Linking ≠ endorsement.
1) Discussion: Jeff Madrick, Ylan Mui, Josh Bivens, Brad DeLong: Lightly-Edited Transcript: Jeff Madrick EPI Event: How Mainstream Economic Thinking Imperils America: Focus – Washington Center for Equitable Growth
This speaks for itself.
Josh Bivens: It’s pretty early to tell. I mean let me step back. I think, again, this discussion is about where does the breakdown happen between in the policymaking process. Why do we get so many bad policy outcomes. Is the problem economist who generated that the front-end of the chain? Or do they somehow get messed up along the way, and it’s the policy makers on the ground who garble the ideas and get it wrong? And I think there’s blame to go around for sure.
In Jeff’s book I think it’s mostly about that top of the food chain where the ideas come from. I will say I think Brad does have some points in that. We’ve got a lot of economists saying some sensible things, and yet we’re doing almost nothing sensible these days in economics. And so I would like as much attention as Jeff has put in his book on how to make sure economists have better ideas—and this is really self-serving because I work in a policy institute—but I think we need a lot more attention and resources aimed at places to figure out how to make that translation so that the good ideas in economics actually make it unscathed through the policymaking process.
I see lots of people who want to throw a lot of money to change how economists think and that’s worthy goal. But there’s also this other really important channel that doesn’t get enough attention: How to make sure that the good ideas that the economists have find good shepherds in the policymaking process. …
Larry Mishel: Thanks. I think it is interesting to think about the problems at two points of the food chain. One is where the economists are a weakness. The other is then what happens even beyond that.
Just getting to the whole issue of the Great Recession and the inadequate response which shapes this debate, one of the things that surprised me so much—I was a little shocked about the complete rout of Keynesian economics in the academy. There was very little—there’s a group, b ut outside of Berkeley and some people at Princeton and whatever, it was a pretty thin group to support the idea of an active fiscal policy. We also have to think about, even given that, why was there the bad turn in the Obama administration? The giving-up of the stimulus, and part of it is that the whole idea stimulus was defeated in the public marketplace, in part because there was this stimulus and the unemployment rate didn’t seem to get to where people wanted it to be.
Brad DeLong: As I said, I see economists somewhat differently. I see 38 of 40 of the Chicago Business School Panel’s contributors saying: yes, expansionary fiscal policy does produce benefits. Even though we are only, I think, at 32 out of 40 saying the stimulus was a good cost-benefit idea—the other seven plus Alberto Alesina saying that the debt was already too high for the benefits to be worth it.
The rout in the academy was–if it was there–extremely short-lived. It was tied to a momentary boomlet behind Giavazzi-Alesina ideas of expansionary austerity because it would somehow summon the Confidence Fairy. It was coupled with the very smart Ken Rogoff and Carmen Reinhart’s greatly overselling their evidence about the potential risks run by running up high national debt due to (a) an analytical mistake in terms of choosing the wrong baskets into which to sort their data, and (b) failing to properly distinguished between sovereigns that have exorbitant privilege in that they issue reserve currencies and sovereigns that do not.
Brad DeLong: And I have an email from a student saying:
I think the evidence is that while there are a lot of good ideas in intellectual scaffolding of economics, the Friedmanite socialization of economist is one that makes them (a) epistemologically blindfolded by naïve positivism which leads them to believe technocrats that believe themselves above the fray of democratic politics, (b) too willing to believe the great glass bead game of model building and finding natural experiments , (c) too inclined to treat the decisions of capitalists as forces of nature rather than sociological constructions, and (d) too slavish to finance in business schools.
Jeff Madrick: …
Educate people. It is so much more difficult a problem—while there are lots of exceptions, Heckman for example, talks a lot about early childhood education. We need interventions, we now realize, at zero. We need serious public investment. Not just public investment that meets a rather tech—narrow technical definition of what public is. We know that there’s neurological damage for kids from zero to three, neurological damage not only from being hit in the head but just from neglect. There are major issues here to face and we’re just not doing it. We are suppressing this, with the help of some economists.
