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Gerard MacDonnell <https://bsky.app/profile/gmacdonell.bsky.social/post/3lxvlcs7r5k2o> wants this reference. So, since it is about to vanish from TypePad forever, here it is:

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Is the U.S. at Immediate Risk of Rapidly Becoming "Argentina" as a Result of Expansionary Counter-Cyclical Policies?: The Bet with Noah Smith: Noah Bravely Takes the Cochrane-Argentina Side

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The bet:

If, at any time between 7/28/2012 and 7/28/2015, core consumer prices, as recorded in the FRED database series CPILFESL, are up more than 5% in the preceding 12 months, and if over the same 1-year period monthly U3 unemployment (as recorded in FRED database series UNRATE) has not averaged below 6%, then Brad DeLong agrees to buy Noah Smith one dinner at Zachary's Pizza at 1853 Solano Ave. in Berkeley CA, and to pay Noah 49 times the cost--including tax but excluding tip--of Noah's meal at Zachary's in Federal Reserve notes, or in alternative means of payment accepted by Zachary's should Zachary's Pizza no longer be accepting Federal Reserve notes at the date of the dinner. This cost will be assessed as the total cost of the dinner to all, divided by the number of people present, regardless of how much pizza is consumed by or how much alcohol is drunk by specific individuals.

If however, the above condition is not satisfied, Noah agrees to buy Brad one dinner at Zachary's.

Miles Kimball will be the judge in charge of refereeing the bet. The decisions of the judge will be final and unappealable.

Furthermore, Noah's brave and gracious willingness to take the Cochrane-Argentina side of this bet at odds of only 50-1 will not be construed as a statement of his confidence in or of his support for any economist or position of economic analysis that judges expansionary fiscal policy at the zero lower nominal interest rate bound to be "insane" or that judges "1932" to currently be a less dire risk for the U.S. than "Argentina".

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The start was my noting that Sebastian Mallaby these days is sounding like a normal reality-based economist--and is far, far from the guy who back in March 2009 thought that what the audience at his CFR conference really needed to hear was the (unrebutted: the panel was stacked) opinions of John Cochrane:

What Do the 1930s Teach About Reforming Today's Financial Markets? [Note: CFR link is dead: go to <https://www.cfr.org/united-states/new-financial-deal-do-1930s-teach-reforming-todays-financial-markets/p19004>]: [T]he danger now is inflation. And I would say it's a greater danger than most of the other people have said. Our danger now is a run on Treasury debt. It's not just can the Fed soak this stuff back up again, but can it soak this enormous amount of debt back up again when people don't want either money or Treasury bills or anything labeled "U.S. Government." The danger is not 1932; the danger is Argentina, a massive run from Treasury debt. And then monetary policy will not be able to do anything. You can fool around with interest rates all you want. When people don't want Treasury bills or money you're stuck….

The system is much more resilient than it was because of deregulation. Back in the Great Depression… if the Bailey Savings and Loan goes under, there is no way that JP Morgan, financed by an equity infusion from the sovereign wealth fund of Kuwait can come in and take over and start lending. You're just stuck. Well, we're not in that situation anymore….

Policy is chaotic. Who would invest in this climate? It's not about toxic assets; it's about who wants to go in on a deal with Darth Vadar [sic], who can change his mind at any moment? That's the uncertainty that's keeping things from getting going and that's what's slowing the rebuilding of financial markets. We're facing growth-destroying marginal tax rates, an excuse for the government takeover of large and completely unrelated sectors, class warfare, vindictive ex post taxations….

My great hope is that the bounce-back will be quick before the quack medicine can be said to have worked. (Chuckles.) Just as we sort of -- as people think that this insane idea of fiscal stimulus -- which I'll go on with later if I get a chance -- came from Roosevelt's experience with no reason why it should work, there is a danger of thinking all of the crazy stuff they're doing now will have caused the bounce-back….

Cochrane than protested (sounding to my ear much like an old-line Marxist who claims that Marx never said real wages will fall but only that there was a tendency for the real wage to fall) that he had not said that unless the expansionary fiscal and monetary policies of 2009 were reversed the U.S. was about to experience an Argentina-like upward explosion of inflation, but only that there was a risk that, unless the expansionary fiscal and monetary policies of 2009 were reversed, the U.S. was about to experience an Argentina-like upward explosion of inflation.

And Noah Smith said that was a fair point.

I in turn counter-protested to Noah: There was no reason to think that the expansion of the Fed balance sheet from $700B to $1.7T in mid-2009 would create too-much money chasing too-few goods--for as long as the economy was at the zero nominal interest rate lower bound expanding the Fed's balance sheet simply swapped one very low-yield nominal government liability for another with little effect on anybody's net liquidity or risk exposure. The marginal expansion of the projected national debt from the Recovery Act was absolutely trivial, and since the prospect of future health-care spending deficits had not provoked "Argentina" by 2008 there was no risk the additional marginal borrowing of the Recovery Act would provoke "Argentina" in the context of a depressed economy. Financial markets were not pricing in any chance of an upward explosion of inflation. Cochrane could neither (a) point at elements in the configuration of asset (and other) prices demonstrating that people besides him thought "Argentina" was a substantial risk, or (b) explain the market failure that kept people from hedging against the risk in such a way that we could see their hedges in market prices.

Thus Cochrane's point that he was just pointing out a "risk of Argentina" did not seem to me to be a fair point at all. If it really was a significant risk, than people ought--at the appropriate odds--to be willing to bet that that risk would actually come to pass. So I asked Noah if he was so willing...

