Dan here. You will be reading more of him soon…David Zetland has contributed here on water issues via Aguanomics. He now publishes his blog The one-handed economist. He is a native Californian who moved to Amsterdam several years ago. David is an assistant professor of political economy at Leiden University College, a liberal arts school located in The Hague. He teaches courses in social and business entrepreneurship, cooperation in the commons, and environmental, growth and development economics.
Here is a more informal piece on his newsletter:
News (30C in Amsterdam — and Europe is burning)
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Why is the 2% inflation target sacred ? A very strong case can be made that a higher target would be better, because it would mean normal nominal interest rates are further from the (near) zero lower bound. DeLong and Summers made this point in the 90s . AEA President and former IMF head economist OJ Blanchard made it in 2010. Yet it gets nowhere. The 2% target is the gold standard of the 21st century. There is no historical or theoretical basis for it, yet gigantic sacrifices are made in its name. Really you should not push this crown of thorns about the head of labor and crucify mankind on a Keynesian cross at 2%.
I think the secret is an alliance between the extremely sophisticated (who don’t let mere data interfere with their theories) and the extremely unsophisticated (who assume nominal wages are exogenous). I’m going to talk about a debate in a mythical world in which Milton Friedman is right– there is a natural rate of unemployment and actual unemployment does not deviate from this rate for long or on average. It can briefly when inflation accelerates, because people have adaptive expectations so accelerating inflation is unexpected inflation. The argument also works in a mythical world were output is determined by a Lucas supply function.
Now there are three classes of agents. One is made of sophisticated and sensible people who understand the economy and care about the general well being (read me and my friends). Another is made of unsophisticated people who look at what happens and don’t understand the dynamics behind it. So they are boundedly rational and use ad hoc estimates based on something like regressions of the outcome of interest on what’s going on at the time to decide what to do. Finally there are sophisticated fanatics who understand the dynamics but are determined to prove that the government should just protect property rights and leave the market alone. This third groups also includes ordoliberals who claim to remember the German hyperinflation but not the suffering under Bruening during the Great Depression which was long ago and irrelevant to Europe (the Europe which matters because it doesn’t touch the Mediterranean) in the 21st century. The third group includes people who think inflation is theft, who think real interest rates should be high because thrift is a virtue and debt is a synonym for sin etc.
In this imaginary world and in the real world , an alliance of the unsophisticated and the fanatical determine policy making. Analysis after the jump.
Under Trump the federal deficit has rebounded to some 4.4 % of GDP — it is the same whether you look at it quarterly or monthly data as this chart does. The monthly estimate is calculated by Haver Analytics. So much for the tax cut paying for itself.
The shaded areas are by Presidential term, not of recessions as is usually the case. Typically, Republicans leave office with a larger deficit than they inherited while Democrats leave with a smaller one, or a surplus. Of course, this is exactly what “starve the beast” calls for.
Federal Deficit each Presidential Term
With the release of new home sales this morning, and existing home sales yesterday, it is increasingly apparent that housing has bottomed – just as I said a number of months ago that it would sometime this spring.
To the graphs! New home sales (blue in the graph below) bottomed last October, at 557,000 units annualized. As of June, they were at 646,000:
This isn’t as good as earlier this spring, but is better than every other reading in the past 12 months. Meanwhile prices, which typically lag sales, bounced back from May’s 12 month low, but it is not clear at all if the trend is reversing yet.
by New Deal democrat
I’ll be doing my long term forecast through mid year 2020 once Q2 GDP comes out on Friday. It’ll probably get posted sometime next week.
P.S. Sorry for the lack of posting yesterday. I submitted the above to SA on Sunday, but they didn’t get around to putting it up until late yesterday afternoon. If I have the energy, I’ll put up an extra post maybe this afternoon.
The world of economics suffered a sad loss a few days ago (July 15) with the death of Frank Ackerman. Frank was a mainstay of the activist left within the profession; he was one of the founders of the magazine Dollars and Sense and could always be found at activities of the Union for Radical Political Economics. He was notable for being one of the most exacting of critical economists, never substituting political passion for careful analysis and documentation of his evidence. His “cool” personal style may have made him less prominent in the public eye, but those who knew him realized what an important role he served.
I crossed paths with him many times because of our mutual interest in, and horror at, benefit-cost analysis. Frank coauthored his influential book Priceless: On Knowing The Price Of Everything And The Value Of Nothing to demonstrate that economic methodologies that promised to replace ideology with pragmatism were in fact riddled with ideology themselves. His final book was Worst Case Economics, which argued sensibly for a prudential approach in finance and climate change.
I hope readers who have had a closer personal connection to Frank will use the comment thread or posts of their own to tell their stories. This is an important transitional moment for dissident economics.
Greg Mankiw reads this story and writes:
Staffers in the Sanders campaign, who are working on salary, complain that they are paid less than the $15 per hour that Senator Sanders advocates for the minimum wage. So Sanders raises their hourly wage. Does that increase their income? No, because he raised the hourly wage by cutting the number of hours they work! Of course, if a President Sanders raised the federal minimum wage, I am sure he would be confident that the change would not have any adverse employment effects. Downward-sloping demand curves may describe socialist political campaigns, but back in the actual capitalist economy, the laws of supply and demand work completely differently.
OK – he started his post by saying it is a wonderful story, which is true. But as I read the story, I saw a very different tale than the one Mankiw suggested:
Field organizers say they make a salary of $36,000 annually but work 60 hours per week, which is an average of $13 per hour … Sanders’ 2020 campaign was the first to unionize in March 2019. The union then made an agreement with the campaign that field workers were to be paid $36,000 annually. The contract, which began on May 2, also provides platinum level health care, paid vacation, sick leave and other benefits. Shakir also told Newsweek that leadership at the campaign previously offered a pay increase for field organizers, but that the offer was rejected in a formal vote. According to the Post, Shakir offered organizer pay to be raised to $42,000 annually and extend the workweek to six days. The offer was reportedly rejected because it would have elevated staff to a pay level in which they’d be responsible to pay more of their own health care costs.
