Relevant and even prescient commentary on news, politics and the economy.

UK Macroeconomic Policy Mistakes of the Past

Given that title, I’m not sure I need to write a post, since no one will read this post which is really a comment on Simon Wren-Lewis’s post “Left, Right and Macroeconomic Competence.” I thought this title was less openly twitty than “Commenting on Wren-Lewis,” but I will go on to comment on Brad DeLong commenting on another post by Wren-Lewis.

Mainlymacro has been even more a must read than usual and, it seems, has been very stimulating. the post on Macroeconomic Competence is excellent.

Wren-Lewis starts by saying it is unfair to the right to act as if US Republican presidents are representative. Then he looks at the UK and three alleged policy mistakes. One choice seems odd to me.

three major macroeconomic policy errors over this period, all of which occurred when the Conservatives were in power. However that alone proves nothing: Labour was in power for fewer years and might have been lucky. [1]

The period starts with Margaret Thatcher and the brief experiment with monetarism. Here you could use the inflation/unemployment contrast – the policy succeeded in getting inflation down very rapidly, but at high costs in terms of unemployment, which persisted because of hysteresis effects.


The 1990 recession can also be linked to left/right influences. The rise in inflation that preceded the recession (and to some extent made it necessary) was partly down to Nigel Lawson’s tax cuts. I have been told by one insider that the key wish at the time was to cut the top rate of tax, but it was felt that to do this alone would be politically damaging, so tax cuts were made across the board. That was not the only reason for the late 80s boom – there was also the decline in the aggregate savings ratio that in my view had a great deal to do with financial deregulation – but it was a factor.

I am especially relatively ignorant about the UK, but I had a different story for the late 80s inflationary boom and subsequent recession. My story is that the 1987 stock market crash made the lady who wasn’t for turning, turn. I think that Thatcher feared a second great depression and demanded expansionary monetary policy by the non yet independent Bank of England. In any case, there was sharply expansionary fiscal (and I think monetary) policy and an inflationary boom, followed by a recession.

According to the conventions of both academic macro and policy makers, this was a bad mistake (they mistake they always fear). It is also the time when the Western border of schlerotic old Europe moved from the Atlantic to the English Channel. In 1985, the UK was the number one example of hysteresis, Eurosclerosis and all that. In the 90s it was the number two example of relatively healthy “Anglo-Saxon” economies (I typed the scare quotes, because I, like most anglophones, am not Anglo-Saxon).

I think the UK policy errors of the late 80s showed that “hysteresis” is Greek for “tight monetary policy” — that the extremely persistent unemployment problem was tractable, if one were willing to accept temporarily slightly higher inflation.

I’d tend to guess that the error was inducing an un-necessary inflation fighting recession in 1990, not inducing an inflationary boom in the late 80s.

Attempting to reduce my exteme ignorance, I went to FRED and slapped together this graph. I use the 3 month gilt rate as a safe short term interest rate, because it was easy to find. The 3 month nominal rate minus lagged CPI inflation is my index of monetary policy (the deviation from a super simple sub-Taylor rule). The registered unemployment rate follows with a lag of about one year (longer than the standard pre-hysteresis 6 months but not very long).


My reading of the graph is “keep the safe short term real interest rate below 5% (5%!) and you’ll be OK”.

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Oil Market Remarks by Spencer as Taken from Comments

Lifted from comments from this post, Angry Bear Spencer England further explains oil and markets:

Oil production is an unusual business in that virtually all of the cost of getting crude to the refiner is fixed costs while variable cost or current spending is insignificant.

Economic theory, at least what you will learn if you take some economics courses besides intro, shows that as long as a producers are covering their variable cost, even if they are losing money, it pays to continue production. Thus, what you hear from so many economists and analysts that lower prices will lead to lower output and so balance supply and demand is not quite true. Consequently, lower oil prices will only leads to oil firms not undertaking new drilling. So only with a long lag will lower prices lead to lower output.

Currently, the marginal supply of oil is oil from fracking. At $70 to $80 dollar oil about half of the current supply of fracked oil is unprofitable to bring to market. But oil from wells already drilled will continue to flow.

