Archive for June 2017


One small step for deregulation

Deregulation is harder than it looks, but the Trump administration did take one significant step this past Wednesday:

Outside of a $15 minimum wage, the fast-food industry’s big mortal fear when it comes to labor law is over classifying companies with franchise business models as “joint employers” along with their franchisees. Their fear increased substantially in 2016, following news that President Obama’s Labor Department had issued guidelines recommending precisely this classification. It’s probably no surprise, then, to learn that yesterday the new Labor Department came to those giant corporations’ rescue by deleting the Obama-era guidelines entirely.

This will continue to be fought over in the courts:

The DOL’s withdrawal doesn’t necessarily translate to an immediate win for fast-food employers, though. The guidance it removed wasn’t technically law, so judges weren’t obligated to defer to it, former Labor deputy secretary Seth Harris tells the L.A. Times. He feels, “If anything, it makes it harder for employers, because they don’t know clearly what standards they should apply.”

And it would help if they staffed the NLRB:

The NLRB has recently taken workers’ side in several joint-employer cases. The big one to watch, though, involves McDonald’s, and it’s still being challenged in court. In the meantime, there are currently two vacancies on the NLRB that President Trump gets to fill, assuming he ever gets around to it.

They also need to roll back the Obama overtime rules, which are also tied up in court.

PS.  On a sad note, one of the great innovators of the 20th century passed away:

Sam Panopoulos, considered to be the creator of the Hawaiian pizza, died on Thursday at the age of 83. A Greek immigrant to Canada, Panopoulos and his two brothers ran a number of restaurants in Ontario. Satellite Restaurant, where Panopoulos started serving pizzas in the 1960s, is the spot where he came up with the controversial assemblage of toppings. Depending on whom you talk you, it was either in a moment of divine inspiration or devilish blasphemy that Panopoulos first put pineapple on pizza, telling the BBC just this year that the crew did it “just for the fun of it.”

I say “divine inspiration”.

PS.  I also have a new post on labor shortages at Econlog.


A surprisingly conservative critique of the Fed by 22 “liberal” economists.

For several days I’ve been reading about a letter by 22 “liberal” (i.e. left-of center) economists, calling for a higher inflation target.  That’s not really my first choice, although I do see their point.  When I finally read the letter I was pleasantly surprised by its tone, which was quite moderate:

Even if a 2 percent inflation target set an appropriate balance a decade ago, it is increasingly clear that the underlying changes in the economy would mean that, whatever the correct rate was then, it would be higher today. To ensure the future effectiveness of monetary policy in stabilizing the economy after negative shocks – specifically, to avoid the zero lower bound on the funds rate – this fall in the neutral rate may well need to be met with an increase in the long-run inflation target set by the Fed.

As you know, I favor NGDP targeting.  But let’s suppose that we decided back in the early 2000s on a 4.5% NGDP target, expecting it to deliver 1.5% trend inflation.  Today we’d expect that same NGDP target to deliver roughly 3% inflation.  So in that sense they are correct—if we must target inflation, then due to changing circumstances a higher rate would now be appropriate.

There is another sense in which they are also correct.  The original call for a 2% target, instead of say 1% or zero, was partly based on the assumption that 2% was high enough to keep us away from the zero interest rate bound.  Japan had a zero percent inflation target, and was persistently at or close to the zero bound.  So if that was the criterion used for the 2% target in the early 2000s, then the exact same criterion would call for a higher target rate today.

And their concluding recommendations are quite modest and reasonable:

Policymakers must be willing to rigorously assess the costs and benefits of previously-accepted policy parameters in response to economic changes. One of these key parameters that should be rigorously reassessed is the very low inflation targets that have guided monetary policy in recent decades. We believe that the Fed should appoint a diverse and representative blue ribbon commission with expertise, integrity, and transparency to evaluate and expeditiously recommend a path forward on these questions. We believe such a process will strengthen the Fed as an institution and its conduct of monetary policy, and help ensure wise policymaking for the years and decades to come.

Isn’t the Congressional GOP proposing a similar commission?

