk that short-run politics, rather than effective use of public resources, will drive policy. So, the ideal fiscal approach was to set policy to support long-run priorities, minimizing short-run discretionary changes that can reduce economic efficiency. The depth of the Great Recession of 2007-09 and the weakness of the recovery has shifted perceptions. ...
  • Economic Conditions and the Stance of Monetary Policy - Dallasfed.org
    At the recent June meeting, the Federal Open Market Committee (FOMC) left the federal funds rate unchanged in a range of 2.25 to 2.5 percent. In our statement, the FOMC indicated that uncertainties about the outlook have increased and stated that “in light of these uncertainties and muted inflation pressures, the Committee will closely monitor the implications of incoming information for the economic outlook and will act as appropriate to sustain the expansion, with a strong labor market and inflation near its symmetric 2 percent objective.”[1] The purpose of this essay is to describe my assessment of economic conditions in the U.S. and global economies. In addition, I will discuss business activity in the Eleventh Federal Reserve District and describe how the implications of climate change are impacting Dallas Fed economic analysis of the district and the nation. Lastly, I will discuss my views regarding the appropriate stance of U.S. monetary policy. ...
  • Libra: economics of Facebook’s cryptocurrency - Jim Hamilton
    Facebook last week announced plans for Libra, a new global cryptocurrency. The name seems to be a marriage of the words “livre”, the French currency throughout the Middle Ages based on a pound of silver, and “liber,” which is Latin for “free.” Facebook claims that Libra will give the freedom to easily transmit funds across borders to the 1.7 billion adults in the world without access to traditional banks. Money is defined by three attributes. ...
Mark Thoma
Mark Allen Thoma (born December 15, 1956) is a macroeconomist and econometrician and a Professor of Economics at the Department of Economics of the University of Oregon. Thoma is best known as a regular columnist for The Fiscal Times through his blog "Economist's View", which Paul Krugman called "the best place by far to keep up with the latest in economic discourse", and as an analyst at CBS MoneyWatch. He is also a regular contributor to EconoMonitor.

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