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Worthy Reads for July 18, 2019

  1. Very wise from Josh Barro: There’s No Need for the Senate to Confirm Anyone to the Fed: "Trump... says he will nominate Judy Shelton and Christopher Waller to... fill out the board.... Moore and Cain were bizarre, unqualified choices whose views on monetary policy appeared to be suspiciously driven by their political links to the president. Both also had significant personal issues.... Waller seems like a fine enough choice. He has dovish views on interest rates, but he comes by those views honestly.... The problem is Shelton, who like Cain and Moore before her has traded in a long track record of hawkish gold-buggery for a new, dovish outlook that calls for the low interest rates President Trump wants. In 2015, she said low interest rates were 'making suckers out of savers'. Now, even though the economy has gotten stronger and the argument for low rates should have, if anything, gotten a little bit weaker, Shelton is suddenly an advocate of cutting interest rates to zero, in order to increase access to capital. Shelton’s flip-flop is, if anything, more egregious than Moore’s and Cain’s, because monetary policy is supposed to be an actual area of expertise for her.... Art Laffer, to whom the president just awarded the Presidential Medal of Freedom, has been attacking the very concept of Federal Reserve independence.... Historically, Fed independence has been a bigger concern for conservatives than for liberals.... It is kind of funny that it is a Republican president and conservative economic pundits like Laffer and Moore who are urging politicization of the Fed.... But conservatives in the Senate have reasons to take a long view.... The best tool they have to protect the Fed from Trump is the one they have been using: Their authority to refuse to confirm his nominees.... The Fed Board can work just fine with only five members. So long as Trump is the person making nominations, there’s no reason to aim for seven...

  2. I think I have heard this argument before. Plutarch: _ Life of Tiberius Gracchus_: "This is said to have been the first sedition at Rome, since the abolition of royal power, to end in bloodshed and the death of citizens; the rest though neither trifling nor raised for trifling objects, were settled by mutual concessions, the nobles yielding from fear of the multitude, and the people out of respect for the senate...": Ricardo Hausmann: How the Failure of “Prestige Markets” Fuels Populism: "Given the requirements of today’s technology, dismissing expertise as privilege is dangerous. That's why a well-functioning prestige market is essential to reconciling technological progress and the maintenance of a healthy polity.... Henrich suggests... prestige is payment for the generosity with which the prestigious share their knowledge.... A model of human behavior proposed by George Akerlof and Rachel Kranton.... Rising wage differentials may destroy the equilibrium proposed by Henrich. If the prestigious are already very well paid, and are not perceived as being generous with their knowledge, prestige may collapse. This may be another instance of the incompatibility between homo economicus and community morality emphasized by Samuel Bowles.... The collapse in the prestige equilibrium can do enormous damage to a society, because it may break the implicit contract whereby society uses critical skills. To see why and how, look no further than what has happened in Venezuela...

  3. EG: Jacob Levy: The Weight of the Words: "The power of elite speech in a democracy is only partly that of giving partisan cues to one’s supporters. It’s also the power to channel and direct the dangerous but real desire for collective national direction and aspiration. Humans are tribal animals, and our tribal psychology is a political resource.... Whether... presidents are named 'Reagan and George W. Bush' or 'JFK and Barack Obama'... all... put forward a public rhetorical face that was better than their worst acts.... They kept the public aspirations of American political culture pointed toward Reagan’s 'shining city on a hill'... a free and fair liberal democratic order, the protection of civil liberties, openness toward the world, rejection of racism at home, and defiance against tyranny abroad. And their words were part of the process of persuading each generation of Americans that those were constitutively American ideals. Trump’s apologists are now reduced to saying that his speech has been worse than his actions so far, the reverse of this usual pattern. The effect is the reverse, too.... The norm against publicly legitimizing Klan-type explicit racism was built up over a long time, calling on white Americans to be better than they were, partly by convincing them that they were better. The norm is still strong enough that Trump grudgingly kind of walked back his comments after the Charlottesville protests last year. But a norm that was built up through speech, persuasion, and belief can be undermined the same way. Trump’s own racism, his embrace of white nationalist discourse, and his encouragement of the alt-right over the past two years have, through words, made a start on that transformation...