The title of this blog post might seem a bit provocative, but that’s not my intention. These 22 left-of-center economists have signed a letter calling for the Fed to make its policy regime so robust that fiscal stimulus is no longer needed, indeed is no longer even effective. That’s effectively a “conservative” outcome.  I’m not sure that’s what they all intended—presumably people like Joe Stiglitz did not have that intention—but fiscal policy becomes superfluous when the Fed is not stuck at the zero bound (as we learned during the 1984-2007 period).  That’s not just my view, Paul Krugman used to make much the same argument.

If I wrote the letter it would have been much shorter:

Dear Fed, Please choose one of the half dozen policy regimes that insure monetary policy is always capable of providing the desired level of aggregate demand, so that fiscal stimulus is never needed.

PS.  I also have an Econlog post on Fed policy.

PPS.  At the half time of game 4, Paul Pierce had a look of wonder in his eyes.  Referring to Cleveland’s 86 points at the half, he said something to the effect, “My reaction is that’s what it takes to beat the Warriors?”  If the public understood just how small an adjustment it would take to fix monetary policy they have the opposite reaction: “That’s all it would have taken to prevent the Great Recession?”  The policy elite better hope the public never finds out.


The new free world

The past week has seen some pretty important changes in the political map:

1.  Former Chancellor George Osborne has described Theresa May as a “dead woman walking”, after her humiliating performance against the pathetic Jermey Corbyn, which involved blowing a 20 point lead in just a few weeks, and also losing her majority in Parliament.  (Thank God PCism is less extreme in the UK.  In humorless America that would have been taken as an assassination threat, and Osborne would have been forced to apologize.)

2.  Emmanuel Macron won a massive victory in the first round of the legislative elections, and is set to have a huge majority in the Assembly.  This gives him a powerful mandate for change:

One key plank of Macron’s vision is the controversial labor-market overhaul that he has promised to deliver by mid-September. With the French economy lagging its peers, the president also wants to change tax rates and fix inequalities in the pension system. He’s already started to revamp French intelligence services after terrorists claimed more than 200 lives since the beginning of 2015.

After campaigning on his plan to simplify France’s labor code, the president began a round of initial meetings with union leaders within 10 days of taking office on May 14. Those talks will get under way in earnest after the second-round vote as the government seeks common ground for reworking the country’s byzantine labor rules.

Macron wants individual companies to negotiate wages rather than being bound by industry-wide agreements. He has argued that a more flexible labor market would help boost growth and win the trust of France’s European partners, above all Germany.

Historic Opportunity

For at least two decades, French unions have opposed such efforts, emphasizing job protection instead, but a week from now, Macron may find himself in a stronger position than any French president for a generation. With a majority in parliament and hundreds of lawmakers who are completely new to politics, the president would hold extensive control over the levers of government.

“This victory will no doubt go down as one of the great electoral achievements in our country’s recent history,” said Bruno Cautres, a politics professor at Sciences Po who works with pollster BVA.

It remans to be seen how much he can accomplish—previous governments tended to back off after street protests.

Of course the Trump wing of American conservatism favored LePen, who promised to make France even more socialist. Yes, that’s how much they dislike dark-skinned people.

3.  With Trump kissing up to dictators and insulting our traditional allies, and the UK Conservatives in disarray over Brexit, Merkel and Macron are the new leaders of the free world.  At least until Trump leaves office, and America regains its dominant position.

Why optimism is more rational than pessimism

Tyler Cowen has a post discussing this interesting question:

Is optimism or pessimism correct?

I mean for the West, not for emerging economies.  Obviously we need to know future trajectories, and that is hard to do.  But try this simple question: since 2000 or so, have the predictions of the optimists or the pessimists come closer to being correct and insightful?

At a dinner party two nights ago, the unanimous opinion, even from the optimists, was that the pessimists had been doing better in the predicting game.  Of course, that does not mean the pessimists will be correct going forward.  The optimists might try these counters:

For simplicity, let’s just consider the US for the moment.  Here’s how I would group periods, your mileage might differ:

Good:  1900-17

Bad:  1917-22

Good:  1922-29

Bad:  1929-45

Good: 1945-50

Bad:  1950-53

Good:  1953-65

Bad:  1965-84

Good:  1984-2001

Bad:  2001-14

Good  2014 –

That’s 61 good years and 56 bad years.  But I’m actually not at all sure this is right.  I’m ignoring huge areas of life—health care, civil rights, the internet, the environment, etc. etc., and mostly focusing on war and the economy.  But I think it’s fair to say that most people perceive something like this—alternating periods of good and bad.  Perhaps of roughly equal length.  So why be an optimist?