Hence we decided on:

• Zachary's pizza because we like pizza.

• A three year term because we are hungry and would like to eat our pizza.

• A twelve-month core CPI change of 5% as our definition of "Argentina"--yes, I realize that that is really absurd and is defining "Argentina" way, way down, but work with us on this…

• An unemployment rate of 6% as marking exit from the depressed-economy régime--the transition from the "involuntary unemployment" to the "inflation" region on the Malinvaud diagram--and entry into a régime in which we would expect inflation to respond in the medium-term to expansionary policies

• 50-1 as the appropriate odds: a 2% chance of the deficits and monetary base expansions of the past four and the next three years triggering the transformation of the U.S. into "Argentina".

I must say that Noah appears to me to not be an expected utility maximizer, or to have a substantially different assessment of the odds than I do: I would have demanded 200-1 to take the Cochrane side of this bet…

Mark your calendars now for August 2015…

July 29, 2012 at 15:42 in #economics, #highlighted, #monetaryeconomics | Permalink | Comments (54)

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Back in 2012, the war on Nate Silver by those who thought they would gain advantage by getting people to highball their views of Mitt Romney’s chances:

Gregg Easterbrook: Absurd Specificity Watch: ‘Americans seem to love hyperbolic claims of precision--perhaps it makes us feel that science is more efficient than it really is. When Nate Silver of The New York Times forecasts, as he did on the morning of the 2012 presidential voting, that Barack Obama will win re-election with "314.6" electoral votes to "223.4" electoral votes for Mitt Romney, such numbers are received with gravitas--as if the decimal places made them deep, rather than silly. In just two days, Obama's chance of re-election increased from "80.8 percent" to "83.7" percent. A claim of a "83.7" percent chance rather than "a good chance" is seen as turning the speaker into Mr. Spock, when actually ought to make readers giggle...

And:

Jonah Goldberg: Nate Silver's Numbers Racket: ‘An intense kerfuffle broke out over the poll-prognosticator Nate Silver and his blog at the New York Times, FiveThirtyEight. Silver, a statistician, has been predicting a decisive Obama victory for a very long time, based on his very complicated statistical model, which very, very few of his fans or detractors understand. On any given day, Silver might announce that—given the new polling data—”the model” now finds that the president has an 86.3% chance of winning. Not 86.4%, you fools. Not 86.1%, you Philistines. But 86.3%, you lovers of reason...

So I wrote a dialog: <https://delong.typepad.com/sdj/2014/08/elementary-philosophy-of-probability-and-the-war-on-nate-silver-the-honest-broker-for-the-week-of-august-2-2014.html>:

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Thrasymakhos: So tell us, friend Simplissimus, what your cohorts' objection is. Gregg Easterbook and Jonah Goldberg do not tell us why Nate Silver should make you giggle. Instead, they use that figure of rhetoric that I call "Mean Girls": to mock, and in the process of mocking implicitly warn you that if you admit to not understanding their mockery you will be mocked too. That keeps them from having to outline exactly what their mockery is, so the underlying argument can be examined...

Simplissimus: I will give it a try. Let us think about the kinds of knowledge that we could have about a forthcoming future event, and about the overweening pride of those who falsely pretend to forms of knowledge and certainty that they cannot have...

Sokrates: Let's be specific. Is there something that was once in the future but is now in the past that was bothering you? Something we can examine?...

Simplissimus: OK. The Obama-Romney presidential election. Nate Silver's false pretense of knowledge that he knew the odds down to the last decimal point.

Sokrates: Back up. Let's start with claims to knowledge that we can all agree are false, just so we can all start on the same page...

Simplissimus: OK...

Sokrates: We could claim about some future event that we know what will happen--that, for example, that we know at the start of November 2012 that Obama is going to win. Is that the kind of false pretense knowledge you are talking about?

Simplissimus: No. Everyone argues that certain knowledge of what future events will or will not come to pass is impossible.

Sokrates: So everyone agrees that claims of certain knowledge about the future are offenses against Tyche: impious and false. Only wizards and prophets claim such knowledge, and there are no true wizards and prophets.

Simplissimus: You speak truly, Sokrates.

Sokrates: But that is not the type of knowledge that Nate Silver claims, is it?

Simplissimus: No.

Sokrates: OK, so Nate Silver does not claim--call that first-order certainty. Nate Silver is much too epistemologically modest to fall into that trap of claiming to know who will be the winner.

Simplissimus: True.

Sokrates: There is another epistemologically arrogant claim to knowledge. Joe Scarborough makes it. He claims to know--with certainty--that the odds on who will win the presidential election are 50-50, and anybody who claims to know anything else is a fraud: “Nobody in that campaign thinks they have a 73% chance--they think they have 50.1% chance of winning. And you talk to the Romney people, it is the same thing. Both sides understand that it is close, and it could go either way. And anybody that thinks that this race is anything but a toss up right now is such an ideologue, They should be kept away from typewriters, computers, laptops and microphones for the next 10 days, because they are jokes...” Call that second-order certainty--that the principle of insufficient reason rules, and that the only true fair odds any honest and rational person can arrive at must be 50-50. Is that Nate Silver's offense?

Simplissimus: No.

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As such, it was very much in accord with the long-inherited tradition economics-as-applied-utilitarianism, which is itself greatly egalitarian. The declining marginal utility of wealth creates a very strong presumption that dollars should be transferred from the rich to the poor. There has to be not only a leaky bucket, but the bucket has to be very leaky indeed to “justify” any substantial degree of inequality.

