Worþy Reads: For 2021-07-12 Mo
A preview of my weekly read-around for Equitable Growth:
Worthy Reads from Equitable Growth:
1) A very nice and very fair discussion of what the risks of a medium-run inflationary spiral of any serious magnitude actually are:
Francesco D’Acunto & Michael Weber: A Temporary Increase in Inflation Is Not a Long-Run Threat to U.S. Economic Growth & Prosperity: ‘After a decade of below-target rates of inflation… the incipient economic recovery in the United States from the coronavirus recession is suddenly turning the tables on the debate…. In May 2021, the Consumer Price Index registered inflation running at 5 percent, the highest reading in a decade for this broad measure of prices—so high that some observers worry about strong and sustained inflation and reference the stagflationary period of the 1970s. At the same time, the Federal Reserve is largely downplaying these concerns, so much so that in late June, Fed Chair Jerome Powell argued before Congress that “it is very, very unlikely” that the United States will face strong inflationary pressures going forward. Prolonged periods of high inflation do have direct and immediate effects on the macroeconomy and also the potential for more subtle effects of further increasing economic inequality and crimping more sustainable and more equitable growth…. What should policymakers really expect to happen to inflation over the next 2 to 5 years? The answer is important, as the Biden administration and the U.S. Congress debate the merits of the proposed infrastructure packages to address fragilities in the U.S. economy and move it toward more stable and sustainable economic growth…. We need to stress that the recent 5 percent inflation rate appears much less concerning once we account for… the base rate effect…. Policymakers should expect more moderate Consumer Price Index inflation readings going forward. But there still remain four very relevant potential drivers of inflation over the next 2 years: Demand pressures. Supply chain disruptions. Labor market pressures. Inflation expectations. We’ll examine in this column the extent to which these four factors might or might not be relevant…
2) We are highlighting grantees as they speak at the NBER summer institute. This is the most-see presentation and the must-read paper of the year as far as understanding what we know about the causes of inflation in the United States have been for the past half-century:
Equitable Growth: ’Today we’re kicking off EG grantee presentations at the NBER Summer Institute! First up right now: Emi Nakamura, Jonathon Hazell, Jón Steinsson & Juan Herreno with “The Slope of the Phillips Curve”. Watch: <https://t.co/TCXo6OrqL5>
LINK: <https://twitter.com/equitablegrowth/status/1414600575333847045>
3) It is not clear to me what a “whole government” approach is, exactly. And it is not clear what serious impact agencies other than Justice and FTC can have. So I am anxious to learn more, and to watch this to see how it evolves:
Michael Kades: ’By all accounts, the Executive Order reflects a policy decision that promoting competition requires a whole government approach. This idea was one of three principles in Equitable Growth’s transition report: <https://t. co/0grfzl9iYb https://t.co/NUEYCPEErS> <https://equitablegrowth.org/research-paper/restoring-competition-in-the-united-states/>
LINK: <https://twitter.com/Michael_Kades/status/1413309595355947014>
4) Let me hoist this back from early 2019. It turns out that my feelings were more general among left-neoliberals and ex-left-neoliberals and quasi-left-neoliberals than I had thought—or maybe things crystalized in 2019 and 2020, with the Trumpist Cultural Revolution sweeping through the Republican Party:
Zach Beauchamp: A Clinton-Era Democrat Makes the Case for the Left: ‘It’s time to give democratic socialists a chance: “The baton rightly passes to our colleagues on our left…”
LINK: <https://www.vox.com/policy-and-politics/2019/3/4/18246381/democrats-clinton-sanders-left-brad-delong>
Worthy Reads from Elsewhere:
1) When there is only one institution that is even semi-competent and semi-functional, people tend to load all kinds of tasks onto it. On the other hand, the previous régime in which the central bank was supposed to stick to its inflation-control knitting and so make all other arms of government aware that doing their job was their responsibility, and that the central bank would not life a finger to get them out of jams they had entered via incompetence and malfeasance—that has not served us well at all over the past generation:
Adam Tooz: Climate Crisis Offers Way Out of Monetary Orthodoxy: ‘On July 8th the European Central Bank announced the results of the Monetary Policy Strategy Review initiated by its president, Christine Lagarde…. Lagarde shepherded the ECB’s General Council into unanimous agreement on a terse statement about the bank’s policy regime…. It is 18 years since the bank last conducted a strategic review…. All over the world central bankers have been forced to become crisis-fighters. They face deflationary headwinds which invert the terms of the economic-policy debate that in the 1980s spawned the model of independent central banks. Whether in the advanced economies or emerging markets, central banks now engage in policies, such as large-scale asset purchases, once considered anathema. On top of that, over the last ten years social inequality and climate change have been thrust to the forefront of central-bank policy. Against this backdrop, in the United States the Federal Reserve launched a policy review which concluded in August 2020, leading to a redefinition of its inflation target. This spring the Bank of England was told to focus on climate change. In 2018 the Reserve Bank of New Zealand, once the paradigm of the single-minded, inflation-targeting central bank, had full employment added to its objectives; in February 2021 house-price stability was also inserted. In March 2020 the Reserve Bank of Australia decided to follow the Bank of Japan in adopting ‘yield-curve control’, capping the growth of medium-term borrowing costs. We are in a period of unprecedented experimentation in central-bank policy…
LINK: <https://socialeurope.eu/climate-crisis-offers-way-out-of-monetary-orthodoxy>
2) To think that we Clinton Democrats got within one vote in the Senate of starting an effective global warming-control initiative back in 1993. One vote. One single vote. With no help from anybody else:
Brian K. Sullivan: Heat Scorches U.S. West as Records Fall Across the Region: ‘Las Vegas tied its hottest all-time temperature Saturday. Fire risk remains high in U.S., Canada as dry air prevails…. Searing heat continues to scorch the western U.S., with Las Vegas tying its highest temperature ever and downtown Sacramento, California, setting a new second-highest mark on Saturday and relief at least a day away…. Readings reached 113F in Sacramento as heat continues to grip the western U.S. at least for a few more days…. Excessive heat warnings and advisories reach from Oregon south to the California-Mexico border and push east into Utah, Idaho and Arizona, affecting at least 22 million people. In addition, the dry, hot air is keeping the fire risk high across much of the region and straining electric grids as people crank up their air conditioners. Sunday’s highs could reach 108F in Sacramento, 112F in Fresno, California, and 112F in Phoenix…
3) Post-World War II American business was successful because its leaders understood that they needed to demonstrate that the fruits of higher productivity growth were being divided among all stakeholders, rather than being hoarded for managers and shareholders alone. A business class that opposes equitable growth is not likely to have a bright future, no matter how high that makes short-term profits:
Jonathan Bernstein: Politics Is a Lonely Place for U.S. Business: ‘I wouldn’t want to be a political strategist for U.S. business right now. The natural position of business in U.S. politics is to be an independent interest group, aligned with neither party. That allows business interests to lobby whichever party is in office…. During a time of strong partisan polarization, however, that’s a difficult stance to maintain. Unless businesses choose sides, they’re apt to lose influence. Business for the last century has generally been more comfortable on the Republican side. But today’s Republicans are a mess. Not only are they increasingly using anti-business rhetoric, but… well, have you looked at today’s Republicans?Business tends to be uncomfortable with the anti-democratic Republican agenda…. Even when Republicans aren’t trying to overturn elections and risk all sorts of chaos, their opposition to pragmatic deal-making and compromise are hardly the kind of atmosphere that’s good for business. Business leaders are presumably even more uncomfortable with Republican policies that seem destructive for no particular reason at all. A botched reaction to the pandemic was bad, but could perhaps be written off as simply a consequence of having Donald Trump in the White House. But now Republican agitation (including in Republican-aligned media) against the vaccine is both a big threat to the economy and can’t be blamed on Trump, who more or less supports vaccination. Trump’s erratic policy leadership on trade, immigration and more had already sometimes pushed business away from the Republican Party. That’s even more true now. And with Trump as their leader, many Republicans aren’t hesitant to use government power to punish those they feel have betrayed them. But it’s not as if a move to the Democratic Party is an appealing option for a lot of business executives. While Republicans have become increasingly incoherent on policy, Democrats have moved in a liberal direction, as demonstrated clearly by President Joe Biden’s initiative last week to increase competition and boost employee bargaining power, which drew prompt business opposition…