  4. Dani Rodrik: What’s Driving Populism? : "If... [fascism] is rooted in... culture and values, however, there are fewer options. Liberal democracy may be doomed by its own internal dynamics and contradictions.... Racism in some form or another has been an enduring feature of US society and cannot tell us, on its own, why Trump’s manipulation of it has proved so popular.... Will Wilkinson... urbanization... creates thriving, multicultural, high-density areas where socially liberal values predominate. And it leaves behind rural areas and smaller urban centers that are increasingly uniform in terms of social conservatism and aversion to diversity. This process, moreover, is self-reinforcing.... The cultural trends... are of a long-term nature, they do not fully account for the timing of the populist backlash.... Those who advocate for the primacy of cultural explanations do not in fact dismiss the role of economic shocks. These shocks, they maintain, aggravated and exacerbated cultural divisions, giving... [fascists] the added push they needed..... The precise parsing of the causes... may be less important than the policy lessons.... There is little debate here. Economic remedies to inequality and insecurity are paramount...

  5. *Arindrajit Dube *: "Concentration plays only a modest part in understanding [labor-market] monopsony power. Firms in totally unconcentrated markets still have a labor supply elasticity of 3.7. In other words, even if you totally got rid of labor concentration concentration, you would still have a substantial degree of monopsony, which is endemic. Paper: https://www.nber.org/papers/w25719...

  6. Per-Anders Edin, Tiernan Evans, Georg Graetz, Sofia Hernnäs, and Guy Michaels: The Individual Consequences of Occupational Decline: "Outcomes for similar workers in similar occupations over 28 years... the consequences of large declines in occupational employment.... Mean losses in earnings and employment for those initially working in occupations that later declined are relatively moderate, [but] low-earners lose significantly more...

  7. N. Piers Ludlow: Did We Ever Really Understand How the EU Works?: "Michael Gove... referred... to a free trade zone... from Iceland to Turkey of which Britain would, he was confident, still be part... irrespective of the outcome of the referendum. But this focus on tariffs was quaintly anachronistic, because ever since the 1980s the main target of European liberalisation efforts has... been... non-tariff barriers... regulatory convergence.... But–remarkably–hardly anyone took Gove to task for this misleading claim. Instead the vast majority of commentators seem to have regarded his statement as relevant and legitimate.... A second feature of the EU that we ought to have known about but have blithely failed to think through is the importance of timetables. European integration history is studded with the use of timetables and deadlines designed to compel member states to respect their obligations and to bring about simultaneously the administrative, commercial and legal changes that they have agreed to make.... Another avoidable error has been to underestimate the degree to which Brexit’s impact upon Ireland would become a central concern for the whole EU.... The EU is always prone to support an insider in a tussle with an outsider.... Finally, and perhaps most fundamentally, the British debate about what was likely to prove negotiable has failed repeatedly to take into account the political nature of the entity with which it is dealing, and the fact that it is the UK and not the EU that is asking for change. The first of these realities is best illustrated by the Boris Johnson ‘prosecco’ argument–or the idea that the strength of Britain’s bargaining position in the negotiations springs from the commercial interest of many continental exporters in keeping access to the lucrative UK market. This overlooks the extent to which all of the EU27 regard a flourishing EU as even more valuable than the British market, whether economically or politically...

  8. Alwyn Scott: General Electric to Scrap California Power Plant 20 Years Early: "General Electric Co said on Friday it plans to demolish a large power plant it owns in California this year after only one-third of its useful life because the plant is no longer economically viable in a state where wind and solar supply a growing share of inexpensive electricity. The 750-megawatt natural-gas-fired plant, known as the Inland Empire Energy Center, uses two of GE’s H-Class turbines, developed only in the last decade, before the company’s successor gas turbine, the flagship HA model, which uses different technology. The closure illustrates stiff competition in the deregulated energy market as cheap wind and solar supply more electricity, squeezing out fossil fuels...