And yet it all changed. When I began studying economics in the mid-1970s, the Chicago position was overwhelmingly that there could be no talk of utility functions or the form of the social welfare function whatsoever. And there was a very strong undercurrent that it was “efficient”—hence good—that the rich should hold what they had, even though the underlying math behind the claim that voluntary exchange would do the job was empty. What the math really said that declaring an arrangement “Pareto optima” told you nothing about its relative desirability vis-à-vis any allocation other than those to which it was strictly Pareto-preferred.

What role did the bog-standard racism of American non-Blacks in the mid-1900s play in that change?

i wrote about this back in 2020, so let me hoist what I wrote then:

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A friend reminds me of:

Beatrice Cherrier (2020) ’I’m worried that colleagues seriously believe “reconsidering” is merely a matter of shedding light on an old paper and tag Stigler as racist, while in fact it requires 1. years of work to document how his racists beliefs originated and evolved as social beliefs about race shifted 2. whether he changed his mind or not, apologized or not, held consistent beliefs or not 3. document how his beliefs influenced his theories of price, competition, regulation, information, markets 4. document how his beliefs influenced his teaching, editorship, university and business service…

I remember back in the… spring of 1981, I think it was. I asked my professor, William Thomson, visiting from Rochester, roughly this: The utilitarian social welfare function is Ω = U(1) + U(2) + U(3)… The competitive market economy maximizes a market social welfare function Ω(m) = ω(1)U(1) + ω(2)U(2) + ω(3)U(3)…, where the ω(i)s are Negishi weights that are increasing functions of your lifetime wealth W(i)—indeed, if lifetime utility is log wealth, then ω(i)=W(i). Market failures drive wedges between what the economy achieves and what it could achieve. 

Why isn’t the unequal distribution of ex ante lifetime income—inequality of opportunity—conceptualized by us economists as the greatest of all market failures? And why isn’t the distribution of political power that creates and preserves a property order of unequal wealth seen as the greatest of all “regulatory capture by a special interest group” flaws in the working of society, economy, and the state?" 

Thomson did not have a good answer. 

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However, another of my teachers at the time, Joe Kalt, did. “These Chicago Boys are all right-wing Marxists,” he said:

They buy the Marxian proposition that the state is an executive committee for rigging the economy in the interest of the ruling class. But they think that that is a good thing as long as the ruling class is based on wealth, however previously acquired. All their objections are to those who use some form of societal power other than wealth to try to rig the economy in their interest. And while there is an argument that a wealth-based ruling class is in general best, it is a weak argument…

(And do remember that I learned much of my political economy from Richard Musgrave and his TA Manuel Trajtenberg, who explicitly conceptualized public finance as having 3 branches:

1. repairing Pigovian externalities,

2. fiscal policy for full employment,

3. redistribution to shrink all the Negishi weights in the market’s SWF toward one.)

The Chicago School underwent an enormous change between the Midwestern Populist days of Henry Simons, for whom private monopoly was the big foe and large inequalities an enormous menace, and the monopoly-tolerant fundraising paradise that Stigler & company created.

• I put it to you that this transformation from Simons to Stigler was possible only by “othering” the non-rich by every means possible, so that their low weight in the market’s Negishi-weighted SWF could be dismissed as “deserved”.

• I put it to you that taking the Rothbard Road in race relations—trying to bring to life their anti-New Deal monopoly-tolerant union-busting economic policy agenda by white racism and supremacy, as Frankenstein’s monster was brought to life by the lightning—was very important.

• I put it to you that it was and remains a very important part of the shift away from utilitarian economics, understood as a policy science that attempts to implement a Benthamism or a Millianianism that seeks the greatest good of the greatest number, starting from the twin presumptions that (a) everyone should count for one, as nobody is especially “deserving”, and that (b) there is sharply declining marginal utility of wealth.

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• Already as of mid-2003 I appear to have been convinced that “the Singularity is in our past light-cone”: 2003-08-11: HUMAN MENTAL AUGMENTATION: Henry Farrell expresses skepticism about "transhumanism"--which he defines as… plug[ging] in new bits and pieces all the time, just because it’s cool"…. But, Henry, it's too late…. What has happened to the Third Chimpanzee over the past million years has already created gulfs between us and our chimpanzee and bonobo evolutionary siblings that dwarf any future Singularity…. And if serious toolmaking and language didn't do it, agriculture did. And if agriculture didn't do it, writing did. And if writing didn't do it, large-scale social organization did. And if large-scale social organization didn't do it, metallurgy did. And if metallurgy didn't do it, large-scale environmental manipulation (i.e., building cities) did. And if LSEM didn't do it, printing did. And if printing didn't do it, steam-power did. And if steam-power didn't do it, the second industrial revolution did. And if the SIR didn't do it, modern information technologies did…. After each stage, very few people want to go back…

• Ooooh Boy! One that I got really wrong, in retrospect. High fixed costs mean that the typical market structure shifts to profound oligopoly—with investment focused at least as much on building moats as in complementing other factors of production: 2003-08-13: The Information Age Means Fiercer Competition: The Information age means increasing returns to scale—write-once, run-everywhere. But it also means that it is easier to get... information. Which means that all of the hassle and ignorance factors that produced local monopoly power are bypassed. Which means fiercer competition and better deals for consumers…

