Archive for April 2017


Three podcasts

I recently listened to three podcasts, involving James Bullard, Miles Kimball and Tyler Cowen.  In all three cases, I found myself agreeing with most of the ideas. Here I’ll mention a few areas of slight disagreement.

1.  David Beckworth interviewed James Bullard on monetary policy.  Most of what he said made a lot of sense, including his comment that the Fed might be more sympathetic to the NGDP targeting idea if it were starting from scratch, rather than already having invested a lot of credibility capital into inflation targeting (my words, not his.)  My only major area of disagreement was when Bullard worried that the NGDP target would have to be adjusted when the trend rate of RGDP growth changed.  In my view that’s not necessary, except perhaps for the part of RGDP growth changes that reflect changes in labor force growth.

2. Miles Kimball talks about the need for faster RGDP growth, and discusses some ideas for getting there.  He points out that we can’t get significantly faster growth from sectors that have shrunk to a small share of GDP, such as agricultural, and to some extent even manufacturing.  He suggests the big problem area is housing, which absorbs a big (and increasing) share of the consumer budget, but which is seeing virtually no productivity growth.  He focuses most of the talk on making the service sector more efficient.

It’s interesting listening to the Kimball and Cowen podcasts back to back.  In both cases you see Mormon cultural ideas lurking in the background (indeed both speakers alluded to this religion.)  Both are very idealistic, like top 2%.  Kimball suggests imposing a tax surcharge that can be avoided entirely if you donate the equivalent amount to an approved charity.  He argues that donating money makes people less cynical and more altruistic, as compared to being forced to pay taxes to a government bureaucracy that doesn’t seem interested in where you or I think the money should go.  Perhaps people would not work as hard to evade this sort of “tax.”

3.  Cowen notes that people who donate to charity tend to be happier.  He also believes that economic growth is the best way to boost living standards, even for the poor.  (Both Kimball and Cowen emphasize that “growth” should include factors like the environment.)  I’m agnostic on the happiness studies—I wonder if perhaps we’ve got causation wrong; maybe happiness causes altruism and high incomes, not vice versa.  But given that we don’t know, we should probably err on the side of assuming that at least some correlation runs from charity and growth to happiness. (Tyler has a very interesting discussion of what we should do when we don’t know for sure which theory is true.)

Cardiff Garcia did a great job in his interview of Tyler.  Much of it focused on Tyler’s new (unpublished) book, which discusses the philosophical ideas that underlie his other writings. They ended with a discussion of the NBA.  In my view, this is a golden age of basketball.  Never have there been so many great players (AD, Paul George, Chris Paul, Jimmy Butler, Isaiah Thomas, Giannis, John Wall, etc.) who are not even in the top 6 NBA players.  Some of these guys would have been borderline MVPs in previous generations.  But I do have one complaint. The NBA really needs to change one of its rules, as defense gradually evolves to make any sport less entertaining.  Here goes:

New rule:  Officials should ignore minor intentional fouls on fast breaks, where a call would clearly favor the defense.  If the intentional foul is so extreme as to physical stop the fast-breaking offensive player (such as tackling or wrapping up) the official should award (one or two) free throws plus the ball.

In other words:  Discretion, not rules!

I miss the old “showtime era” of the 1980s, when fast breaks were more common. There is something wrong with a rule where:

1.  Calling the foul helps the team that commits the foul.

2.  Calling the foul makes the game more boring.

In economic terms, calling a foul has a “cost”, as they make the game more boring. Fouls can only be justified if they have an even greater benefit to fans.  Often they do—preventing excess physicality—but not minor intentional fouls on fast breaks.

PS.  Westbrook should be the MVP.  He won 47 games with the rest of his team being worthless.  He outplayed Harden when both were on the floor in the playoffs, despite Harden’s supporting cast being far, far better.  He only lost because the Thunder were complete garbage in the 5 minutes he wasn’t on the floor each game. Obviously LeBron is the best player in the NBA, but he’s not the MVP this year.  His team is talented, and should have won more games.


Leaders don’t matter as much as you think

Leaders do matter, sometimes (as with Hitler) quite a bit.  But overall I believe that leaders matter much less than people think.  It’s human nature to anthropomorphize big changes. Thus the neoliberal wave of the 1980s and 1990s, which affected almost all countries, is seen as the “Reagan-Thatcher era.”

Americans find this easier to see in other countries than our own.  Thus we understand that Switzerland will be Switzerland and Portugal will be Portugal, regardless of who is leading those two countries.  But we also talk about “Obama’s America” and “Trump’s America”.

Perhaps my claim would be easier to understand if we looked at Australia, one of the two countries that is most similar to the US:

MALCOLM TURNBULL had always seemed to be what Australians call a “small-l liberal”. Unlike many in the Liberal Party, which despite its name is Australia’s main conservative force, he was a defender of progressive causes. In 1986, as a lawyer, he successfully challenged a bid by the British government to prevent the publication in Australia of the memoir of a former British spy. He led the failed campaign in 1999 for Australia to become a republic. And unlike his fellow Liberal and predecessor as prime minister, Tony Abbott, he has no doubts about global warming.

