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


by Bradford DeLong   (originally published at Grasping Reality with Both Hands)


I have long known that the thoughtful and pulls-no-punches Amitabh Chandra has no tolerance for fuzzy thinking from Do-Gooder Democrats. He is one of those who holds that not even a simulacrum of utopia is open to us here, as we muck about in the Sewer of Romulus here in this Fallen Sublunary Sphere. ”There are always trade-offs“, he says. “Deal with it“, he says. But here he leans to the other side, and, well, snaps: Amitabh Chandra: “GOP thinktanks are the biggest milksops. From healthcare policy to environmental policy, from national security policy to fiscal policy, they have tacitly endorsed a mountain of anti-market + anti-growth + anti-America policies so as not to not upset their political masters…

…There was a time when I could go to a GOP thinktank and debate Peter Bach or Henry Aaron or Mark Pauly. We agreed on lots of things, and disagreed on many others. Now, it’s completely fine to just shout socialism and markets, disparage expertise, and everyone claps. I don’t consider myself a Democrat, but the quality of the conversation at CAP or Brookings is orders of magnitude richer, and more sophisticated, than what is happening at GOP thinktanks. And I say this is someone who often disagrees with both of them. You still can debate Henry Aaron or Mark Pauly perfectly pleasantly and productively. (I don’t know Peter Bach.) We need to focus on the many intellectually honest folks along the political spectrum and try to ignore the fools. Honestly, my academic discussions haven’t changed…

You could never have a fruitful discussion with people from Heritage. They were focused on (1) political effectiveness for their high politicians and (2) pleasing their funders. Nothing else mattered. And so nothing they said could be taken at its face intellectual value. And no evidence you could bring forward would change their minds—or, rather, would change what they said and wrote. Maybe it did change their minds. But how the hell could anyone ever know, since their words were completely determined by triangulating between their political masters and their funders?

I think Cato, AEI, the American Action Forum, and others have now entered the Heritage zone. Yes, they are happy to have your endorsement to make whatever they say as they triangulate between their funders and their political masters. No, they do not want to listen to any evidence. No, they do not care about policy effectiveness—or if they do still at some level care about policy effectiveness, it is the effectiveness of the policies they will be able to work for two decades in the future after sucking up to funders and political masters has gained them enough credibility that somebody will actually listen to them on the substance. And, no, they are not interested in marking their beliefs to market—because knowing and reflecting on how false their promises were would make them sad without any ability to do anything, because for at least 20 more years they will have no room to do anything other than utter the words that best triangulate between the demands of their funders and their political masters.

Anyone at Cato, AEI, that AAF, or any of the others that this does not describe? Damn few.

Case in point: last winter’s tax cut bill. Professional Republican economist after Republican economist was falling over himself to get a 0.4% boost to annual economic growth in 2018 and 2019 from higher investment triggered by the tax bill. Do the arithmetic and that means an extra 800 billion dollars a year of investment in America. Six months later are we getting that extra investment? No. Are any of the professional Republican economists worried about why we are not getting that extra investment? No. By how much will the fact that we did not get that extra investment they projected change what they write in the future? Zero.

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A comment on Ballance


(Dan here…lifted from Robert’s Stochastic Thoughts.)


by Robert Waldmann

In a generally good article on how Trump got nothing out of Kim in Singapore, David Nakamura, Philip Rucker, Anna Fifield, and Anne Gearan make a false claims “Deals reached between Washington and Pyongyang under Presidents Bill Clinton, George W. Bush and Barack Obama collapsed after North Korea conducted additional missile and nuclear tests.” This implies in particular that the deal reached between Washington and Pyongyang under President Bill Clinton collapsed after North Korea conducted additional missile and nuclear tests. which is a totally false claim. the deal reached under Clinton collapsed when Bush decided to abandon it, because North Korea had bought centrifuges from Pakistan. Bush said this meant that the fact that spent nuclear fuel contaning plutonium was under seal was irrelevant, since N Korea would just enrich uranium.

Later, after N Korea broke the seals and began extracting plutonium, he declared that N Korean exploration of possibly enriching uranium was no big deal & they were going back to the deal. Then N Korea tested a nuclear bomb.

The known facts are totally consistent with the possibility that the Clinton – Kim Jong Il agreement would have lasted and prevented N Korea from developing a bomb if Bush hadn’t treated Clinton as Trump treats Obama.

In any case, the assertion of historical fact made by Nakamura, Rucker, Fifield, and Gearan is undeniably false. It shows a determination to give a Ballanced assessment of Clinton and Bush even if the facts are different — N Korea detonated at least once nuclear device while Bush, Obama and Trump were president and did not detonate a nuclear device while Clinton was president. This is a relevant fact which is contradicted by their false claim which was clearly made to Ballance the very different cases of Clinton and Bush

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What Causes Recessions? A Physicists’ Complex Systems Model

by Steve Roth

What Causes Recessions? A Physicists’ Complex Systems Model

I received some very interesting comments from Yaneer Bar-Yam to my recent Evonomics post— “Capital’s Share of Income is Far Higher than You Think.” He pointed me to his very interesting paper, “Preliminary steps toward a universal economic dynamics for monetary and fiscal policy.”

I’m using this space to reply with with some stuff that can’t display in that comments space.

I haven’t gotten to the full-boat, multipart reply that I have floating in my head, but wanted to get back on two items for the nonce, a question plus a response on recession prediction:

1. What is the function in this model that “causes” capital gains? This always strikes me as the core problem in a complete SFC model where flows (including holding gain “flows”) balance to and fully explain (change in) net worth: if you can write a reaction function that predicts asset-price changes, you’re a very rich person… 😉

2. The recession-prediction based on investment/consumption ratio misses a bunch of recessions (false negatives). Contrasted here with a personal favorite: every recession since 1970 has been preceded by a year-over-year decline in real household total assets/net worth. (Including liabilities to arrive at net worth instead of just using assets adds no predictive value). Click for FRED.

