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

@ilduce2016 #FF

You owe it to yourself to read “How We Fooled Donald Trump Into Retweeting Benito Mussolini”

True genius expressed through the limited limited medium of twitter. Orwell would have been proud. Also Will Rogers, Moliere and Aristophanes.

Our Fascist bot was anything but subtle. It was, after all, directly named after Mussolini. The New York Times today swiftly recognized that it was a parody account. At the time of the account’s creation, Gawker Media Executive Editor John Cook expressed some concern that the joke behind the account was far too obvious, and wouldn’t trick anyone but a complete idiot.

Today, Donald Trump proved him—and all of us—right.

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New Keynesian Orthdoxy and Hysteresis

The debate between Gerald Friedman and the economics profession seems to be settled — Friedman agrees that he may have made a mistake. It is really unfair to him that preliminary unpublished analysis received so much attention (mostly from the Sanders campaign). Oh and it is unfair to them to expect them to ignore favorable forecasts made by a Clinton supporter of the effects of Sanders’s proposals.

The discussion did lead to an interesting discussion. Uh on twitter.

The idea that temporary bursts of govt spending will raise output forever and ever is well beyond the bounds of Keynesian thinking.

@robertwaldmann 22h22 hours ago
@Noahpinion hysteresis is outside the bounds of new Keynesian thinking by assumption not evidence or even argument.

Sam G ‏@fl0pson 6h6 hours ago
@robertwaldmann @Noahpinion didn’t Blanchard and Summers write the famous hysteresis paper? and wrote a new one months ago?

@fl0pson Summers is not a new Keynesian. Blanchard assumed no hysteresis soon after arguing there is hsyteresis (sic and link — I think this is the most influential paper with the name “Blanchard” on it)

@robertwaldmann @Noahpinion i hate NK models (mostly bc solving them sucks) but i figured you could kludge hysteresis in there somehow

@Noahpinion 6h6 hours ago
@fl0pson @robertwaldmann sure

‏@robertwaldmann 6h6 hours ago
@fl0pson @Noahpinion economic orthodoxy is odd — too complicated for twitter

hence this post.

A large number of prominent progressive economists argued that it is generally agreed and probably true that demand stimulus has only temporary effects and in particular that the level of GDP depends on the level of stimulus. I note in passing that this is already a big step from New-Keynesian back to paleo Keynesian. In 2008 the mainstream new Keynesian view was that expansionary monetary and fiscal policy both cause higher output (so new Keynesian not new classical) but a permanent shift towards policy which causes higher output in the short run would have no effect on output in the long run.

Yet leading new Keynesian Olivier Blanchard and Larry Summers recently argued that depressed demand can have permanent a effects on output and quite possibly the rate of growth of output (exactly Friedman’s derided assumption). What is going on here ?

I think there is a common pattern (not entirely fitting this particular case). There is a standard model in which demand stimulus has only a temporary effect on output and certainly no long term effect on the rate of growth of output. The model does not fit the data. In the academic discussion, macro economists note this and discuss alternative models. But if an outsiders (the Sanders campaign) or other than top status academics say something inconsistent with the standard model, economists say they are wrong and appeal to the standard model.

This can make the orthodoxy invulnerable to data. It can be noted that it is rejected by data and alternatives discussed when confronting the problematic data, but this discussion isn’t shared with non-economists.

So far I have been unfair to the orthodox progressive economists. Their actual position is that the long run effect of temporary stimulus is smaller than the short run effect. Friedman assumed they were equal. The CEA chairs’ critique of Friedman is consistent with Summers’s view expressed here, here and here (all pdfs).

When discussing the discussion Krugman asserted

“Finally, there’s hysteresis: the proposition that demand-side weakness now breeds supply-side weakness later, so that there are big payoffs to boosting the economy through public spending. There’s now a lot of evidence for that proposition,”

But there are still odd things going on.

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The Koch Brothers Read Angry Bear! [links fixed]

Yep.  As I said, a monkey could beat Rubio in the general election.  So maybe the Republicans should urge a monkey to run as a third-party candidate.  Someone who works for the Koch brothers’ super PAC, maybe? — Me, here, Feb. 24


Okay, if you think the timing of this is a coincidence you are soooo wrong.


UPDATE!: Reader Amateur Socialist and I have exchanged the following comments in the Comments thread:

Amateur Socialist

February 27, 2016 2:16 pm

… meanwhile the twitter machine spewed this relevant scenario:

“Donald we convinced all of your delegates to vote for Marco Rubio on the second ballot”

“Ok well it was a good run give my best to Marco!”

I guess I can moderate my disappointment at Madame Secretary’s coronation with the unholy war of egos at the center of the GOP this weekend.


February 27, 2016 5:59 pm

Ah. Well, that’ll save the Kochs the trouble of finding a monkey. Trump’s best to Marco will be a third party run. Meaning Marco will play the role of spoiler for Trump. Unless of course Trump’s delegates decide instead to vote for a REAL monkey on the second ballot.

Something like that. It’s all so confusing.

Just wanted to make sure y’all didn’t miss this.  Because I know you would not have wanted to miss this.

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Tracking Labor Share & Unemployment

In May of 2015, I wrote about the relationship between Labor Share and Unemployment. The post basically said that lower labor share translated into a higher limit upon unemployment.

Here is the original graph from that post…

ls unrate

In the post, I wrote…

“The graph implies that as labor share falls, labor is less inclined to supply their labor… and the natural rate of unemployment rises.

“Since 1947, the unemployment rate falls to a level consistent with implied supply & demand limits set by labor share of national income. The US is now hitting the implied supply limit.

    • Will the unemployment rate only fall as long as labor share keeps trending up?
    • Will the plot line end up respecting the implied supply limit of labor?”