I think many economists are suppressing social spending in America. It’s haunting us already. It’s going to continue to haunt us. People talk about secular stagnation. If this is true, why would you be surprised? Our infrastructure stinks, our education system stinks, we have the highest child poverty rate in the world, 25 to 30 per cent of kids under five or six are by and large lost to the system. That’s a huge chunk of the population. Why should we have a glorious future?
Economists should be asking themselves whether they should devote themselves to that or more—-let me be kinder about this, more fully. [Laughter]
Jeff Madrick: In agreement with Brad, Janet Yellen’s strength is that she does stick to the facts. Now, humans are imperfect beings. Bias will always enter somehow. But by and large she’s going to succeed, and the reason is—to say she does her homework is an understatement. So I always worry about the old boys club. My guess is Obama worried about it when he seemed to be resisting Yellen’s appointment. She fights it by being by and large the best or at least the best informed economist in and among her peers in decision making capacity.
We really, really, really need fiscal spending on a wide range of infrastructure targeted exactly at lifting all boats. We could do it without inflation or deflation, just real productivity matched exactly to the quantity and velocity of the bond-free currency that should be issued to pull it off. The currency would have to become a public and free utility to do it, but that’s certainly doable. The only thing standing in the way is mistaken ideology/ignorance.
↑ Federal Reserve Bank San Francisco | Housing Market Headwinds
John Krainer and Erin McCarthy:
In this Economic Letter we have described how constrained access to credit has been a lingering obstacle to the housing recovery. The signs of progress remain uneven. On one hand, banks appear more willing to hold a larger share of jumbo mortgages on their balance sheets than they were following the housing bust. However, we find little evidence that credit access has improved much for borrowers with lower credit scores. This uneven access to credit appears even in markets where economic conditions are relatively favorable to increased housing activity.
John Krainer is a senior economist in the Economic Research Department of the Federal Reserve Bank of San Francisco.
Erin McCarthy is a research associate in the Economic Research Department of the Federal Reserve Bank of San Francisco.
Opinions expressed in FRBSF Economic Letter do not necessarily reflect the views of the management of the Federal Reserve Bank of San Francisco or of the Board of Governors of the Federal Reserve System.
The lack of any discussion of the negatives of too-loose-lending standards is not conducive to avoiding a repeat of the 2008 crash.
↑ Many Households Remain Underwater on Their Mortgages | St. Louis Fed On the Economy
Juan Sánchez, Senior Economist, and Lijun Zhu, Technical Research Associate:
In general, while only a small fraction of households with negative equity actually default on their mortgages, negative equity is a necessary condition for default. Otherwise, households would sell their houses, pay back their mortgages and keep any remaining funds.
↑ mainly macro: A campaign to mislead
While accurate, Simon Wren-Lewis’ blog-post title is too charitable.
…welfare in this figure includes pension payments for those employed by the state, like nurses and teachers.
Honestly, how in the world are we ever going to have real, functioning democracies when the means are not to that end? A deliberately misinformed citizenry won’t know enough to vote the rascals out.
Fortunately, there are people around who would rather focus upon the actual facts, come what may, rather than massage them or twist them.
Thank you, Simon Wren-Lewis, for honestly trying to be one of them.
↑ Reality Might Topple a Beloved Economic Theory – Bloomberg View
We have to say that this is a crock. Noah Smith:
So QE-infinity is done. Many and long will be the arguments about whether quantitative easing helped the U.S. economy, and what the costs were — or will be. Most of those arguments will be between those who think quantitative easing just doesn’t get much traction in the economy and those who think that it has a big effect.
But what if QE had the opposite of the intended effect?
The reason QE didn’t do more was because the Fed was paying interest on reserves and because with so many consumers underwater, demand fizzled and the need for loans fizzled right along with it.
If QE had come with strings attached forcing QE recipients to educate and lend rather than park and/or speculate, all other things being equal (except that fiscal stimulus is required), inflation would have resulted, not deflation.
QE was primarily intended to keep banks afloat while the private sector deleveraged and bank asset-values slowly returned (versus marking to market, which should have happened along with nationalization).
↑ Why Don’t We See More Macroeconomic Populism? – NYTimes.com
Paul Krugman has this right.
