Archive for May 2017


Ross Douthat on Trump

Here’s what I said last month:

Trump is like one of those kings/sultans/emperors in the history books who assumed power as a child and had various ministers conduct governance while they spent time in their harem or engaged in falconry.

And here’s Ross Douthat:

There is, as my colleague David Brooks wrote Tuesday, a basic childishness to the man who now occupies the presidency. That is the simplest way of understanding what has come tumbling into light in the last few days: The presidency now has kinglike qualities, and we have a child upon the throne. . . .

Read the things that these people, members of his inner circle, his personally selected appointees, say daily through anonymous quotations to the press. (And I assure you they say worse off the record.) They have no respect for him, indeed they seem to palpitate with contempt for him, and to regard their mission as equivalent to being stewards for a syphilitic emperor.

I like “syphilitic emperor” much better—if only I could write like Douthat.

Here’s The Economist:

In their darker moments, though, some grandees on Capitol Hill wonder if what ails this presidency goes beyond unwise tweeting or the lack of a gatekeeper who can shield Mr Trump from what one Republican describes as “people filling his head with stupid”. It has become a commonplace, especially on the right, to accuse the press of exaggerating palace intrigues in Trump World. If only that were true. In fact, powerful folk in Washington routinely describe Mr Trump in shockingly dismissive terms. He is compared to an easily distracted child who must be kept “on task”.

Through no fault of their own, the (TV) news media gives a very misleading picture of Washington DC. Republicans in DC are reluctant to be too critical on camera, but off camera they are utterly contemptuous of Trump.  Trump has almost no supporters in DC, and even the people within the White House are abandoning hope.

For the past 12 months I’ve been accused of Trump derangement syndrome.  If so, virtually every well informed person within 20 miles of the White House has the exact same disease.

Rising NGDP in Japan equals jobs, jobs, and more jobs

The labor market data out of Japan is nothing short of spectacular.  The most recent data shows the rate falling to 2.8%, the lowest rate in decades:

And that’s not just due to people abandoning the labor force, as has been claimed regarding US data.  In start contrast to the US, the employment to population ratio is soaring to new highs.  This is from a Matt O’Brien article in the WaPo:

Anecdotal evidence also suggests an ultra-tight labor market:

Every shop and restaurant in Tokyo seems to have a “positions vacant” sign, and many are scrapping 24-hour opening to save labour. Yamato Transport, the country’s largest logistics company, is raising prices for the first time in 27 years in a deliberate attempt to cut volumes to a level its network can handle. Rather than cutting costs, chief executives spend their time working out how to hire and retain staff.

After more than two decades when labour was cheap and abundant, Japanese companies are finding ways to cut back, reducing their lavish service standards rather than raising prices. But this can only go so far. Japan is primed for inflation.

The struggles of the stimulus must also be weighed against the global economic backdrop. The plunge in 2014 in commodity prices, followed by the 2015 slowdown in emerging markets, leading to a sharp appreciation of the yen, were a terrible environment in which to generate inflation. Only with the election of Donald Trump as US president, and the subsequent rally in the yen above ¥110 to the dollar, is the global economy once again a support.

That’s right, this success occurred against a backdrop of substantial headwinds. How did they do it?  After he took office at the beginning of 2013, Abe set a goal of raising NGDP from 492 trillion to 600 trillion yen.  The inflation target was raised to 2%, and Kuroda was appointed to lead the BOJ.  NGDP started rising almost immediately, breaking out of a two-decade period of sluggishness.

Japan is now almost half way to its NGDP target.

To be sure, there are weaknesses. Inflation has averaged less than the 2% target, and is expected to continue doing so.  There was no date given for the 600 trillion yen NGDP target.  But overall, Abenomics has been a big success.

It’s also boosting RGDP.  Here’s the Financial Times:

Japan has recorded its longest run of sustained growth in more than a decade as stimulative policy and a healthier global economy lead to a period of robust progress.

Growth for the first quarter of 2017 came in at an annualised 2.2 per cent, according to the Cabinet Office, marking five quarters of continuous expansion in gross domestic product.

The figure beat the consensus analyst forecast of 1.7 per cent and is far above Japan’s long-run growth potential of roughly 0.7 per cent. That suggests the economy is using up spare capacity and unemployment will keep on falling.

The lesson here is that when you have a labor market that is facing inadequate AD, the solution is simple—more NGDP.  But printing money can’t perform miracles. Relatively soon Japan will reach capacity, and RGDP growth will stop.  At that point the BOJ must keep NGDP growing at 2% per year to ease its public debt burden.

And all of this occurred against a backdrop of zero interest rates and fiscal austerity—something Keynesians insist is impossible.  I can’t emphasize enough that Keynesian economics has negative value added, it simply doesn’t help us to understand what’s going on around the world.



Reality sucks

I hope you are having fun.  If not, check this out:

Conversations with some officials who have briefed Trump and others who are aware of how he absorbs information portray a president with a short attention span.