• The American right was never much better—either in honesty or intelligence—than it is today. Long before 2003 the Brain Eater had eaten the brain of Tom Sowell, and he has still not woken up to the failure of the California economy to crash into some sort of middle-income trap: 2003-08-13: What Is Wrong with Thomas Sowell?: Rant[ing] about how migration data covering the 1995-2000 period show that the California state government is killing California's economy: Thomas Sowell: The real voting…. ‘More Californians have been moving to other states than people in other states have been moving to California…. People are voting with their feet. California's total population has not gone down, however. Immigrants have replaced Americans. Apparently California is still considered to be preferable to Mexico or Central America…’ But the 1995-2000 period Sowell references—the one during which Americans "voted with their feet" against California—saw employment grow by 14% in California…12% in the rest of the country… real gross state product in California grow by 27%…21% in the rest…. To call the California economy between 1995 and 2000 a failure doesn't pass the laugh test...

• National Review started out cheerleading for segregation and claiming that southern whites had the right to preserve segregation by any means necessary—i.e., if they wind up firebombing churches and killing schoolgirls, that is on you liberals, for encouraging the Negro to try to overthrow the God-given natural order of the races. National Review today cheerleads for kleptocratic neo-fascist grifters. Was there a moment in between when it had a moral compass with respect to public policy and journalistic ethics? No!: 2003-08-12: DOWNWARD SPIRAL: National Review can't find anyone smarter than Donald Luskin to write for it: CalPundit: Watching the Watchman: ‘Poor old Donald Luskin...pulls a full frontal Dowd by demanding that the New York Times publish a retraction [of]... Krugman's flatly deceptive claim that this growth "was simply a matter of keeping up with the population and inflation".... Here's what Krugman said… “most of the spending growth was simply a matter of keeping up with the population and inflation."... So why did Luskin decide to leave out the word "most"?... UPDATE: Weirder and weirder. Luskin emails Glenn Reynolds to say that of course he understood exactly what Krugman was saying, but many other people were confused and Krugman ought to write more clearly.... But if he understood what Krugman was saying, why did he write the paragraph above? And why did he Dowdify the quote?…’ I've said it before and I've said it again. There are lots of very smart right-wing economists who would love to write for National Review -- and who would not embarrass the magazine the way Luskin and his cohorts do…

• Thirty years ago when I came to Washington I realized that Republicans lie because journalists pretend to believe them, and so it works. Alan Murray twenty years ago was one of the few who did not play along: 2003-08-11: ALAN MURRAY WONDERS WHY WE ARE RULED BY THESE LIARS: The Wall Street Journal's Alan Murray bangs his head against the wall at the Bush Administration which has "willfully deceived the public and Congress about the costs of the Iraqi war and its aftermath... [and] continue[s] to do so..."

• Lying during your confirmation hearing is a long-time Republican judicial practice: 2003-08-10: PAGING SENATOR De CONCINI...: Al Kamen on yet another misrepresentation of his views from Clarence Thomas…. ‘Dennis DeConcini (D-Ariz.)… “I was also pleased to hear that Judge Thomas agrees that the fundamental right to privacy also extends to non-married individuals.”… In the court's ruling in June striking down anti-sodomy laws, Thomas dissented, saying: “And just like Justice Stewart, I 'can find [neither in the Bill of Rights nor any other part of the Constitution a] general right of privacy” quoting Potter Stewart's dissent in… Griswold...

• And one on our side of the hill: Al From and Bruce Reed work to lessen Democratic chances of winning elections in order to increase their chances of getting White House jobs: 2003-08-10: DOES THE DLC HAVE A PURPOSE?: Democratic Leadership Council honchos Al From and Bruce Reed are suddenly "discovering" large ideological gaps between themselves and Howard Dean…. A DLC that invents policy gaps where they do not exist is not…

& Þere Was a Lot MOAR as Well:

2002-08-13:

• Laurence H. Meyer: Ah. If I were a rich trader of fixed-income securities rather than a poor academic, this is a service I would buy: Laurence H. Meyer's Monetary Policy Insights. Larry Meyer is very smart, very thoughtful, and very good at making what he has to say sound fascinating…

• The Economist Is Unhappy at the U.S.-E.U. Trade "Deal": I find this infuriating…. Building momentum for freer trade in a Republican administration should be as easy as falling off a log. But the Bush Administration can't even fall off a log reliably…

• One Hundred Interesting Mathematical Calculations, Puzzles, and Amusements: Number 18: Sunscreen: The Freak Mutant Near-Albino Problem…

• Charles Stross (2003), Singularity Sky (New York: Ace: 0441010725): Before the Singularity, human beings living on Earth had looked at the stars and consoled themselves in their isolation with the comforting belief that the universe didn't care. Unfortunately, they were mistaken…

• Signs of a Weak Labor Market due to insufficient aggregate demand…. I think the NBER made a mistake in going for an "output" rather than an "employment" definition of the business cycle…

• Give Credit Where Credit Is Due: Why sleight Bernanke and Gertler--and Fisher, and Anna J. Schwartz, and Milton Friedman? Is it because [Greg] Ransom doesn't want to explicitly call Ben Bernanke and Milton Friedman "witch doctors"?…

• It Is 10 PM. Do You Know Where Your Laundry Is?: When things communicate--or at least, broadcast their identity and their location: News: RFID chips sent to the dry cleaners: ‘Chipmaker Texas Instruments on Monday announced a wireless identity chip for clothing…