4) Cutting corporate taxes did not boost investment in America. Thus there is no reason to think that raising them will retard investment in America:
Daniel N. Shaviro: Taxing Multinational Corporations: ‘Proponents of the 2017 Tax Cut and Jobs Act (TCJA) argued at the time of its enactment that cutting the United States corporate tax rate from 35 percent to 21 percent would spur investment in the United States, particularly by multinational corporations…. There is an emerging consensus that the reduction of the corporate tax rate from 35 percent to 21 percent in the 2017 Tax Cut and Jobs Act fell well short of raising investment to the extent the law’s proponents had advocated. In addition, the TCJA appears to have resulted in a substantial reduction in government revenue. The disappointing investment and revenue response to the TCJA reflects some important features of the current tax and economic environment; among these is companies’ ability to earn high profits in a country through valuable intellectual property (IP) that need not be generated in that country…. The Biden Administration’s 2021 tax proposals offer two main responses to the concern that increasing taxation of the foreign source income of multinational corporations based in the United States will lead to a reduction in their investments. First, the Biden Administration plan aims to strengthen the existing anti-inversion rules…. Second, it aims, by multiple means… to reduce tax competition between countries and increase the extent to which they instead cooperate towards ensuring that highly profitable multinational companies will pay significant taxes somewhere…
5) This is a whole set of issues with respect to China’s governance that I had never thought about. Kudos to Isabella Weber to doing the research, and thanks to Adam Tooze for bringing it to my attention. I would point out that “gradualism” was not an option for Eastern Europe after 1991—things had been left too late, much too late:
Adam Tooze: Chartbook Newsletter #26: ‘One of the remarkable things about China under the rule of the Communist Party is its aversion to inflation. Since 2020 the regime has been making a point of emphasizing its resistance to Western-style monetary experimentation. Fascinating background is provided by Isabella Weber’s timely book about China’s price reform discussion of the 1980s. Weber argues that the stability of the CCP regime today owes much to the rejection of shock therapy a la Russe, urged on it by Western and East European advisors in the 1980s. Instead China opted for a gradualist program of price liberalization combined with the crackdown of 1989. This more cautious and ultimately far more successful approach was justified in the eyes of CCP experts by concerns about inflation. And that in turn owed much to the lessons learned by the Communists during the period of World War II and the civil war. One of the main forces enabling the CCP’s overthrow of Chiang Kai-shek in 1949 was the economic disaster suffered by the Nationalist regime. The Communists were swept to power on a tidal wave of dissatisfaction over a ruinous hyperinflation…
LINK: <https://adamtooze.substack.com/p/chartbook-newsletter-26>
6) Consequences for productivity and for the location of economic activity from what has happened in—what will have happened by the end of—the plague years will be enormous. And we do not yet understand what they will turn out to have been:
Nick Bilon: “I Don’t Think I’ll Ever Go Back”: Return-to-Office Agita Is Sweeping Silicon Valley: ‘As more of America gets vaccinated, executives—especially in tech—are facing a conundrum: a scattered workforce, employees enchanted by the WFH lifestyle, and million-dollar campuses standing vacant. “They can turn [it] into a museum as far as I’m concerned,” says one tech worker…. Executives and CEOs… worried that their employees would morph into indolence, video gaming, sleeping in, Netflixing and chilling. In fact… Zoom and Airtable, and invisible tech like automation and A.I. at work in the background, allowed people, and in turn businesses, to thrive in their new environs. Productivity began to rise, and is expected to continue to do so in the coming years, prompting the question: Are offices all they’re cracked up to be?… In most instances, the people I’ve spoken to are doing everything they can to not be called back to the physical office. “I’ve been just as productive—actually more productive—working in the middle of nowhere than I was on campus in the Bay Area,” one Google employee who moved to a remote farm during the pandemic told me. “My teammates are strewn all over the planet, I think the last 18 months has proven that it makes no difference if I’m here or there.” A Hollywood producer told me that, at first, he dreaded the idea of not being able to attend meetings in person, but halfway through the pandemic he gave up his company’s office (a $500,000-a-month expense) and now hosts meetings by taking long walks on the beach or hiking the trails in Malibu. “I don’t think I’ll ever go back to the office,” he told me…