  9. Michael Jordan: Artificial Intelligence—The Revolution Hasn’t Happened Yet: "Just as humans built buildings and bridges before there was civil engineering, humans are proceeding with the building of societal-scale, inference-and-decision-making systems that involve machines, humans, and the environment. Just as early buildings and bridges sometimes fell to the ground—in unforeseen ways and with tragic consequences—many of our early societal-scale inference-and-decision-making systems are already exposing serious conceptual flaws. Unfortunately, we are not very good at anticipating what the next emerging serious flaw will be. What we’re missing is an engineering discipline with principles of analysis and design...

  10. I took the 1980-1981 version of this, co-taught by Richard Musgrave and Manuel Trajtenberg. It was amazing: Irwin Collier: Harvard. Social Influences on Economic Actions, outline and readings. Musgrave and Spechler, 1973: "An ambitious Harvard course organized jointly by Richard Musgrave and Martin C. Spechler in 1973.... (1) September 27 Spechler on Marxism. (2) October 4 Unger on Weber. (3) October 9 (Tues.) Galbraith on institutionalism. (4) October 18 Duesenberry on consumer behavior. (5) October 25 (?) on entrepreneurs. (6) November 1 M. Roberts on government bureaucracy. (7) November 8 J. Bower on corporate organization. (8) November 15 Doeringer on workers and unions. (9) November 20 (Tuesday) Bowles (?) on Marxian theory of the state. (10) November 29 D. Bell (?) on elite theory. (11) December 6 J. Q. Wilson on pluralism. (12) December 13 Hirschman on trade policy. (13) December 20 Musgrave on objectivity in economics and social science...

  11. Martin Wolf: States Create Useful Money, but Abuse It: "What then are the problems with MMT?... Suppose holders of money fear that the government is prepared to spend on its high priority items, regardless of how overheated the economy might become... fear that the central bank has also become entirely subject to the government’s whims.... They are then likely to dump money.... The focus of MMT’s proponents on balance sheets and indifference to expectations that drive behaviour are huge errors.... If politicians think they do not need to worry about the possibility of default, only about inflation, their tendency may be to assume output can be driven far higher, and unemployment far lower, than is possible without triggering an upsurge in inflation...

  12. Marjorie A. Flavin: The Joint Consumption/Asset Demand Decision: A Case Study in Robust Estimation: "The Michigan Survey of Consumer Finances... whether... consumption tracks current income more closely than is consistent with the permanent income hypothesis can be attributed solely or partially to borrowing constraints.... Households do use asset stocks to smooth their consumption.... There is no evidence that the excess sensitivity of consumption to current income is caused by borrowing constraints.... Robust instrumental variables estimates are more stable across different subsamples, more consistent with the theoretical specification of the model, and indicate that some of the most striking findings in the conventional results were attributable to a single, highly unusual observation...

  13. Sean Gallagher: The Fourth Industrial Revolution Emerges from AI and the Internet of Things: "IoT has arrived on the factory floor with the force of Kool-Aid Man exploding through walls.... Smart, cheap, sensor-laden devices paired with powerful analytics and algorithms have been changing the industrial world.... Companies are seeing more precise, higher quality manufacturing with lowered operational costs; less downtime because of predictive maintenance and intelligence in the supply chain; and fewer injuries on factory floors because of more adaptable equipment. And outside of the factory, other industries could benefit from having a nervous system of sensors, analytics to process 'lakes' of data, and just-in-time responses to emergent issues—aviation, energy, logistics, and many other businesses that rely on reliable, predictable things could also get a boost. But the new way comes with significant challenges, not the least of which are the security and resilience of the networked nervous systems stitching all this new magic together.... And then there's always that whole 'robots are stealing our jobs' thing. (The truth is much more complicated—and we'll touch on it later this week)...