He likes single-page memos and visual aids like maps, charts, graphs and photos.

National Security Council officials have strategically included Trump’s name in “as many paragraphs as we can because he keeps reading if he’s mentioned,” according to one source, who relayed conversations he had with NSC officials.

Trump likes to look at a map of the country involved when he learns about a topic.

I also like maps.

Unfortunately, we are finding out that happy talk is not enough to fix an economy.  Eventually reality sinks in.  Just a few weeks after Trump touted Ford’s agreement to return a few jobs to America, they announce a 10% cut in their workforce:

Ford Motor Co (F.N) plans to shrink its salaried workforce in North America and Asia by about 10 percent as it works to boost profits and its sliding stock price, a source familiar with the plan told Reuters on Monday.

A person briefed on the plan said Ford plans to offer generous early retirement incentives to reduce its salaried headcount by Oct. 1, but does not plan cuts to its hourly workforce or its production.

The move could put the U.S. automaker on a collision course with President Donald Trump, who has made boosting auto employment a top priority. Ford has about 30,000 salaried workers in the United States.

Ford picked a good time to announce this jobs cut, as the President seems a bit . . . distracted.

Today I heard a report that White House aides offered the following two defenses:

1.  That’s just the way the President talks–he wasn’t trying to obstruct justice.

2.  Why didn’t Comey go to the authorities with this information back in February?

If that’s all they’ve got, then they are in big trouble.  The first point tacitly accepts that the story is true (which anyone with half a brain already understands.)  And the first point makes the second point moot, even if it wasn’t easily disposed of with Comey’s likely claim that he was trying to shield the rest of the FBI from intimidation.

There is no full court press from the White House that Comey is lying, which is quite revealing.

Yet in some ways the Trump scandal seems much less serious than Watergate.  Nixon seemed highly intelligent, devious and dangerous.  Trump just seems like a buffoon.

Yesterday, a commentator (I think it was Matt Lewis) said that Trump was basically a child—which seems right to me.  He might not have even known he was committing obstruction of justice, although the fact that he told others to leave the room suggests that he knew he was crossing some sort of line.  But here’s one case where “innocence” in the sense of child-like doesn’t really help very much.  It makes him seem less evil than Nixon, but also far less qualified to deal with foreign leaders.  He’s obviously not even close to being qualified to be President.  So should he be removed through impeachment or the 25th amendment?  Either way, he’s got to go.

But he also seems like the sort of guy who will try to bring down the Republican Party if they don’t support him.  Even during the campaign, it was obvious that the GOP had a tiger by the tail.  If they had stiffed him at the convention he would have told his supporters to not vote for the GOP nominee.  I don’t see any scenario where 2018 is not an historic GOP disaster.  Any tax cut for the rich is going to be repealed in two years or four years, it’s just a matter of time. And if it’s President Sanders, the rich will see even higher taxes.

In other words, I told you so.

PS.  Last October I was premature with this prediction:

We are currently in the circular firing squad phase.  I eagerly await the “Hitler was so pissed the generals let him down that he decided to destroy Germany when he knew that he was going to lose” phase.

But I still think that’s coming.  When a political party has been naughty, there’s a high price to pay.  And the GOP has been very, very naughty.

PPS.  Some anti-Trump people claimed that I was too complacent in claiming that America’s democracy was strong enough to push back against Trump authoritarian tendencies.  I think we are seeing a pretty strong pushback already.  Even if Trump stays in office, he will be on a very short leash—Congress will not tolerate any more of this stuff (and I’m not even sure he’ll survive this.)

McMaster “defends” Trump

So here’s what I heard from McMaster:

1.  Trump did not discuss the information with the intelligence services before providing it to the Russians.

2.  It was implied that Trump did indeed release the city where sensitive information was gathered.

3.  Trump did not even know the sources and methods behind this intelligence.

Now let’s add in what we already knew about Trump:

4.  He brags about no longer needing the daily intelligence briefings.  It is reported that he doesn’t even read the bullet points on the occasional intelligence briefings that he does get.

Here are my questions:

What sort of information is it appropriate to provide to our adversary, but not share with the American people?

Where is Pence on this?  Is he getting tired of Trump sawing off the limb he’s on with a tweet, after each previous defense?

We were told that Hillary’s email problem made her unqualified to be President.  Is that still true?

Why is it that all the former intelligence officials who are free to speak their minds (Dems and Republicans) are scathing in their criticism?

PS.  Tom Brown directed me to this, which might be the single most negative report on Trump that I’ve ever read. Here’s just a part of it:

What sets this story apart for me, at least, is that I know one of the sources. And the source is solidly supportive of President Trump, or at least has been and was during Campaign 2016. But the President will not take any internal criticism, no matter how politely it is given. He does not want advice, cannot be corrected, and is too insecure to see any constructive feedback as anything other than an attack.