Let’s note what Mankiw did not. The negotiations also involved what appears to be a decent level of fringe benefits in addition to a $36,000 per year salary. These workers are apparently working 60 hours a week, which if they did so for 50 weeks would indeed translate into 3000 hours per year at $12 per hour. Does Harvard require its faculty to put in such an incredibly demanding schedule? I hope not as we know Mankiw loves to spend time with his children. Now if one worked 6 days a week and 8 hours a day for 50 weeks, then $36,000 per year translates into $15 an hour. How Mankiw interprets this story into evidence that we are seeing a competitive labor market moving along a downward sloping demand curve is beyond me. I’m sure he can explain this all to his students at Harvard.
(Dan here… Via Real News Network, Bill Black discusses the what-ifs of President Trump’s policies in a spectacular contrast to current expectations…providing. a jumping off point from what we expect from the way it is framed now. I assume the complex interalationships of the wealthy elites (let us see how the Epstein case unwinds for another aspect) plays an important but not so well known role in this drama. I find his thought his conclusions dismaying if even somewhat accurate.)
BILL BLACK: Sure. The question I ask in the article is why did Trump choose to be so spectacularly unpopular? Because had he done what he promised and had a true middle class tax cut that gave, for example, $5,000 a year to the typical middle class household, he would be spectacularly popular. And almost certainly they would have–the Republicans would have retained control of the House, and quite possibly they would have gained seats in the House. And of course they would have gained seats in the Senate. And Trump would be well positioned for re-election. He would have greatly expanded his base, and he would have paid off to his base, as well. And you know, convinced them that backing him was exactly the right thing.
And that’s the biggest thing. But also, if Trump had done what he promised and had a true infrastructure bill, where he spent $2 trillion on infrastructure, he would have divided the Democratic Party.
Several days ago in WaPo, Catherine Rampell published a highly reasonable column calling for eliminating the century-old US debt ceiling, something no other nation has ever had, a position supported by a wide array of economists including such a conservative GOP stalwart as the recently deceased Martin Feldstein, a former CEA Chair for Reagan. I have made numerous posts here on this in the past, but the issue is hot again as once again the debt ceiling is being rapidly approached.
The latest story is that the “adults in the room,” Treasury Secretary Steven Mnuchin and Speaker of the House Nancy Pelosi, may be very near an agreement to raise the debt ceiling, Reportedly Pelosi has been open to eliminating the ceiling, but in the current circumstances I certainly understand why she might be wanting to secure a two year agreement to preserve funding for social safety programs crazy right wingers want to use the debt ceiling issue to trash as well as holding off any shutdowns this fall. This is what used to be known as “good government,” but in the current environment, even this apparently reasonable deal, which also has no non-economic sideshows involving abortion or whatever, may yet not pass. Pelosi says it must be agreed to by tomorrow evening if it will get passed properly by Congress before they all go on leave and the government might run out of money in early September (corporate tax payments have been way down due to Trump tax law). Eliminating the ceiling would avoid all this bs, but this is not the moment for that.
This is definitely a weird and unprecedented situation. For over a century we have had this completely indefensible debt ceiling, which has been raised so many times it is not worth counting, and when the WH and Congress have been controlled by the same party, it has been no big deal, although obviously that is what we need to get rid of the damned thing. However, historically, when there has been split partisan control the game has been the WH pushing raising the ceiling while the opposition party in Congress has made lots of complaining noises and often made demands for raising it. The problem this time is that the major power broker of the administration, Acting Chief of Staff Mulvaney, was part of the tea party fanatics in the House who when Obama was prez tried to block raising the ceiling. Apparently at times he and Trump have indulged in fantasies that if there is a default he could personally control which agencies get funded and which do not. This is not true, and maybe they are figuring it out, but Mulvaney has said nothing, and Trump must pass on this.
If he messes up the deal, it will be all his fault, as his own Treasury Secretary has cut it with the Congressional leader of the opposition party in the House, with reportedly the toadish GOP-controlled Senate ready to go along. He may or may not have figured out that triggering a shutdown did not help him, but if he thinks triggering a default will not be worse, this will be a big mistake, to put it mildly.
Barkley Rosser
Yes. For centuries throughout the entire world that crucial body of water has been called “the Persian Gulf,” even though in 1935 the nation of Persia changed its named to “Iran.” I became aware several decades ago when I was in Saudi Arabia that they have a really big fuss that it should be called “the Arabian Gulf.” I think maybe their fellow Arab GCC members have been supporting this nonsense as well, but nobody else did, certainly not the US.
But now here it is, and I had noticed in some other US media outlets recently. Is this yet another payoff to the murderous Saudi Crown Prince Mohammed bin Salman (MbS) for funneling piles of money to Jared Kushner and the Trump Organization? I mean, Fox News does what Trump and his flunkies want. So, not only are we not punishing MbS for his awful war in Yemen, which even the UAE is now getting out of, not only are we not punishing him for ordering the assassination of a US-based journalist, Jamal Khashoggi, but, heck, Trump through Fox News and I am not sure who is trying to change the name of this body of water from its historical origin to kiss the ass of this disgusting murderer.
Oh, there is also the matter that Trump has gotten himself off into a totally anti-Iran schtick, with his withdrawal from the JCPOA and his imposition of massive sanctions on Iran. But this looks like an attempted permanent punishment. Frankly, I hope the rest of the world does not go along with this bs, but in the US, I fear he may have succeeded, so many people are so ignorant.
Barkley Rosser