• Yes! Telecom Price Wars!: To us economists, prices ought to be signals of social scarcity. We overbuilt fiber-optic networks, we have ample wireless bandwidth, and so telecom capacity is definitely not scarce. So it should fall through the floor—and it is…

2003-08-12:

• Lurker Day: Chuq von Rospach talks about mailing-list "lurker days": ‘Teal Sunglasses: experimenting in groups: the quiet voices: One thing Laurie and I have been investigating over the years is how to bring forward the quieter voices…. That second population to be as knowledgable and interesting as the primary population—just quieter.… One of our more successful ways we've found to draw these people out, at least temporarily, is a concept we've called lurker day…

• A WORRISOME TREND...: In the past week, three messages that I did want to read got filtered into the "spam" mailbox…

• GOOGLE CALCULATOR: Google calculates that the speed of light is 1.8026175 × 10¹² furlongs per fortnight... The scary thing is that (tonight at least) it is faster than launching a calculator from the dock...

• "SUSTAINABLE GROWTH"… It's not clear to me that we are on track for growth faster than 3.5% per year over the next couple of years…

• SCORN FOR PRESIDENT BUSH: The Economist explains the currently-limited power of monetary policy… is scornful (in its understated, very British way) of President Bush's concentration over the past three years on long-run tax cuts that do little for short-run demand…

• HUMAN PROGRESS…. "Could I just point out that the philosophy of 'I would be a better, happier person if I only got that new technological gadget' has failed so spectacularly at the personal level" "I dunno, toilets are nice"…

• THE JOB-LOSS RECOVERY: The Economist notes the large wedge between output growth and employment growth in America today…

• BUSH-LEAGUE IMPLEMENTATION: Last February Daniel Davies asked if there was any reason to think that the Bush adventure in Iraq would not be a SNAFU…. Now comes Daniel Drezner to say that the Bush Administration has created and is unlikely to be able to fix the SNAFU that is the reconstruction of Iraq…

• REINSTALLING WINDOWS XP: Mark Pilgrim loses five hours of his useful lifr…

• I DEEPLY RESENT THE WAY THIS ADMINISTRATION...: It was Teresa Nielsen Hayden who said: "I deeply resent the way this administration makes me feel like a nutbar conspiracy theorist." Here Jeffrey Sachs succumbs to the belief that the real reason for the invasion of Iraq was to get enough military ground power in place to give the U.S. the capability to conquer and occupy Saudi Arabia in 72 hours…

• GRANT, OH GODS...: I've been reading Dan Simmons (2003), Ilium (New York: HarperCollins: 0380978938): ‘Hector stretched his arms towards his son, but the boy cried and grabbed for his nurse…

• FAIR AND BALANCED: Matthew Yglesias's weblog is fair and balanced: Matthew Yglesias: Fair And Balanced II: ‘If you've got a blog, please consider adding a "fair and balanced" tag somewhere in recognition of Rupert Murdoch's out of control litigiousness (tort reform, anyone?). You also should consider buying the book…

• THE TIP OF THE WHIP THAT IS THE BUSINESS CYCLE: The most cyclically-sensitive sectors of all—the tip of the whip that is the business cycle—make the equipment needed to make the capital goods that firms purchase in order to produce durable goods… in particular—Applied Materials…. Investing in Applied Materials is, as the Financial Times writes, a clean and highly leveraged bet on the strength of America's current anemic business-cycle recovery--a bet only for those with "iron nerves"…

2023-08-11:

• FALSE ADVERTISING: I said. "We can certainly go see the giant sequoias… We will… cross the main crest of the Sierras… at Ebbetts Pass…. It should be called "Ebbetts Saddle that is marginally lower than the highest Sierra Nevada peaks, but that should not be driven by the faint of heart and acrophobic, especially not in a poorly-made Ford Taurus with 130,000 miles on it and a twice-rebuilt transmission…

• FEDERAL RESERVE POLICY: I find it extremely odd that Alan Greenspan is finding it hard to convince the bond market that he will be patient…

• THE LIST MOM IS DEAD: Grizzled Internet Old-Timer Chuq von Rospach--originator of the List Mom style of internet community moderation--thinks that the concept has reached the end of its useful life, and that it is time to shift moderation style not back to the List Nazi but forward to... what? It is not clear to me, and I'm not sure that it is clear to him either…

• ONLY IN CALIFORNIA...: It’s not just in politics that California is the Doofus State…. Odwalla… ingredients: 1. Water. 2. Lime juice. 3. Organic evaporated cane juice (10%). Now I ask you, would a company anyplace other than California call "sugar" by the name of "organic evaporated cane juice"? It's C₆H₁₂O₆ either way…

• SOME OPTIMISM IN THE FORECASTS: Forecasters are beginning to expect that higher corporate profits will lead to more investment spending. Unfortunately, forecasters seem to see no declines in the unemployment rate until next summer...