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David Beckworth interviews Paul Krugman

Love him or hate him, there’s no denying that Krugman is a brilliant economist. David Beckworth’s interview with Krugman is probably my favorite so far in the series, even though on the policy issues I tend to agree more with earlier interviewees such as Bullard.  (Interestingly, these two agreed on a number of issues, despite being far apart on the political spectrum.)

There’s no transcript, so I’ll rely on memory, and then leave a few observations after each point:

1.  When discussing his famous 1998 paper, Krugman said the hard part was determining the implication of an “expectations trap” for policymakers.

This is a very good point, and most people underestimate this problem.  Krugman himself has changed his views as to the paper’s implication, in the years since it was published.

2.  He indicated that when trying to exit a liquidity trap, you don’t need to just convince the central bankers, you also need to convince the public.

I have a “build it and they will come” attitude here.  If the central bank adopts an effective policy response, I think the public will believe it.  The real problem has been the failure of central banks to be willing to adopt “do whatever it takes” policies.

3.  He suggested that price level targeting might not be enough—you might need a higher inflation target if the equilibrium real interest rate fell to very low levels, and stayed there.

Here my view is different.  A liquidity trap should not be viewed as zero nominal interest rates, but rather the zero bound on eligible assets that the central bank has not yet purchased.  Imagine a policy of targeting the price level with CPI futures. That policy will work regardless of how low the equilibrium interest rate falls, as low as the central bank has the ability to adjust its balance sheet to base money demand.  Ditto for exchange rate targeting (i.e. Singapore). Liquidity traps are not times when fiscal policy is needed, they are times when bigger central bank balance sheets are needed.

Krugman cites Japan’s falling population.  On the one hand that might reduce Japan’s equilibrium real interest rate.  But it also reduces aggregate supply, which is inflationary.

4.  Krugman noted that elite policymakers don’t think that an inflation target of higher than 2% is responsible.

My immediate reaction was “Hmmm, where did they get that idea.”  To his credit, Krugman later joked “I may have set back policy by decades with that credibly promise to be irresponsible remark.”

5.  The first QE in the US and Europe helped to restore confidence to economies that had been destabilized by private sector financial turmoil.

My reaction is that that financial turmoil was at least partly caused by bad monetary policy, which was causing NGDP growth expectations to plummet.

6.  Krugman points out that Congress would have objected to a higher inflation target.

I think that’s right, but other options like PL targeting and NGDP targeting we at least possibilities.  More importantly, the Fed could have kept the inflation target at 2% and done far more in the realm of “concrete steppes”.

7.  Krugman’s ideal policy back in 2009 would have been enough fiscal stimulus to get inflation up to 4%, followed by standard monetary policy to stabilize the economy after that (presumably something like policy during the Great Moderation, except with a high enough inflation target to prevent hitting the zero bound.)

That might work, but if you raised the inflation target to 4%, then I doubt you’d even need fiscal stimulus.

8.  On whether 2% was a target or a ceiling, Krugman actually seemed less cynical than David (which might surprise people given their personalities).

I tend to agree with Krugman on this point, but I also believe that David has the better argument, and this is one place where Krugman struggled a bit to refute it. He talked about central bankers wanting to go back to the old days of Volcker, when they fought a heroic battle against inflation, and he also talked about the Fed as an institution having a bias toward fighting inflation.  Of course you could view those observations as supporting David’s claim about 2% being a ceiling, and I sensed that Krugman saw that as well.

9.  Krugman suggested that he had mixed feelings about NGDP targeting, worrying that it might allow too much inflation volatility.

Here again, he struggled a bit in his reply.  At one point he tried to suggest a scary counterfactual of 1% RGDP growth and 4% inflation, and then immediately seemed to realize that a few minutes earlier he had advocated 4% inflation.  In my view Krugman missed the point here.  A period of 1% RGDP trend growth is precisely when you are likely to see the sort of low equilibrium real interest rate that Krugman himself thinks calls for 4% inflation target.  Admittedly I am relying a bit on a sort of “divine coincidence” of RGDP trend growth and equilibrium real interest rates moving together, but I also think there are strong labor market reasons to prefer NGDP targeting. Krugman said something about menu costs of inflation, but surely he cares more about unemployment than menu costs, and labor market stability is almost certainly more closely correlated with NGDP than inflation. Indeed an awareness of that fact (in my view) largely explains why central banks have “flexible” inflation targets.

Like most other mainstream economists, Krugman doesn’t seem aware of all the arguments for NGDP targeting made by market monetarists, and even earlier by George Selgin.  We still have work to do.

Overall a great interview.  Krugman said, “I don’t really know” more often than one might expect from reading his NYT columns, which is to his credit.

I used to think his bashing of the GOP was exaggerated, but now it seems on target.  I say he’s finally got it right, whereas Krugman would presumably say that Trump proves that he was right all along.