  14. Candace Taylor: A Growing Problem in Real Estate: Too Many Too Big Houses: "Baby boomers and retirees built large, elaborate dream homes across the Sunbelt—only to find that few people want to buy them.... Elaborate, five or six-bedroom houses in warm climates, fueled in part by the easy credit of the real estate boom. Many baby boomers poured millions into these spacious homes, planning to live out their golden years in houses with all the bells and whistles. Now, many boomers are discovering that these large, high-maintenance houses no longer fit their needs as they grow older, but younger people aren’t buying them.... The problem is especially acute in areas with large clusters of retirees. In North Carolina’s Buncombe County, which draws retirees with its mild climate and Blue Ridge Mountain scenery, there are 34 homes priced over $2 million on the market, but only 16 sold in that price range in the past year, said Marilyn Wright, an agent at Premier Sotheby’s International Realty in Asheville...

    1. Felipe Benguria and Alan M. Taylor: After the Panic: Are Financial Crises Demand or Supply Shocks? Evidence from International Trade: "Are financial crises a negative shock to demand or a negative shock to supply?... Arguments for monetary and fiscal stimulus usually interpret such events as demand-side shortfalls. Conversely, arguments for tax cuts and structural reform often proceed from supply-side frictions.... simple small open economy... deleveraging shocks that impose binding credit constraints on households and/or firms.... Household deleveraging shocks are mainly demand shocks, contract imports, leave exports largely unchanged, and depreciate the real exchange rate. Firm deleveraging shocks are mainly supply shocks, contract exports, leave imports largely unchanged, and appreciate the real exchange rate.... Empirical analysis reveals a clear picture: after a financial crisis event we find the dominant pattern to be that imports contract, exports hold steady or even rise, and the real exchange rate depreciates. History shows that, on average, financial crises are very clearly a negative shock to demand...
  15. Martin Wolf: ‘Global Britain’ is an Illusion Because Distance Has Not Died: "Why has distance not died and the world not become flat?... The nature of trade has changed and, in particular, it has become more control-intensive and time-dependent.... Regional trade arrangements also matter... because procedures tend to be far more reliable and efficient.... Regulatory and procedural harmonisation... was the price of integration.... There are only two possible explanations for the immense bias towards trade with the EU: either the preferential advantages of being within the EU are very large or the vital fact is that these are neighbours. Either way, the idea that there is a global alternative... is a delusion. It is the biggest of the many Brexit delusions...

  16. George J. Stigler and Gary S. Becker (1977): De Gustibus Non Est Disputandum: "The establishment of the proposition that one may usefully treat tastes as stable over time and similar among people is the central task of this essay. The ambitiousness of our agenda deserves emphasis: we are proposing the hypothesis that widespread and/or persistent human behavior can be explained by a generalized calculus of utility-maximizing behavior, without introducing the qualification 'tastes remaining the same'...

  17. Wolfgang Munchau: Age of the Expert as Policymaker Is Coming To an End: "Where the conflation of the expert and the policymaker did real damage was not to policy but to expertdom itself. It compromised the experts’ most prized asset—their independence. When economics blogging started to become fashionable, I sat on a podium with an academic blogger who predicted that people like him would usurp the role of the economics newspaper columnist within a period of 10 years. That was a decade ago. His argument was that trained economists were just smarter. What he did not reckon with is that it is hard to speak truth to power when you have to beg that power to fund your think-tank or institute. Even less so once you are politically attached or appointed. Independence matters...