2023-08-10:

• LONG-RUN FISCAL TRAIN WRECKS: The Wall Street Journal's Al Hunt writes about the Bush-caused future fiscal train wreck…

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Published:

"Review of Richard Vedder and Lowell Gallaway, Out of Work: Unemployment and Government in Twentieth-Century America" (article) Why do so many people write books in which they have the answer--in which the whole economy can be understood through grasping one single factor? I hate that... Added 12/28/1996 Critical Review

"Review of Doug Irwin's Against the Tide: An Intellectual History of Free Trade" (short article)Doug Irwin is writing very good politically-relevant economic and intellectual history. Added 12/26/1996 EH.DISC

"Review of Daniel Cohen's The Misfortunes of Prosperity: An Introduction to Modern Political Economy" (short article) A book that I wish that I had written. Added 12/26/1996 New England Economic Review

"Is the Stock Market Overvalued?" in Slate (short article) The short answer: yes, it is; prepare for a stock market crash. Posted 12/20/1996

Presented

Comment on Xavier Sala-i-Martin, "I Just Ran Two Million Regressions" (talk)A comment presented at the January 1997 American Economic Association meeting Added 12/28/1996

B.A. 130 (Introductory Finance) [Fall 1996] (lecture notes)I am not sure how helpful this will be divorced from the course it rests on. Reorganized 12/18/1996

A Short Review of Economic Growth (article) In which I try to make sense of all the theories of economic growth that are out there. Added 12/2/1996

Drafted

Billionaires (A project in progress) (musings) An attempt to look at the American economy through he lens of the very, very rich. Added 12/28/1996

"The British Stock Market and British Growth, 1870-1914"; with Richard Grossman. Available only in .doc and .pdf versions (article)First fruits of my NSF project with Richard Grossman. Added 12/26/1996

"Understanding America's Hesitant Steps Toward Financial Capitalism"; with Carlos Ramirez. Available only in .doc and .pdf versions (article) A continuation of my financial capitalism project. Added 12/19/1996

Alan Greenspan and the Stock Market (short article) Is the market overvalued? The short answer: yes, it is; prepare for a stock market crash. Added 12/7/1996

November 1996:

World Economic Prospects: The Political Economy of the Asia-Pacific Region: Trends and Cycles 11/11/1996

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PRODUCTIVITY GROWTH TRENDS: The Economist focuses on this past quarter's productivity growth number, without taking a look at the larger picture: Economist.com: ‘Output has dipped and climbed, but has the trend rate of growth risen? Economists are still far from a consensus...’. The figure below plots the quarter-by-quarter productivity growth numbers since 1970, alongside a centered eight-quarter moving average. Yes, the quarter-by-quarter numbers do jump around. Yes, the early stages of a business cycle recovery are often times of unsustainably high productivity growth--following a period of abnormally low productivity growth as firms hoard labor during the recession….

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The rapid productivity growth of the quarter just past is a small piece of evidence that trend productivity growth has accelerated. But there are a lot of other pieces of evidence as well…

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THE INVENTION OF TRADITION: Listening to a tape about the life of Stephen Foster, 1826-1864. A Pittsburgh boy, a ninth child, born, schooled, and lived in Pittsburgh pretty much his entire life. Yet this guy from Pittsburgh created an amazing amount of what we now think of as southern and western folk music: "The Old Folks at Home", "My Old Kentucky Home", "Old Black Joe", "Massa's in the Cold, Cold Ground", "Oh, Susannah!", "Camptown Races", and others. What's a guy from Pittsburgh doing writing songs about the Swanee River? About Kentucky plantation mansions? About mining camps?…. Similar weirdness includes the fact that the words to the Christmas carol version of "Greensleaves"--"What Child Is This?"--were written by a late-nineteenth century Victorian trying to write something that would sound like Tudor dialect. "Why lies he in such mean estate?" indeed…

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ON THE PACIFIC CREST TRAIL: Highly recommended: The trail to Donner Summit Lake…. The marching song of the Pacific Crest Trail: “Everywhere we go/People want to know/Who we are/So we tell them:/We are the unacclimated/The feeble feeble unacclimated/Unacclimated to the high country/With too few red cells in our blood...

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NOTES: NIXON AND CIVIL RIGHTS: From Sally L. Todd Sistersara@aol.com…. ‘In the fall of 1960 this program was scheduled to begin with the arrival of 500 African students. Ford and other foundations had arranged full scholarships for this group, with many institutions making their own scholarship commitments. The only involvement of the US Government in the project was to be award of travel grants to get the students here, and of course the normal visa services…. In August of 1960—just before the students were to depart on Charters that had been organized, the opponents of the project raised it in the US Senate, and there was a full floor debate…. Eventually the Senate vote was tied, and Nixon cast the deciding vote against funding what by then had come to be called the "African Student Airlift." The following weekend, Tom Myoba (a Kenyan Labor Leader then traveling in the US) visited the Kennedy home at Hyannisport, and the Kennedy Family foundations agreed to pay for the Charter flights. As a result, the students all arrived, though they lost about a week of their planned orientation program. It might be useful in appreciating this story to know that among the first group of students selected for this project was Kofi Annan. Nixon's deciding vote against this project was covered by the major media as it happened, but it was covered in depth by the Black Press…

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I'M NOT AS SMART AS I THOUGHT I WAS: Ah. I thought--from GDP and aggregate hours data--that we would have a 4% per year productivity growth quarter in the spring of 2003. I was wrong: we had a 5.7% per year productivity growth quarter. It is amazing that nonfarm business hours worked can fall--and fall at a 2.2% annual rate--in a quarter in which nonfarm business output can rise at a rate of 3.4% per year. If only we had demand rising fast enough to employ more rather than fewer people, the performance of the American economy would be truly amazing…

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AMERICAN ACTION MARKETS: Ah. A certain shoe drops... ‘AAM Concept Overview: Analysts often use prices from various markets as indicators of potential events…. The American Action Market (AAM)… trading futures contracts that deal with the two most important questions facing the world today: (1) What will the U.S. government do next? (2) What is informing the U.S. government's current behavior?…

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World Economic Prospects

The Political Economy of the Asia-Pacific Region: Trends and Cycles

<http://web.archive.org/web/20010116002800/http://www.j-bradford-delong.net/Clean-Up/Pacific_Prospects/worldeconoutlook.html>

Short Run: Recent Growth and Inflation

• With respect to output and productivity growth, the industrialized core of the world economy continues to behave as it has since the oil shock of the early 1970s: slow and unstable growth.