Fiscal stimulus in the United States, far from becoming permanent, has always faded out fast, indeed too fast; monetary retrenchment has also tended to come too quickly, at least sometimes. And even when things did run away from us in the 1970s, it was not at all the story conservatives now like to tell, in which central banks printed money to cover deficit spending; deficits weren’t actually big, and inflation took off because of oil shocks and macroeconomic misjudgments, not populist temptation.
↑ Forecasting Inflation with Fundamentals . . . It’s Hard! | Liberty Street Economics
…issue is how to find the right variables to predict future inflation. Economists often use the Phillips curve relationship, with inflation depending inversely on unemployment—that is, lower unemployment puts upward pressure on wages and, eventually, on inflation. But while an unemployment rate variable is common, it isn’t clear that this is the best gauge. Stock and Watson (1999) and Wright (2009) consider a broader range of possible “economic slack” variables and then use different ways to condense the information in these variables to predict future inflation. Generally, these approaches do as well as or better than autoregressive models. Atkeson and Ohanian (2001), however, conduct a similar exercise but focus on the post-1985 period, which—up to the advent of the Great Recession—was a period typified by remarkably low and stable inflation in the United States. Using the Chicago Fed National Activity Index (CFNAI), which summarizes information across many activity variables, they show that the resulting inflation forecasts are worse than when one just relies on current inflation to forecast future inflation.
“If your income is going up faster than the inflation rate … you don’t really have to cut back on things that are more expensive, from eating more expensive cuts of meat to less expensive, buying store-brand rather than name-brand. But when your income is stagnant and inflation is still rising, you have to make these judgments almost every month. And depending on your situation, you may be subject to a higher inflation rate than other households. You may suffer some medical setbacks, and you have to buy drugs that have a higher inflation rate than other goods; or you’re a young person and trying to buy a home and find that even these small increases in home values can shut you out from the home market.”
—Richard Curtin, director, Thomson Reuters/University of Michigan Surveys of Consumers
↑ How To Clean Your Gutters Safely | The DIY Doctor’s Blog
With the arrival of autumn come dead leaves, many of which will end up in your gutters. Left unattended, leaves and other debris, such as twigs and moss, can cause blockages and lead to water leaking into your roof causing serious damage. Cleaning your guttering at least twice a year could save you a costly repair later.
Doing that, of course, means getting access to the guttering. If it’s a business premises, then you really should have specialised height equipment for general service and maintenance, but even if it’s your home, having the right platform won’t just make those jobs around the house go more quickly, it will also make them a lot safer.
↑ Real estate News: Baby Boomers plan to upsize, not downsize, if they move at all
The iconic suburban, single-family American home isn’t going anywhere — and neither are their Baby Boomer owners. Contrary to common belief, the post-World War II generation will not be trading home ownership for renting, suburbs for cities, or yards and gardens for more maintenance-free living.
Rather, most Boomers will age-in-place….
The Bank of Japan’s bond vault is starting to resemble a black hole: debt keeps falling in, never to escape. At least, that’s what investors want to believe. If their expectations change, the consequences for Japan’s bond market could be ugly.
We think Japan will stay the course but possibly make the mistake of raising taxes again.
Mayor Mike Duggan and others said Saturday that the city had 97 reported fires between Wednesday and Friday. It was the fourth year in a row that the Angels’ Night period had fewer than 100 fires.
↑ Woman accused of insurance fraud after home burns down | www.wsbtv.com
DAWSON COUNTY, Ga. — A Dawson County woman said a fire that destroyed her house was an accident, but now a district attorney has issued a warrant for her arrest. The woman is facing felony charges.
↑ Fire extinguished at Sherwood police substation – Washington Times
SHERWOOD, Ark. (AP) – Sherwood authorities are investigating a weekend fire at the historic Roundtop Filling Station, built in 1936 and known for its inverted-cone-shaped roof.
INDIANAPOLIS (AP) — Authorities say an Indianapolis house caught fire after a car apparently damaged while speeding with another car was parked in the garage.
The car apparently caught on fire. It was leaking.
DES MOINES, Iowa (AP) — A class-action lawsuit has been filed accusing the city of Des Moines of not properly handling an extended bedbug infestation at a housing complex.
Metropolitan Transportation Authority Police Michael Coan says Bernard Jenkins was arrested Friday on charges including grand larceny. They stem from eight copper cable thefts this month.