Goodbye to Boston

[Probably not of interest to most people–academics may chuckle here or there.]

Just a few days after Scott Alexander heads for the West Coast, I’m also heading west.  I was nearly 27 when I arrived in Boston (in 1982), and today I leave for Southern California, where I’ve always wanted to live (since I was 10.)

I’ve always been a “late bloomer”, perhaps because my parents sent me to school at too young an age.  In first grade I was rated “below grade level” in reading and my high school GPA was only 3.2.

In a public high school.

In the early 1970s.

But I was accepted to the University of Chicago, perhaps because my SATs were much better.  The UC expected each of my parents to contribute $1000/year—good luck with that!  Since I could not afford Chicago, I went to the UW-Madison where tuition was $330 a semester.  I did go to Chicago for graduate school through a combination of student loans for tuition, and working 20 hours a week for room and board.

It was the same story in the job market—a real slow start.  Three months unemployed, then one semester at a branch of the UW, then one year at St. Bonaventure, and then I ended up at Bentley College.  In my second year at Bentley I was given an ultimatum—30 days to produce a letter from my adviser that I was making good progress on my dissertation.  That’s when I started on the project.  I basically did most of the dissertation in about 25 days, sent it to Robert Lucas with the request for a letter, and lucked out.  A few years later I was told that I was up for tenure, which was news to me. Seems I had brought in a year when I was hired.  Who knew that we were supposed to read our contracts?  I asked for a one-year delay and was granted my request.  Then I went up for tenure and was turned down.  Seems I didn’t have any publications.  Oops.

By then I was sending a bunch of papers out to journals like the JME and JPE.  My NGDP futures targeting paper was revised and resubmitted to the JME four times before being rejected.  (That’s unusual.)  My JPE paper (with Steve Silver) was rejected the first time, but then I complained and it was accepted.  (That’s also unusual.)  Indeed I had a number of papers flat out rejected the first time around, but later accepted after I complained.  I think that’s because I wasn’t a very good writer, and it was only in my complaint letter that I properly explained what the heck I was trying to do.  Ironically I got three pubs immediately after being rejected for tenure, including the JPE

So I re-applied for tenure in my terminal year at Bentley, while I also went on the job market.  I got an offer from the New York Fed for $57,000, but decided to stay at Bentley for $33,000.  My colleagues thought I was crazy.  I probably was—but the NY Fed might not have let me do TheMoneyIllusion, at least the way I actually did it.  Then after doing almost nothing on my extra long tenure track period, I started averaging three or four publications a year after I got tenure.  That’s sort of the reverse of how it’s supposed to be done.

Initially I was a very poor teacher.  My evaluations were below 3 out of 5, which is bottom 10%.  After about two years I rose to 4 out of 5, which is average at Bentley, and stayed there until I started blogging.  I expected the blogging to hurt my student evaluations, because I was so busy.  Instead they rose to well above average, until finally in my very last semester (fall of 2014) I got a perfect score (by now the scale was out of 6) on at least some of the questions.  It’s so weird, I had to take a picture to convince myself:

William Galston has a nice piece in the WSJ where he describes returning to a much richer Prague after being away for 22 years, and feeling kind of melancholy. It lacked the romance of his first visit:

In 1995 I could still pass for young, and Europe was young again. As we convened in Prague for an international conference on civic education, everything seemed possible. If history had not quite ended, it was moving in the right direction, and more rapidly than sober analysts had thought possible. With Vaclav Havel in the Castle, the idealists had turned out to be the true realists.

Prague was still struggling to remove the accumulated grime of four communist decades, but the surface didn’t matter. Spirits were high. Music was everywhere, in churches as well as bars, announced on huge placards that magically appeared each morning before breakfast. Students thronged the squares. The ancient buildings were more than reminders of the past; they had become part of a new drama written and staged by a generation that had prevailed against all odds. As Wordsworth wrote of a similar moment: “Bliss it was in that dawn to be alive, But to be young was very heaven!”

I landed in Prague this time under different circumstances. The surface was gleaming, but the spirit had darkened.

