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A follow-up post on nationalism

A quick point about my previous post.  I regret saying this:

Perhaps Brooks is not familiar with how the term ‘nationalism’ has actually been used over the past 100 years.  It’s all about zero-sum thinking, us vs. them.

Obviously David Brooks knows more history than I do.  I should have said something like:

I wish Brooks had put more weight on how the term ‘nationalism’ has actually been used over the past 100 years.  It’s all about zero-sum thinking, us vs. them.

I really hate nationalism.  And yet while I don’t agree with what I see as his attempt to put a positive spin on the term, it was clearly well-intentioned on his part.  So I apologize for the dismissive way I made my point.

HT:  Christian List

 

Are the tax cuts affecting growth?

Probably, but it’s too soon to say.  Here is some (annualized) data on RGDP and NGDP growth:

2009:Q4 to 2016:Q4:  NGDP growth averaged 3.8%, RGDP growth averaged 2.1%

2016:Q4 to 2018:Q1:  NGDP growth averaged 4.5%, RGDP growth averaged 2.4%

2018:Q1 to 2018:Q2:  NGDP growth was 7.4%, RGDP growth was 4.1%

Conclusions:

1.  Monetary policy has recently become more expansionary, especially in 2018:Q2.  This would be expected to modestly boost RGDP growth, and it did.  But NGDP growth has no effect on long-term trend RGDP growth.

2. There is a small amount of evidence that RGDP growth picked up after 2016, but it’s really only in the last three months where we seem to see significant effects from Trump policies—especially the corporate tax cut.  (I’m not interested in the demand side effects of other tax cuts, which are offset by monetary policy over any significant period of time.) But it’s still not completely clear if this growth surge is any different from 2014-15.

In my view, about 1/2 of the 0.3% initial boost to growth was due to deregulation, and the rest was due to easier monetary policy.

This year I expect a bigger growth surge due to the tax cut.  I predict an extra 1% of RGDP growth, and I also predict this growth burst will fall off sharply in subsequent years, so that the long run effect will be RGDP about 2% higher than otherwise, at most. But 2% more RGDP is a lot–well worth doing. (Here I’m referring to actual RGDP, the tax bill might slightly distort the figures by changing the way corporations report the location of economic activity.  We’ll know that occurred if Ireland’s GDP takes a hit.)

I have not factored in a major (and persistent) international trade war, as I still consider that outcome to be unlikely.

BTW, the 7.4% NGDP growth in Q2 is not likely to be sustained, according to the Hypermind prediction market (which shows 4.6%).   Ditto for real GDP growth.  I recall that RGDP growth averaged over 5% during the second and third quarters of 2014, but that was not sustained.

PS.  Earlier GDP figures were revised downwards, so the NGDP growth under the previous year’s Hypermind market was actually 4.6%, not 4.8%.  Of course the payoffs depend solely on the initial announcement.

PPS.  The employment situation is of course much less impressive.  Job growth has not increased under Trump, despite the fantastic claims of some in the media:

Trump’s policies have produced the best of all economic worlds — surging growth and employment, with little inflation and a rising dollar.

That’s simply not true:

Screen Shot 2018-07-27 at 12.44.44 PM

Love this tweet

Vaidas Urba directed me to this tweet from Vitor Constâncio, who’s term as the Vice President of the ECB just ended. Also recall Bernanke’s recent advocacy of level targeting.

Screen Shot 2018-06-13 at 11.06.06 AMLove it!

PS.  Here is the link embedded in the tweet:

https://www.ecb.europa.eu/press/key/date/2018/html/ecb.sp180504.en.html

The only real solution to Too Big To Fail

In a recent post I suggested that higher capital requirements might be called for if policymakers were unwilling to bite the bullet and remove moral hazard from our financial system.

The FT has a new article discussing a Treasury proposal to end Too Big To Fail, by setting up a new type of bankruptcy for big banks.  I wish them well, but remain skeptical.  In my view, the only way we’ll ever be able to remove moral hazard is with monetary policy reform.  If we can get to a policy of NGDPLT, then policymakers will no longer have to worry about the consequences of the failure of a big bank.  Unfortunately, that’s likely to take many decades, as we first need to implement the policy, and then see how it does during a period of financial distress.  Only then would policymakers begin to feel comfortable rolling back TBTF.  (And even then, special interest groups will try to keep it in place.)

PS.  The NYT has a new post showing that historians view Trump as being the worst President in American history.  That’s also my view.  Some people judge presidential performance by how the country is doing.  That’s about like judging my blogging based on how monetary policy is doing.  A couple posts I’d recommend are Yuval Levin explaining why Trump is not actually the President, in the conventional sense of the term.  He’s not qualified to be President, so day-to-day decisions are made by others.  Thus the GOP “deep state” wisely vetoed his recent attempt at crony capitalism, which would have re-regulated the coal and nuclear industry as a backdoor way of bailing them out.  The outcome was good, but Trump’s specific input into the process was destructive.  Matt Yglesias also has a good post, explaining why Trump is much more corrupt that even lots of left-of-center reporters assume.

PPS.  I have a new post on budget and trade deficits, over at Econlog.

$110 bills are still lying on the sidewalk

I have a new post on the Hypermind NGDP prediction market, over at Econlog.  I argue that it might be best if the market fails.

Even so, I’m encouraging people to participate.  The prize money for each contract is over $36,000, and it costs nothing to participate.  Where else in life can you win money with no risk of losing?

Only 321 people have participated in the first contract, which ends in April, and even fewer in the second, which ends at the end of April 2019.  At that rate, the average amount of winnings per participant will exceed $110.

I’d also encourage journalists to pay more attention to this market.  What other data point better describes the expected growth in aggregate demand over the next year?  Be specific.