• None of the economies of the industrialized core are currently suffering from recession.

• All of the economies of the industrialized core exhibit very low inflation rates by post-World War II standards; none shows any signs of an inflationary spiral taking hold-not even Italy.

• India may have finally turned the corner, and joined the rapid industrializing economies of Asia.

Short Run: Recent Growth and Inflation by Region

• The East Asian economies, with the exception of Hong Kong and its peculiar situation, continue to exhibit six to ten percent per year growth in real GDP.

• East Asian growth continues to outstrip growth in all of the other regions of industrialization.

• There is an even larger gap between East Asian growth and growth in regions that are not successfully industrializing-like tropical Africa, North Africa, the Middle East, and the former Soviet Union.

• Inflation remains moderate throughout East Asia. Other industrializing regions see some economies that are on track for yet another hyperinflationary spiral. This is not the case in East Asia-at least not yet.

Short Run: Interest and Exchange Rates

• Exchange rates are not pushing the bounds of their normal trading ranges in either direction. Anomalous large-scale movements in exchange rates like the appreciation of the U.S. dollar in the 1980s in response to the Reagan deficits or the appreciation of the yen in the early 1990s in response to the collapse of Japan's "bubble economy" are absent.

• After a prolonged period of relatively high real interest rates in the industrialized core, real interest rates in Europe and North America are for the most part back to normal trading ranges.

• Japan's short-term interest rates continue to be ludicrously low, suggestive of a "liquidity trap" and of a substantial expected future appreciation of the yen.

Short Run: Forecasts

• The forecast for 1997, and for a year or two beyond, is more of the same.

• Growth in the six-to-ten percent per year range in Pacific Asia, growth in the two-to-three percent per year range in the industrialized core.

• The peculiar situation of Hong Kong; the peculiar situation of Mexico.

• But should a worldwide recession develop, it would probably come on in advance of any reliable forecasts.

• And should a full-fledged international financial crisis develop, it would certainly come on in advance of all forecasts.

Short Run: Risks to the Forecast

Japan's Quiet Depression Appears Over

• Since the collapse of the "bubble", Japan has not seen a formal recession.

• Nevertheless-compared to the pace of economic growth that was established in the 1980s-the shortfall of Japanese GDP today from what one would in 1990 have projected it would be today is astonishing: 20% of what could be Japan's potential national product today is missing.

• In a differently-structured economy, unemployment would now be fifteen percent, and political and social tensions would be immense.

• The Japanese economy has room to grow when (and if) its banking system is recapitalized, and its banks begin serving as sources of funds for investment. This "room for growth" makes the chance of global recession small.

America's "Best Economy in a Generation"

• Today the United States sees a tradeoff between unemployment and inflation that is more favorable than in any years since the mid-1960s.

• The United States' central bank-the Federal Reserve-believes that it has a very strong mandate to fight inflation: every time inflation has approached ten percent per year the Federal Reserve has tightened monetary policy to inflict a significant recession on the U.S. (and on the rest of the world) to reduce inflation.

• But the U.S. is now very, very far away from any situation in which even the most cautious central bank might believe that inflation-fighting requires a recession.

The Medium Run: GDP per Capita

• The economies bordering the Pacific still exhibit some of the widest divergences within a region found in the world today.

• The developing countries of this region have already become an important weight in the international economy. The exports of the developing countries of this region are already some one-third greater than the exports of the United States-and greater than the outside-Europe exports of the European Union.

The Medium Run: GDP per Capita by Region

• Large chunks of East Asia are now joining the world's industrial core-the first significant expansion since the late-nineteenth century industrialization of continental Europe and the pre-World War II industrialization of Japan.

• South Asia remains very poor.

• Other potentially industrializing regions have closed little of the relative gap vis-a-vis the industrial core over the past few decades.

The Medium Run: Differences in Estimates of GDP per Capita

• There are systematic differences between purchasing-power-parity (PPP) and market exchange rate calculations of relative income and wealth levels; the poorer the economy, the greater is the amount by which the exchange rate-based calculation must be multiplied in order to arrive at the PPP-based calculation.

• World trade tends to set exchange rates to make the prices of frequently-traded manufactured goods roughly equal in different countries. And in general the richer a country is, the lower is its price of manufactured goods (relative to the price of personal services, or of unskilled labor). Thus exchange rate-based calculations systematically understate the value of production in the non-traded goods sector in relatively poor economies.

The Medium Run: Exports

• Total exports (in Europe's case, only exports from the EU) are perhaps a better way of measuring the relative importance of different economies to companies engaged in international trade.

• On the other hand, companies interested in world trade are more interested in how many traded manufactures a country's income would buy-and that is better captured the exchange rate-based estimates.

• After all, a country's potential demand for foreign-produced imports is in the end limited by the amount of foreign exchange it earns through it exports.

The Medium Run: Information Technology

• It is extremely difficult to arrive at coherent estimates of the share of economic growth due to information technology. The price of information technology is falling extremely rapidly, so that capabilities that would have been seen as miraculous and extremely valuable a generation ago are now commonplace.