Boston was a bit run down when I arrived in 1982, and is now being spruced up in all sorts of ways.  Objectively is a far better city, indeed one of the finest in the world.  But when I think of my life in my 20s and 30s, all this improvement seems kind of meaningless.

I also have mixed feelings about my house, which is a Georgian 2-family built in 1930.  People tell me it was a good investment, but I regret ever becoming a landlord.  I like the appearance of old houses, but over time I got sick of the constant problems.  In retrospect, I realize that this is a sort of toxic waste dump, full of asbestos, lead paint, etc.  I don’t care about the lead, but I have a family history of lung disease so I probably shouldn’t have spend so much time doing dusty construction projects without wearing a face mask.  It’s also a good feeling to get rid of an enormous mountain of junk that I had accumulated.  Whatever possessed me to accumulate stuff like a pile of old Fortune magazines from the 1930s?  I don’t seem able to throw anything away.  Millennials are smart in being less materialistic.

Tomorrow morning I start a cross-country drive.  I won’t miss driving in Boston, which is bad in almost every conceivable way (bad traffic, potholes, no street signs, rude drivers, low speed limits, no parking, snow, unfriendly cops, etc.)  But I will miss the movie scene, especially the Harvard Film Archive.  I plan to switch to watching “films” on TV, since everything is becoming digital anyway.  If only the price of 77-inch OLEDs would drop . . .

Back in 2011, my dream was a midcentury modern house high up in the hills of Sherman Oaks, with a view out over a kidney shaped pool to the valley below.  I’d spend my retirement years reading (or re-reading) my favorite 19th century Anglo-American authors or 20th century European/Latin American and Japanese authors. (Not sure why my taste switched continents around 1910.) Then prices soared and I ended up buying in boring Orange County.

Moving has been a hassle, but visions of my new gazebo with a lake view have kept me motivated:

I still have some packing to do tonight, and won’t have much time for blogging over the next 12 days.  But I’ll try to check in occasionally.

America’s surging export of homes

Ben Cole directed me to this interesting story:

The National Association of Realtors released a report Tuesday that said foreign buyers and recent immigrants spent an estimated $153 billion on American properties in the year ending March 2017. That was a 49% increase over the previous year and the highest level since record-keeping began in 2009.

The purchases accounted for 10% of the total value of existing home sales in the U.S. The report did not include new homes.

The breakdown of sales between foreigners and recent immigrants was about 50:50.

[I wish they had data on new homes, as that’s the sort of home that foreigners tend to prefer.]

Of course the sale of homes to immigrants is not an export, but it does have a similar economic impact.  However the sale of homes to foreigners does represent a US export, and creates lots of goods jobs for American blue collar workers.  (Note that it doesn’t really matter whether they buy new or existing homes; the net effect on the housing market is the same.)  So the protectionists should be rejoicing, right?

Actually, just the opposite.  The US government does not even count these as exports.  Instead they are treated the same as net borrowing.  They are considered a part of America’s current account deficit, leading to all sorts of silly hand-wringing about how America is borrowing too much and living beyond our means.  In fact, we do borrow too much (due to the tax advantage of doing so), but that has nothing to do with the current account deficit.

I have a solution.  Treat international trade the way that we treat trade between American states.  Stop collecting records on imports and exports.  We don’t have data on the CA deficit of Texas or the CA surplus of Massachusetts, and that lack of data doesn’t seem to cause any problems. So stop doing so for the US as a whole.

You can still collect data on America’s net debt position (good luck with that!), if you wish to.

PS.  I have a post on “The German Problem” over at Econlog.

Why Australia hasn’t had a recession in 26 years

In previous posts I pointed out that Australia had avoided recession for 26 years by keeping NGDP growing at a decent clip.  Some commenters suggested that it wasn’t monetary policy; rather Australia was a “lucky country” benefiting from a mining boom.  That theory made no sense, because if your economy depends on highly volatile commodity exports then you should have a more unstable business cycle than countries with large and highly diversified economies.  In any case, recent data completely blows that theory out of the water:

Stephen Kirchner directed me to a very interesting article discussing the views of Warwick McKibbin, who used to be a governor at the Reserve Bank of Australia:

Former Reserve Bank of Australia board member Warwick McKibbin says the world’s central banks should switch to a system of using official interest rates to target nominal income growth to ensure huge household and government debt burdens are unwound safely. . . .