    1. Moral fault attaches to anybody who pays money to or works for the New York Times. You need to do better. Just saying: Jeet Heer: "They should publish two editions of the New York Times: one made up just of beat sweetener to please Trump & his staff and another that publishes just, you know, the news." Daniel Radosh: These two articles were posted to @nytimes within an hour of each other. Seems like one of them has to be incorrect, right?...
  18. Right-wing grifters gotta grift: Jemima Kelly: The Rick Santorum-Backed Coin for Catholics: "Backing a project that combines his religious fervour with another area of modern-day fanaticism: blockchainism (thanks to Buttcoin and in particular contributor David Gerard for drawing our attention to this)... a company and soon-to-be digital coin (stablecoin, specifically) called Cathio... 'a new payment, remittance and funding platform which provides efficient, secure, and transparent movement of funds within the Catholic world', promising to provide a 'turnkey solution for Catholic organizations to bring their financial transactions into alignment with their beliefs'...

    1. Wolfgang Dauth, Sebastian Findeisen, Jens Südekum, and Nicole Woessner: Robots and Firms: "Our study is based on firm-level data from Spain, a country with one of the highest robot density levels per worker in Europe. The data come from the Encuesta Sobre Estrategias Empresariales (ESEE), an annual survey of around 1,900 Spanish manufacturing firms.... We reveal significant job losses in non-adopting firms. Our estimates imply that 10% of jobs in non-adopting firms are destroyed when the share of sales attributable to robot-using firms in their industries increases from zero to one half. The same logic applies to changes in output and survival probabilities.... Aggregate productivity gains are partly driven by substantial intra-industry reallocation of market shares and resources following a more widespread diffusion of robot technology, and a polarization between high-productivity robot adopters and low-productivity non-adopters...
  19. Umair Haque: How Online Radicalization Is Destabilizing Democracy: "They’d regressed back to their little selves. A scalpel no one could see had somehow excised the adult parts of their brain responsible for reason, wisdom, and change. And that was when I really began to be troubled. It felt to me as if an info-bomb had gone off... radiating disinformation, misinformation, and folly.... I’d never seen minds change so suddenly, fast, or extremely.... So even then I warned that to use social media was to put yourself squarely in the explosion radius of this info-bomb. Today we understand all this a little bit more. There really was an info-bomb—weaponized, military grade propaganda was used against whole nations, with the encouragement, and even the guidance, of social media companies, while political leaders and media were asleep at the wheel. What was the goal? What was the result?... Once-sensible people came to believe foolish and strange things. Some turned into religious zealots. Some turned into xenophobes and authoritarians and bigots. The vector of this radicalization was often the mosque, the TV station, or even the bookshop.... Some significant portion of society has now been thoroughly radicalized. They believe in outlandish and foolish things. They have become ignorant and blind and petty and easily provoked. That isn’t an insult—they can undo all that. It is just an observation of empirical reality. A major social question for the West now is: how does it undo the radicalization of the last few years? Can it? How does one undo military-grade propaganda at a social scale?...

  20. Martin Wolf has an aggressive thumbs-down on Facebook's Libra payments system. Basically, it is "fool me once, shame on you; fool me twice, shame on me". Facebook's claim that it is built on 'blockchain technology' seems simply wrong, and a grift—a second-order grift given that 'blockchain technology' is already a grift. Plus "Facebook has been grossly irresponsible over its impact on our democracies. It cannot obviously be trusted with our payments systems.... Beware": Martin Wolf: Facebook Enters Dangerous Waters With Libra Cryptocurrency: "Facebook has been grossly irresponsible over its impact on our democracies. It cannot obviously be trusted with our payments systems. Facebook has an answer: it has just one vote in the Libra Association.... But Facebook seems likely to dominate Libra’s technical development. That will surely give it predominant influence.... Quite apart from doubts about the sponsor, a new global payment system must be evaluated for its technical stability, impact on monetary and financial stability (not least in developing countries) and openness to fraudsters, criminals and terrorists. Big questions also arise about concentrations of power, should the venture succeed.... I cannot judge the technical stability of the proposed system. The claim that it is based on 'blockchain' technology seems rather questionable.... There is indeed potential for greatly improved payment systems. But the emergence of a payment system on a network of Facebook’s scale would raise some huge questions.... This would be true even if the lead sponsor were not Facebook. But it is. So beware...

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