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A little reminder: 20 years after being ordered to tally cop shootings, the DOJ still isn’t doing it

Via Dailykos, the story points to the lack of information on police-related killings:

… But as Lee (and other reporters) have pointed out, these numbers, striking as they are, just aren’t reliable. Together with some colleagues and help from criminologists, Richard Florida atThe Atlantic magazine’s CityLab took a look in August at the available statistics and came up with an impressive set of maps showing the geography of police-related killings. Despite the prodigious effort, however, there are still holes in the data.

The reason? Here’s Steve Straehley at

In 1994, Congress passed the Violent Crime Control and Law Enforcement Act. Among its provisions was the order that “the Attorney General shall, through appropriate means, acquire data about the use of excessive force by law enforcement officers.” The Justice Department was also required to publish an annual report on the data collected.And…that’s pretty much the last anyone heard of that. The work of collecting the data was shuffled off to the International Association for Chiefs of Police, which made a few efforts at collecting data and put together a report in 2001, but has produced nothing since.

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oil and markets

Bloomberg news points to continued trends in oil production and prices.   Yves Smith also comments here.

…Conventional oil producers in OPEC can no longer dictate prices, United Arab Emirates Energy Minister Suhail Al-Mazrouei said in an interview on Nov. 26. Newcomers to the market who have the highest costs and created the glut should be the ones to determine the price, he said.

“Given the supply capacity now outside OPEC, cutting production at these levels wasn’t in the best interest of the Saudis or OPEC,” Ric Spooner, a chief strategist at CMC Markets in Sydney, said by phone. “In the medium term, somewhere in the $60s is likely to see a base, but you couldn’t discount the possibility of a short-term spike down to even lower prices.”

U.S. production expanded to 9.08 million barrels a day through Nov. 21, the highest level in weekly records that started in January 1983, according to the Energy Information Administration. Crude inventories rose to 383 million, said the Energy Department’s statistical arm.

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Successful Phase 1 trials of Ebola Vaccine

My reaction was “tell me something I don’t know already” when I read that phase 1 trials of an Ebola vaccine at the National Institutes of Health have shown that it is safe.

My dad works on the NIH campus and he told me about the trial weeks ago. The results were recently published. Trials aiming to determine if the vaccine is effective are tentatively scheduled to start in January (this means it will be given to health care workers in Liberia).

I bring this up not only because it is wonderful and important news, but to grind an old ax.

In October Francis Collins (director of the NIH) said they would have had a proven vaccine by then if it weren’t for budget cuts. The vaccine had been synthesized but not tested. The fact that there are very promising published results a month and a half after he made the claim, makes his claim extremely convincing. The progress since then involves no Eureka moment. It is based on finding a few million dollars by cutting spending on research on diseases which were more common than Ebola long long ago in July.

Something to tell your Fox News watching uncle who says the US Federal Government never does anything useful and is a waste of money. Also an NIH budget which might have a claim to compete with tax subsidies for owners of race horses (I wish I were joking)

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“The Stimulus Program Was a Smashing Success” – Gary Burtless

This Burtless Brookings Blog post really is a must read.

Burtless notes that taxes and transfers (including both ARRA and automatic responses to the recession) prevented huge income declines for the lower 60% of US households during the great recession. In contrast high income households were hammered. Federal policy actually worked.

The post is a guided tour of a Congressional Budget Office pdf

Burtless notes

Thus, about nine-tenths of the average drop in market income was erased as a result of lower federal taxes and higher public benefits. Instead of falling 10.4%, after-tax, post-transfer income in the middle quintile fell only 1.3%


Families in the second quintile from the bottom saw their market incomes shrink slightly more than 13%, but tax reductions and benefit improvements meant their net or after-tax incomes fell just 0.7%. By 2009 households in the bottom one-fifth experienced a decline in market income equal to more than 8% of their pre-recession market income, but their post-tax, post-transfer income actually increased slightly.