Yet since becoming prime minister two years ago, Mr Turnbull seems to have jettisoned many of his small-l views. The most obvious reversal concerns immigration. In 2013, when a government led by Labor, now the main opposition party, sought to curb temporary work visas, known as 457s, Mr Turnbull called the visas the “heart of skilled migration”; he dismissed as “chauvinistic rhetoric” claims that they robbed Australians of jobs. Yet Mr Turnbull recently announced sharp restrictions on 457s: most recipients will no longer be able to apply for permanent residency, and the number of eligible professions has been cut by a third (actors, biochemists, detectives, metallurgists and web developers are among those who need no longer apply). To oblige immigrants to learn “Australian values”, the government wants to add questions on topics like child marriage, domestic violence and female circumcision to the test they must take before they become citizens. Mr Turnbull described all this as “standing up for Australian jobs and Australian values”. The sudden blast of “Australia First” rhetoric has left many asking what Mr Turnbull really stands for. . . .

He used to advocate a market-driven mechanism obliging polluters to cut emissions of greenhouse gases. Now he has embraced Mr Abbott’s much criticised alternative: an A$2.5bn ($1.8bn) public fund to pay businesses to curb emissions. By the same token, he used to argue that parliament should legalise gay marriage; now he wants to hold a plebiscite first, just as Mr Abbott proposed.

Notice how just as right wing nationalism is sweeping the globe, a liberal Australian leader suddenly becomes a right wing nationalist.  Sad!

I’m not saying that leaders don’t matter at all—that would be crazy (again, Hitler). Rather I’m claiming that they don’t drive the ideological waves that impact the world; rather they usually surf along the tops of those waves.  Trump’s Supreme Court pick is a bit different from Hillary’s, and his trade policy will be a bit different. His Obamacare 2.0 will be a bit different.  The new tax deal with be a bit different from the “lower corporate rates in exchange for infrastructure” deal that Hillary would have struck with Congress.  His incompetence will lead to more screw-ups, like this one, than what would have occurred under Hillary.

But in the general scheme of things not much will change.  Unless of course Trump gets us into a nuclear war with N. Korea (which I doubt).

PS.  The same is true of monetary policy.  The Fed will stick to its 2% inflation target regardless of whom Trump picks.  Bloggers (as a group) probably have more impact on monetary policy than Trump.  It’s the zeitgeist, stupid.

PPS.  The same is true of the Supreme Court—it will mostly go with the flow, regardless of who is picked.  During the liberal era of the 1960s, even GOP justices voted liberal.

Hard data beats sentiment in Q1

For the past 3 months there’s been a raging battle between the Atlanta Fed and the New York Fed.  The Atlanta Fed relies mostly on hard data when predicting GDP growth, whereas the New York Fed puts relatively more weight on consumer sentiment.  Republicans became much more optimistic after Trump was elected, so the sentiment indicators pointed to much stronger growth than the hard data indicators.  The following graph shows the huge divergence that developed in recent weeks:

Screen Shot 2017-04-28 at 10.14.15 AMThe actual growth was only 0.7%, which was much closer to the bearish Atlanta Fed’s 0.2%, than the New York’s Fed’s bullish 2.8%.  This reminds me a bit of the post-Brexit vote growth in the UK.

I don’t like either hard data or sentiment; I like market forecasts.  Unfortunately we lack a NGDP futures market (I’m working on setting one up again, and will have an announcement soon), but we do have some market indicators.  The preceding graph and the following quotation were from an April 12 article:

Tying in with the earlier point, the rally in the ten-year bond is consistent with the Atlanta Fed’s forecast for low growth in Q1.

So the bond market seemed to sense that growth was weakening.

Is it too early to attribute any of this to Trump?  I’d say so.  But the Trumpistas all crowed in early February when the strong January jobs report came in.  This was attributed to the magic powers of Trump, despite the fact that he had not even taken office when the January survey was conducted.  I don’t know how they’ll reconcile this GDP report with their dreamy predictions of 4% growth as far as the eye can see, but I’m sure they’ll think of something.

There’s likely to be some bounce back in Q2 (poorly measured seasonality depressed Q1), but I’m sticking with my view that America’s new trend RGDP growth rate is 1.2%, or 1.5% if Trump succeeds in getting his supply-side reforms passed.

PS.  Core PCE is up 2% over the past year, so the Fed is hitting both its price and employment targets.  For the moment, they are fulfilling their dual mandate. That’s a problem for Trump, who needs some Arthur Burns-style recklessness to paper over his personal incompetence when it comes to developing supply-side policy reforms.

Update:  I got the core PCE inflation data from the FT.  Ant1900 points out the true figure is 1.7%, still below target.