“Inflation has been a good intermediate step because it tied down price expectations and gave people confidence that central banks wouldn’t deflate away their assets,” he will tell a major economics conference in Sydney on Wednesday.

“That’s important when you have high inflation,” as was the case in the 1970s, 1980s and early 1990s.

“But you can still have the same credibility if you do have a very explicit income target, which is really growth plus inflation,” he says.

In Australia, he suggests, that would mean the Reserve Bank would attempt to keep nominal gross domestic product growth – which is essentially a measure of how much the economy is paid for the goods and services it produces – at about 6 per cent.

Australia has a population growth rate of 1.4%, and so there is no question that Australia’s NGDP growth rate should be higher than in the US rate (pop. growth = 0.7%), and much higher than in Japan (falling population).  Nonetheless, I think 6% is a bit high, I’d recommend something closer to 5% for Australia.  On the other hand even 6% would be far better than the sort of policy enacted by the Fed, ECB and BOJ since 2008.

Professor McKibbin, from the Australian National University’s Crawford School, acknowledges that in practice the Reserve Bank already pursues an “ambiguous nominal” income growth target because the formal 2-3 per cent inflation target is only applied “over the cycle”

This supports the claim of various market monetarists, who have suggested that Australia was a covert NGDP level targeter during the Great recession.

I’ve argued that the greatest advantage of NGDP targeting for countries like Japan is that it can reduce the burden of the public debt.  McKibbin makes a similar argument:

“What will matter over coming decades will be nominal income growth because the sustainability of high public and private debt-to-income ratios will need higher nominal income growth than in the past.

Interestingly, even a 6% target would seem to call for monetary tightening right now:

According to his proposed income targeting scheme today’s Reserve Bank cash rate of 1.5 per cent is probably too low given nominal GDP rose in the first quarter by 2.3 per cent from the previous three months, and by 7.7 per cent from a year earlier. “Right now the central bank has probably got loose monetary policy by nominal income standards and you’d expect they’d be tightening policy according to this rule because nominal income growth is rising quite quickly.”

Wait, that can’t be right.  My critics say Australia was just a lucky country benefiting from a mining boom.  It can’t possibly be doing well now that mining investment is collapsing.  Or am I missing something?

The Economist describes how smart countries handle re-allocation out of declining sectors:

As the mining boom petered out, the Reserve Bank cut its benchmark “cash” rate from 4.75% in 2011 to 1.5%. The Australian dollar fell steeply (it is now worth $0.76, compared with a peak of $1.10 six years ago). The cheaper currency and lower interest rates have allowed the older and more populous states of New South Wales and Victoria to keep the economy bustling. Property developers are building more houses, farmers are exporting more food, and foreigners (both students and tourists) are paying more visits: Australia welcomed 1.2m Chinese last year, a record.

Re-allocation doesn’t cause recessions, tight money does.

In the past, I’ve argued that Australia might want to target total compensation of employees, rather than NGDP.  That’s because changes in the price of mineral exports can cause big swings in NGDP, without having much impact on the labor market.  Over the past 12 months, employee compensation in Australia rose by only 1.4%, far below the 7.7% rise in NGDP.  You don’t see those sorts of discrepancies in the US.  So maybe Australia doesn’t need tighter money.

PS.  David Beckworth has a new policy paper on NGDP and the knowledge problem facing policymakers.  As usual, David includes some nice graphics.


Wait, which tax are they repealing?

You really need a sense of humor to read the news these days.  Here’s Matt Yglesias, describing the Senate Majority leader:

Many more moderate House members, meanwhile, told themselves the real bill would be written by the Senate, which no doubt would be less harsh on Medicaid. Instead, McConnell opted to be harsher and has not softened it even slightly, even though he has hundreds of billions of dollars of flexibility.

Bizarrely, instead of addressing the issue, “McConnell has told several hesitant senators (including Portman and Sen. Shelley Moore Capito (R-W.Va.): The bill’s deepest Medicaid cuts are far into the future, and they’ll never go into effect anyway.”