This predictor is seven for seven. Though: there are two recent false positives — shortly following the 2001 and 2008 recessions.

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by Dale Coberly


There is yet time, brother.


But not much.

The Social Security Trustees have issued their annual report. It is not much changed from last year. In fact it is a little better.  Last year’s Report projected that by this year Social Security would have reached “short term financial inadequacy.” This year’s projections put that off for another year or possibly two.

Short term financial inadequacy means that in ten years the Trust.  Fund reserves will fall below the level of one full year’s benefits if no action is taken.

This would not be a catastrophe, but it does mean we really ought to take action now. If we raise the payroll tax by one tenth of one percent per year until the total raise reaches about two percent of payroll, we would make Social Security solvent (financially adequate) forever: fully able to pay the benefits necessary for the people who paid the tax to live in reasonable comfort for their longer life expectancy… longer than that of their parents and grandparents. One tenth of one percent of payroll would be about a dollar per week subtracted from the paycheck of a worker earning $50,000 dollars per year. Or about fifty cents per week for a worker earning $25,000 per year. This is not money that goes into a government black hole, but money that comes back to the worker with interest when he needs it most. Enough money to pay for basic needs in retirement no matter how long he lives.  Or pay for his family’s needs if he dies with dependents or becomes disabled.

Meanwhile, the Committee For a Responsible Federal Budget does what it can to make the new Report sound like a Catastrophe in the making… as they have been doing for years. They do this by screaming about Big Numbers without reminding the reader that these big numbers are big because they are about 2% of the wages of 250 million people over a period of 75 years. If you read CRFB you have to be on the watch for this kind of misdirection. It is their stock in trade.

Worse,perhaps, is they imply that Social Security is a driver of the National Debt. Social Security has nothing to do with the National Debt.  It is paid for entirely by the people who will get the benefits.

That is essentially the case from the far Right.  Lately there has appeared a new case from the far Left. They say that the projected shortfall is not a problem because it can be solved by “making” “the rich” pay their “fair share.” The fact is that “the rich” already pay their fair share for the insurance benefit they receive. But they will not pay for your retirement, and you can’t “make” them. Nor should you. Your parents and grandparents were proud to be able to say “I paid for it myself.” And the man who invented Social Security designed it that way: designed it to be not welfare but worker paid insurance “so that no damn politician can take it away from them.”

The bottom line is this:  you need to get it fixed in your  mind first that you can save Social Security… a secure retirement… for yourself and your children and grandchildren by raising your own payroll “tax” (retirement insurance premium) ONE DOLLAR PER WEEK while your wages are going up ten dollars per week per year.   And second,  IT’S NOT GOVERNMENT MONEY. It has nothing to do with government deficits or the national debt. YOU PAY FOR IT YOURSELF and it is wisest to keep it that way.

If the one tenth of one percent payroll tax increase per year does not begin this year or next, the rate of tax increase would need to be faster.. not much faster, but if we wait until 2034 or so, the tax would need to be increased about 2% all at once. Still not a big deal when you think about it, but likely to be shocking to some, and politically dangerous.

There is a sort of middle ground. The tax could be increased about one full percent (according to the Trustees 1.42% for the worker and 1.42% for the employer) this year, and that would see us through the next seventy five years without another tax increase. After that, about another one full percent would see us through the “infinite horizon.” None of us will be alive then, and things may have changed, but the enemies of Social Security call that distant extra 1% “not solving the problem”.  They are sure we have to solve all possible problems forever before we can solve the problems we face today and for the reasonably foreseeable future. The one tenth percent per year “at need” proposed here actually does solve the problem over the infinite horizon… or at least past the 75 year actuarial,window,  but they don’t want you to even think about that.

So, think about it and see what you come up with. If you don’t think about it, and don’t DO something about it, the bad guys will win. And if you “demand” the rich pay for your retirement, the bad guys will win.

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The Spillover Effects of Rising U.S. Interest Rates

by Joseph Joyce

The Spillover Effects of Rising U.S. Interest Rates

U.S. interest rates have been rising, and most likely will continue to do so. The target level of the Federal Funds rate, currently at 1.75%, is expected to be raised at the June meeting of the Federal Open Market Committee. The yield on 10-year U.S. Treasury bonds rose above 3%, then fell as fears of Italy breaking out the Eurozone flared. That decline is likely to be reversed while the new government enjoys a (very brief) honeymoon period. What are the effects on foreign economies of the higher rates in the U.S.?

One channel of transmission will be through higher interest rates abroad. Several papers from economists at the Bank for International Settlements have documented this phenomenon. For example, Előd Takáts and Abraham Vela of the Bank for International Settlements in a 2014 BIS Paper investigated the effect of a rise in the Federal Funds rate on foreign policy rates in 20 emerging market countries, and found evidence of a significant impact on the foreign rates. They did a similar analysis for 5-year rates and found comparable results. Boris Hofmann and Takáts also undertook an analysis of interest rate linkages with U.S. rates in 30 emerging market and small advanced economies, and again found that the U.S. rates affected the corresponding rates in the foreign economies. Finally, Peter Hördahl, Jhuvesh Sobrun and Philip Turner attribute the declines in long-term rates after the global financial crisis to the fall in the term premium in the ten-year U.S. Treasury rate.

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