LINK: <https://www.vanityfair.com/news/2021/07/covid-return-to-office-agita-sweeping-silicon-valley>
7) Right-wing ex-radio talk show host Charlie Sykes watches as the conservative movement continues its downward spiral into a… I guess misinformation and death cult—that seems to be the only way to describe it:
Charlie Sykes: Jesus, Guns, COVID Denialism: ‘CPAC was a weekend of Deplorable Mad Libs…. No single moment fully captured the intellectual tone of this weekend CPAC conference in Dallas, although the burst of applause for vaccination resistance might have come close…. The rest of the weekend was a cross between a game of Deplorable Mad Libs and cray-cray Voice-in-Your-Head stuff…. This weekend’s confederacy of dunces (with apologies to John Kennedy O’Toole) was… a window into what conservativism has become… standing up for neo-Nazis and Holocaust deniers on social media platforms, while pushing to fire school teachers and college professors who teach forbidden topics in schools. This is not be confused with “cancel culture,” which is now exclusively deployed to refer to virtually any criticism aimed at right wing figures. They “back the blue” except, of course, for the jack-booted thugs who assaulted the brave patriots of 1/6…
LINK: <https://morningshots.thebulwark.com/p/jesus-guns-covid-denialism>
8) And the Republican Party continues its downward spiral into a—I do not know what. We think and think about what we can do to try to help them. And I, at least, keep coming up with nothing. A political party without a trace of a spine is a bizarre thing indeed:
David Atkins: Trump Praises the Capitol Insurrection. Will the GOP Dare to Follow?: ‘Most Republicans in leadership–and most Republican voters–would like nothing more than to move on and pretend the insurrection never took place…. At the same time, they themselves pretend to talk about “real issues” facing today’s voters. But Donald Trump can’t let it go…. Speaking on “Sunday Morning Futures with Maria Bartiromo” on the Fox News Channel, he also said the rally participants were patriots, that some of them were unjustly arrested and jailed, and that a woman who was shot and killed by law enforcement during the insurrection was a great hero: ’“The crowd was unbelievable and I mentioned the word ‘love,’ the love in the air, I’ve never seen anything like it,” he said of his rally on the Ellipse. “That’s why they went to Washington.” He added: “Too much spirit and faith and love, there was such love at that rally, you had over a million people,” inflating the size of his rally crowd. He also reiterated the conservative movement’s obsession with identifying the law enforcement officer who shot Ashli Babbitt, the violent insurrectionist who first jumped through the final flimsy barrier between the murderous mob and members of Congress just yards away…
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A few responses to Brad:
- The Federal Reserve could have a strong voice in bank competition policy, if it wanted to take it. But as long as it never meets a merger it doesn't like …
- Speaking of central banks, they may be at least semi-competent and semi-functional. But they're also semi-disinterested. The more responsibilities they get loaded with, the less likely their competence and functionality are to be aligned with the public good.
- As far as the interests of business are concerned, you have to remember that these interests are intermediated ones. Trade organizations tend not to represent the median member of the group, but rather the most extreme member of the group. (Consider the police unions--most cops are not nearly so bad as to need the protections the unions lobby for.)
Re: “I Don’t Think I’ll Ever Go Back”: Return-to-Office Agita Is Sweeping Silicon Valley:"
Seems like businesses do better with remote WFH. University staff seem to really prefer it too. But once remote working is acceptable, then the institution can draw on staff from anywhere, although at the same time staff can also leave to work anywhere. Should staff in low-cost areas of the US look for higher paid employment in more expensive areas, transferring that income to the low-cost places of work? Would this remote working solve the problem of impoverished areas of the US - as workers need not leave their communities or be forced to pay for more expensive living in growth areas - or will employers exploit that to reduce pay?
Alvin Toffler predicted that electronics would facilitate this mode of work from home back in the 1970s. Maybe after nearly 50 years it is finally going to start happening.