McConnell made deep Medicaid cuts to please the GOP conservatives, knowing that none of this will ever go into effect.  Yglesias has a nice graph showing the recent changes:

So they had to rescind one of the tax increases, and they chose the tax on medical devices over the tax on saving and investment?  They chose to cut taxes on a massively subsidized industry instead of paring back taxes on savers who are already double taxed on the same income?  Is this the modern GOP, or the AMA?

I recall that back during the campaign some Republicans convinced themselves that Trump was a supply-sider, pointing to his “support” of a 25% top tax rate, ending the extra Obamacare taxes on capital, ending the AMT, ending the estate taxes, etc., etc.  A supply-side miracle bringing us 4% RGDP growth and tens of millions of jobs.

I can hardly wait!

PS.  If it’s monetary policy you want, it’s over at Econlog.

PPS.  So the Federal government will launch a $45 billion war on opioids.  What could go wrong?

The Economist on Trump’s America

The Economist has a long article on how American politics is changing.  The entire piece is worth reading, here are a few examples:

Back in 2011, white evangelicals were the most likely group to say that personal morality was important in a president, according to the Public Religion Research Institute. Since Mr Trump became the Republican standard-bearer, they have become the least likely group to say that, changing what seems like a fundamental issue of morality to accommodate their support for the president.

And this:

The president’s admirers describe him as “situational”, by which they mean he has no ideology to speak of and judges each decision that comes before him in isolation. That explains, they say, how he can denounce President Obama for bombing Libya to prevent its government from killing its citizens, then launch a cruise-missile strike against the Syrian government to do the same thing. The president often seems to be pursuing the Breitbart strategy, only then to head in the opposite direction. On April 12th he cancelled a federal hiring freeze he had ordered in his first week in office; decided against labelling China as a currency manipulator; endorsed the Export-Import Bank, which provides finance to big companies like Boeing; and declared NATO relevant after all, breaking three campaign promises and abandoning one favourite theme in a single day. A little over a month later he changed direction again, declining to endorse explicitly NATO’s article 5, which says that an attack on one member is an attack on all, and pulling out of the Paris agreement on climate change. There is no consistent thread running through what he does; he can change his mind at any moment.

One of the president’s informal advisers says he cares more about getting something that looks like a win than about pursuing any particular policy. That would explain why he sometimes seems unaware of the details of policies he has advocated. When his administration on its 100th day in office got close to pulling out of NAFTA, it came as news to the president that some of his voters benefited from membership of the trade block. [emphasis added]

Interesting that it’s the “president’s admirers” who notice that he has no core values.

During the campaign Mr Trump offered to pay the legal costs if someone beat up a protester at one of his rallies. The ANES asked voters whether protesters who got roughed up for disrupting political events generally deserved what happened to them. Some 30% of Trump voters said protesters deserved it “a lot” or “a great deal”; only 18% replied “not at all”. As long as it is the other side that suffers, a degree of violence is acceptable, even welcome.

It is extraordinary that such a prosperous, peaceful, fortunate country, with such deep democratic traditions, could have arrived at this point, but it has. “So strong is this propensity of mankind to fall into mutual animosities, that where no substantial occasion presents itself, the most frivolous and fanciful distractions have been sufficient to kindle their unfriendly passions and excite their most violent conflicts,” wrote James Madison in Federalist Paper No 10. The Trump presidency could yet go in several directions. The one that seems definitely blocked is the route back to a land where it is rare to think that political opponents deserve to be beaten up. Perhaps that country no longer exists.

In the next post we’ll see how Trump’s incompetence will lead to a very bad outcome for healthcare reform.

BTW, I’m not surprised to hear that lots of people are comparing Donald Jr., to Fredo, but I wasn’t aware that Trump insiders saw this well before the rest of us:

Perhaps it’s no wonder that Trump’s inner circle has been calling him Fredo since the campaign.

It brings a smile to my face thinking about all of the Trump lawyers desperately trying to clean up the mess as one Trump after another makes a fool of himself.

I know, it’s just unsubstantial leaks that the Trump campaign was trying to collude with the Russian government to stop Hillary.  Why trust that crazy Fredo look-alike?