So what has happened since this graph was posted? Has the plot line broken through the limit that I estimated? or Has the plot line respected the limit?

Here is the updated graph… (quarterly data)

ls unrate2

The plot line has respected the estimated limit. (Currently labor share at 100 and 4th quarter 2015 unemployment at 5%.)

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Democrats and Progressives need to accept the likelihood that their nominee will be facing Trump in November. And they need to seriously consider what that actually means. [Edited. Cringe-inducing cut-and-paste typo corrected**.]

— Clinton [at a CNN-sponsored town hall last night in South Carolina] promised to go hard after Wall Street. The former Secretary of State faced criticism in a different department: her failure to release transcripts of paid speeches given to Goldman Sachs. “Sure, I’ll do it if everybody else does,” the former Secretary demurred, circling back to a familiar refrain after being pressed by moderator Chris Cuomo. “But this is about whether I have the best plan to go after Wall Street,” she said. “Why is there one standard for me and not for everybody else?” [All boldface in original.]

— James Hohmann, the Washington Post’s PowerPost blog, today

Okay, you probably have figured out the answer to Clinton’s question all by yourselves: She, unlike, say, Marco Rubio, who wants Dodd-Frank repealed and replaced with no financial-industry regulation at all, and who wants also to eliminate the capital gains tax—completely eliminate it—is a Democrat who has proposed a detailed plan to regulate some aspects of the financial services industry but believes that nothing beyond the provisions in Dodd-Frank is necessary regarding actual banks.

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R’s Supreme Court Boycott & Trump: How is That Going to Work Out for Them?

What if it is Trump? Or Trump vs. Clinton? Or Trump vs. Clinton vs. Bloomberg? What’s the end game for the McConnell-Grassley Triple No Strategy on the Court?

Can they really rely on a President Trump or a President Bloomberg actually going with a Scalia Federalist Society Originalist type? Are the really willing to go All IN on President Rubio?

Got more questions than answers. In fact no firm answers so far. But Ted has one week to put this election into Cruz Control, because if he is in second or third place trying to get around the fat ass of the Trumpmobile come next Wednesday at this time he is in the slow lane to nowhere. And Rubio is trying to make a play as being the most warlike warlock of the Neo-Cons even while being No Exception on Abortion while claiming the ‘moderate’ ‘sensible’ ‘main street’ lane to nativist populist Trump.

Yet the Federalist Society types are going all in with the bet they get better Court results with appointees in 2017 than with Obama in 2016. Seems to me they should have waited to get beyond Super Tuesday before they bet the future of the Court for the next couple of decades.

Open Thread on Nevada, Trump, the Supreme Court

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Paul Krugman Hits It Home [Updated]

And let me say that the great thing about a progressive agenda is that it doesn’t require big growth promises to make it work, because the elements of that agenda are good things in their own right. Conservatives need to promise miracles to justify policies whose direct effect is to comfort the comfortable (cutting taxes on the rich) and afflict the afflicted (slashing social insurance); progressives only need to defend themselves against the charge that doing good will somehow kill economic growth. It won’t, and that should be enough.

Realistic Growth Prospects, Paul Krugman, today

You. Go. Guy!

All is forgiven.  Eh.  Almost all.


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Food for Thought, Pulp Edition, and a ‘Peace Dividend’

Tim Taylor (via Mark Thoma) reads part of President Obama’s Proposed Budget and finds this gem:

The share of electricity generation from renewable sources was 19.7% of the total in 1960, fell to 9.4% by 2000, and had risen to 13.2% of the total in 2014.

I assume that means almost 1/5 of the U.S. energy supply 55 years ago was from lumber. Erik Loomis can tell you what happened next.

ETC: bob in Comments notes that I managed to ignore hydroelectric as a renewal power source. Anyone still taking advice from my 2008 article about water investments in Institutional Investor is appropriately cautioned.


My favorite data point in a quick perusal: From its 2010 peak to 2014, DoD-Military spending dropped from $690,469,000,000 to $581,456,000,000. Even if you assume the lowest-range economic estimate of waste for military spending, that’s a real economic gain of around $32.7 billion, or just under half of the total spending on Education.

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China’s Vulnerable External Balance Sheet

by Joseph Joyce

China’s Vulnerable External Balance Sheet

China’s capital outflow last year is estimated to have totaled $1 trillion. Money has been channeled out of China in various ways, including individuals carrying cash, the purchase of foreign assets, the alteration of trade invoices and other more indirect ways. The monetary exodus has pushed the exchange rate down despite a trade surplus, and raised questions about public confidence in the government’s ability to manage the economy. Moreover, the changes in the composition of China’s external assets and liabilities in recent years will further weaken its economy.

Before the global financial crisis, China had an external balance sheet that, like many other emerging market economies, consisted largely of assets held in the form of foreign debt—including U.S. Treasury bonds—and liabilities issued in the form of equity, primarily foreign direct investment, and denominated in the domestic currency. This composition, known as “long debt, short equity,” was costly, as the payout on the equity liabilities exceeded the return on the foreign debt. But there was an offsetting factor: in the event of an external crisis, the decline in the market value of the equity liabilities strengthened the balance sheet. Moreover, if there were an accompanying depreciation of the domestic currency, then the rise in the value of the foreign assets would further increase the value of the external balance sheet. and help stabilize the economy.

After the crisis, however, there was a change in the nature of China’s assets and liabilities.Chinese firms acquired stakes in foreign firms, while also investing in natural resources. The former were often in upper-income countries, and were undertaken to establish a position in those markets as much as earn profits. Many of these acquisitions now look much less attractive as the world economy shows little sign of a robust recovery, particularly in Europe.

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