If you look closely you’d notice that the trajectory is clearly upwards.  Problems keep reappearing, but often in orders of magnitude less severe forms.  Thus Vietnam was an order of magnitude less bloody (for the US) than WWII.  And Iraq/Afghanistan was an order of magnitude less bloody than Vietnam.

In the Great Recession, we made many of the same mistakes as during the Great Depression, but an order of magnitude less severe.

One exception was the AIDS epidemic, which was comparable in severity to the 1919 flu outbreak.

We don’t learn as much as I’d like from our mistakes, but we surely learn something.

Previously I said that my list ignored many areas of life, such as civil rights, health, the internet and the environment.  But obviously things have gotten better in those areas over time.  Not just in the past 100 years, but also in the past 10 or 20 years. (I mean better in an overall sense, there are setbacks in specific subcategories.)

What about Trump?  Presidents don’t have much impact on these trends, although I suppose the risk of nuclear war is now slightly higher, given that our President is now almost universally viewed as being mentally unstable.

I believe it’s almost impossible to predict the future, and I do have some concern about “existential risks”.  But I don’t know enough to have a good sense of how big those risks are.  Thus I rely on our past history.  If you closely examine the period since 1900, and that doesn’t make your optimistic about the future (for humans, not necessarily animals), at least in a conventional sense, then there is something wrong with your brain.

PS.  By ‘conventional sense’, I mean according to the usual metrics.  I’m willing to cut more slack for philosophical radicals who wonder if all this “progress” actually makes us any happier.  I’m agnostic on that question.

PPS.  I’m also optimistic about the entire world.  Places like China and India are clearly improving, and places like Syria and North Korea have nowhere to go but up.

PPPS.  How has the film industry being doing recently?  The NYT gives its top 25 films of the 21st century (including 2000). That prompted me to make my own list:

Top 25 of the Century

First Tier:

Mulholland Drive

Nobody Knows


Lord of the Rings

In the Mood for Love

Three Times*

Uncle Boonmee Who Can Recall his Past Lives

Spirited Away*

Inland Empire

Second Tier:



Winter Sleep

Once Upon a Time in Anatolia

Three Monkeys

The Wailing

Mountains May Depart

Happy Hour

Third Tier:

The Piano Tuner of Earthquakes


Yi Yi*

Japanese Story


Memories of Murder



The three starred films also made the NYT list.  How does this compare to the previous 17 years?  Not too well.  Wong Kar Wai had 5 films that could have made the list, and Hou Hsiao-Hsien had at least 5–maybe more.  The film industry is in long-term decline, which happens to all art forms after they express their most potent ideas.  Painting peaked in the 1500s and 1600s.  Pop music in the 1960s and 1970s.  So on film I’m a pessimist.

It’s 4am. Do you know who your PM is?

Alternative post titles:

Anarchy in the UK

The Flight 93 election

It’s 11 pm Eastern time, and the outcome is still in doubt.  However we already know that Corbyn is a huge winner and May is the loser.  If Thatcher anticipated Reagan and Brexit led to Trump, does Corbyn’s strong showing suggest Bernie Sanders could win in 2020?  (Sanders is far to the right of Corbyn, who is basically a Marxist).

It’s becoming clear that the polls showing a big overlap between Trump voters and Sanders voters was no fluke.  I now suspect that Sanders might have won in 2016—an idea I ridiculed at the time.

For the first time in 150 years there will be no Irish nationalists in Parliament.

The Conservatives lost Canterbury for the first time since 1918.  Labour is shifting from a party of labor to a party of students.

I’m already seeing stories that “uncertainty will weigh on the economy”.  Sorry, I’m not going to be suckered by that prediction twice in a row.

Negotiations with the EU?  They must all be laughing in Brussels.

About the post title.  Given my strong dislike of May, I’m rooting for a Conservative win so narrow that they replace May with Johnson.

Update:  This is the most informative graph I’ve seen on the election:

So as Labour becomes a party of students, the cultural conservative blue color workers who don’t like the EU are swinging towards the Conservatives.

(I hope my British readers will tell me if I’ve got that right.)