In contrast, high income households weren’t protected

Among households in the top one-fifth of the pre-tax income distribution, average after-tax income fell more than 16%. In the top 1% of the distribution, after-tax income fell 37%


But CBO’s latest numbers sharply contradict the widespread impression that U.S. economic gains in the 21st century have been concentrated among the nation’s top income recipients. On the contrary, they show that the top 1% sustained the biggest income losses since 2000. In fact, every income group below the top 1% saw average after-tax income rise between 2000 and 2011 (see Chart 3). Middle-income families saw their after-tax incomes grow 11%. Only the top 1% of households experienced a drop in real, after-tax income. Their average income, after federal taxes are subtracted, fell 5%.

Notice that 2011 is before the expiration of Bush tax cuts for families with incomes over $450,000 (2013) and before the Obamacare surtax was collected (2014). I’d guess that the main explanation of this pattern was the sharp decline in high pre-tax incomes due to the recession (which was mostly reversed in the recovery). There was a small contribution to the reduction of inequality from the 2011-2 partial payroll tax holiday.

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Longing for More, Wanting What We Have

Dan here…sometimes just economics isn’t enough even on an economics blog. This sermon was lightly edited for readability.


by Rev. Nathan Detering  (First Parish Sherborn, MA)

Longing for More, Wanting What We Have

Have compassion for everyone you meet even if they don’t want it.

What seems conceit, bad manners or cynicism is always a sign

Of things no ears have heard, no eyes have seen.

You do not know what wars are going on down

Where the spirit meets the bone.

Forget your perfect offering.

There is a crack in everything.

That is how the light gets in.”

NPR is button #1 in the car I drive most often. Kiss 108 is button #6. And even though the car is only a year old, those two buttons are already faded because they are caught in the battle between my kids and I when I drive them to school every morning now that it has turned cold.

A recent volley sounded like this:

From NPR: “33 million Americans will make Thanksgiving their holiday kick-off shopping day this year…” (wow, that’s almost 12% of the American population!)

From Kiss 108: “Here’s a classic from Beyonce: “All the single ladies…All the single ladies…all the single ladies…all the single ladies…if you want it, put a ring on it  (quick aside: my daughter says we should sing Beyonce in church to bring in the younger folks)

“Come on, leave the radio alone”, I say.” I’m listening for sermon material here!”

From NPR: “And ready to accommodate all those shoppers will be Kohl’s, Walmart, Macy’s, Target…”   Accommodation, really? Sounds more like more like entrapment to me.

“Ugh, your station is so depressing,” says kid #2.

Back to Kiss 108: “All the single ladies, all the single ladies…..”

And then the song fades out, and right on a cue comes a voice:

“Thanksgiving is only 6 days away. Before the giving happens,

Why not think of the getting! Come on, you deserve it!

And here to help you is Macy’s.

Come in before next Thursday and get something for yourself

before the family arrives.

Thanks-getting! It’s what happens before the giving!’

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Thanksgiving and the economics of sharing

Dan here…this piece is originally published at Oxford University Press by Angry Bear Edward Lambert.

by Edward Lambert

Thanksgiving and the economics of sharing

For this American, my favorite holiday has always been Thanksgiving. Why? I have an image in my mind of Native Americans and colonists meeting and sharing food together; they share knowledge and stories. In the midst of their concerns about each other, they found respect for each other. Their spirit of sharing is a great inspiration.

As an economist in this upside-down world of people stressing over their future and present, I find answers in that image of Thanksgiving. People eventually survive by sharing with each other as a community. The poor are fed. The sick are cared for. The struggling are helped, and communal ties are strengthened.

There is a term in economics, social capital. This term refers to the cultural interactions within a society forming cohesion, coordination, and cooperation that allow an economy to function better. An economy relies on people from diverse backgrounds talking, sharing concerns, negotiating, making plans, and working toward common goals. The social quality of their communication determines the true strength and potential of their economy.

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Abenomics pushing companies to higher wages… Get ’em

Well, it is about time for a higher authority to push strongly for higher wages. The Wall Street Journal has an article about the Bank of Japan’s Governor, Haruhiko Kuroda. Basically, companies need to use their increased profits and reserves to raise labor’s pay. If companies do not raise labor’s pay significantly, Abenomics will fail.

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