• Estimates using the relative prices of the late 1980s assign information technology about three-eighths of world economic growth (estimates using later relative prices find smaller, and those using earlier relative prices larger, proportions).

• There is every reason to expect the share of economic growth attributable to information technology to continue to increase in the future.

The Long Run: The Industrial Revolution

• Before the industrial revolution of the late-eighteenth century, living standards had advanced little since the invention of agriculture.

• Growth in technology had, before 1800, been swallowed up by growth in population and diminishing returns. It led to increases in population (and to the wealth of the elite), but not to overall increases in standards of living.

• Since 1800, average living standards-labor productivity levels, GDP per Capita, and other macroeconomic indicators-have multiplied by a factor of fifteen in what is now the industrialized core of the world economy.

• The industrial revolution marked a qualitative break: not just an advance, but a revolution in the pace at which further advances are being made.

The Long Run: Occupational Distribution and the Industrial Revolution

• In pre-industrial societies, information-intensive activities are small: control (accounting, record-keeping, and so forth), education, and entertainment are carried out by a very small proportion of the labor force.

• In industrial and post-industrial economies, the share of the labor force in information-intensive activities grows rapidly: education because an industrial economy requires a trained workforce, entertainment because of new technologies, and control to manage the distribution of industrial wealth.

• Many information-intensive occupations are very low paying.

• But also note that agriculture has become a marginal economic activity (although food has not), and industry is becoming a marginal economic activity (although industrial commodities will not).

The Long Run: "Divergence", 1820-1960

• To date, the spread of the productivity level and growth gains of the industrial revolution has been extremely uneven.

• Africa-with a GDP per Capita level of perhaps 30% of that of the industrialized core in 1820-now has a level of less than 10%.

• From 1820 to 1950 all other regions of the world save Latin America lost ground relative to the industrialized core.

• Since 1950 E. Europe and L. America have lost relative ground.

• Since 1950 S. Europe and Asia have gained-and Asia enormously.

The Long Run: Asia's Industrialization and Convergence, 1960-??

• The economic destinies of Latin America, Eastern Europe, and Africa remain unclear. But it is clear that S. Europe and large chunks of Asia will have joined the industrialized core within a generation or so.

• It seems likely that at least one of China and India will undergo its industrial revolution in the next fifty years (although which is very hard to predict). And much of the rest of Asia is about to join, or has joined the industrialized core of the world economy already.

• The Long Run: Toward the Pacific's Steady-State Distribution of Income and Wealth
  Professor Charles Jones of Stanford has projected the long-run development of individual national economies-assuming that their investment and population growth rates follow observed trends, and (in the figure above) assuming that they close half of their productivity gaps vis-a-vis the United States.

• Even with such substantial "catch up" in the ability to use modern technologies, a large number of Asian economies are predicted to remain poor relative to the world's industrial leaders.

• Of course, even a country with a relative GDP per capita score of "60" in 2040 is as well off as the most well off of today's economies.

The Long Run: Pacific Growth, 1960-2040

• A comparison of (projected) GDP per capita levels relative to the United States in 2040 with relative GDP per capita levels in 1990 and in 1960 reveals the extraordinary speed of the Asian industrial revolution.

• The high investment rates and low population growth rates of a number of Asian economies-Singapore, Japan, and Korea-are, unless reversed, likely to produce GDP per capita levels that equal those of any other economies in the world even if there remains a technology gap vis-a-vis North America.

• Why? Because the greater capital-per-worker levels anticipated are at least as powerful a plus as any residual technology gap is a minus.

• Should the center of world invention and innovation move from North America to Asia-as it may: it moved from Europe to North America around 1900-then the technology gap will work the other way, and the richest economies of Asia will by the middle of the next century bear the same relationship to North America and Europe that the North American economies bore to Europe for most of the twentieth century.

The Long Run: Economic Prosperity and Political Democracy

• To date, rich countries have been democratic countries.

• There is good reason to think that this pattern will continue to hold: that formal political democracy will become a more urgent demand as countries gain in relative wealth.

• The creation of stable political democracies is far from easy-successful management of the process is essential to avoid economic (and political) collapse.

• Interwar Europe and post-World War II South America provide painful object lessons of the consequences of failing to manage the process of democratization.

The Long Run: Economic Prosperity and the Welfare State

• Political democracies institutionalize economic redistribution. Larger social insurance programs have been the counterpart of political democracy wherever it has been established.

• Do large welfare states retard economic growth?

• Political democracy as a guarantee that economic policy won't be too destructive of growth..

World Economic Outlook, with a Focus on the Pacific Basin

J. Bradford DeLong :: Associate Professor of Economics, U.C. Berkeley :: October, 1996

I. The Short-Term (0-5 years)

• The Business Cycle, Short-Term Economic Growth, and Inflation

• World Trade

• Exchange Rates

• Asset Markets

• Focus on the Information Technology Sector

• Risks to the Forecast

II. The Medium-Term (3-15 years)

• Expanding World Trade

• Shifting Comparative Advantage

• Changing Industrial Structure

• Politics

• Risks to the Forecast

II. The Long-Term (10-50 years)

• The Spread of the Industrial Revolution

• Divergence, 1820-1960; Convergence (for Asia at Least): 1960-??

• Information Technology and the Industrial Revolution

• The Evolution of Productivity and Living Standards: Absolute Levels

• The Evolution of Productivity and Living Standards: Relative Levels

• Political Democracy and Economic Prosperity

  • The creation of Asian welfare states?

• Risks to the Forecast

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