PPS.  I have a new post at Econlog explaining job shortages.

Après moi le déluge

Somehow Donald Trump ended up in the White House–an outcome that seemed to surprise even him.  Now he needs to figure out what to do next.  (No, the campaign promises don’t provide any sort of coherent guide.)  Early indications are that Trump will try to implement policies that are popular, at the cost of imposing burdens on future generations (via global warming or massive deficits or a health insurance death spiral or a loss of US foreign policy credibility.)

The Financial Times reports that Trump’s proposed tax cuts would balloon the deficit:

The package would be hugely costly if it ever saw the light of day — suggesting that it was more a mechanism for signalling the direction the administration wants to take, rather than a detailed set of proposals. Estimates from the Committee for a Responsible Federal Budget suggest the measures would cost $5.5tn over a 10-year period, with the corporate tax cut the most expensive measure.

The proposal does contain lots of good ideas, such as eliminating the deductibility of state and local taxes (which would hurt me, but is still a good idea.)  It would also eliminate the AMT and death taxes, both long overdo.  Unfortunately, Trump doesn’t seem willing to pay for any of this.  It’s like someone who wants to eat ice cream and skip the vegetables. Trump seems opposed to cutting government spending, and also opposed to proposals such as eliminating the tax deductibility of health insurance and mortgage interest.  He’s also opposed to the border adjustment tax.

[I also oppose the BAT.  But I’d still prefer the Brady bill, despite that provision, as it at least tries to be deficit neutral.  Even better would be a carbon tax, and/or a higher payroll tax on high wage earners.]

In an optimal fiscal policy, the debt/GDP ratio rises during periods of high unemployment and falls during periods of low unemployment.  Trump’s proposal would cause the debt ratio to rise even in good times, and to soar in recessions. And that’s not even accounting for the looming demographic nightmare of boomers retiring.  This is a deeply irresponsible proposal.  Rather that rejecting the proposal, Congress should keep the good stuff and raise additional funds by closing loopholes.  In addition to the ones mentioned above, I’d close the deduction for interest paid by businesses.  Instead, I expect Congress to oppose even the one good idea, ending the deductibility of S&L taxes.  I hope I’m wrong, but I expect a really bad bill to come out of Congress.

PS.  Trump also wants to slash the tax rate for billionaire property developers (like Trump) from 39.6% to 15%, barely half the rate I have to pay.  Sad!

PPS.  Here are some good articles that I don’t have time to blog on:

1.  Why Europe still needs cash

2.  Why trade deficits aren’t about trade

3.  Why China may be growing faster than the official GDP numbers suggest

How Trump plans to boost the housing industry has an article discussing how Trump’s policies are impacting the housing industry:

Competition for labor in the housing market has been intense for some time, in part because the flow of immigrants from Latin America has decreased and in part because many people who worked in housing during the boom found other work during the bust. But with the government now openly hostile to the presence of these workers, and starting to deport some of them, it is becoming that much harder. . . .

As the Dallas Morning News notes, between 2012 and 2016, wages for Texas construction workers rose 21.2 percent, compared with 12 percent for all construction jobs in the U.S., and 2.2 percent for all jobs in the state. In Collin County, home to Plano and McKinney, construction workers make $98,000. And that was before the new administration began its immigration crackdown. The Dallas-Plano-Irving metropolitan area is short about 18,000 construction workers—about 20 percent of the total. Which means that many homebuilders literally can’t find people to do the job, and the rest must attempt to pass on higher costs to their customers.

. . .  And on Monday, as Commerce Secretary Wilbur Ross dolefully announced the tariffs of 20 percent on Canadian soft lumber, homebuilders were hit with another price increase. . . . The National Association of Home Builders said that Canadian wood prices could rise 6.4 percent as a result, thus boosting the price of the typical new home by $1,236.

There have been barrels of ink spilled discussing the plight of America’s non-college educated men.  As is so often the case, things are far more complicated than they seem.

Speaking of housing, when I was younger the left would sometimes argue that there was something unethical about living in McMansions—too big a carbon footprint.  The new left says that the real villains are those who choose to live in small houses:

According to an article in the “intersectional” blog The Establishment, people who don’t have to live in tiny houses living in tiny houses is a “troubling” example of “poverty appropriation.”

In an article titled “The Troubling Trendiness of Poverty Appropriation,” July Westhale explains that she grew up in poverty in a small immigrant town in California, where she lived in a small house because she had to — and that she’s finding herself getting a little offended by people who are living in small houses because they want to.

“This background, this essential part of who I am, makes it particularly difficult to stomach the latest trend in ‘simple’ living  –  people moving into tiny homes and trailers,” Westhale writes.

Here’s another no-no:

And it’s not just the Tiny House Movement. No, Westhale also has a problem with certain bars and restaurants “appropriat[ing] . . . low income communities” through trailer-park themes and “trashy” menu items such as tater tots.

I relied heavily on a diet of tater tots while in college and grad school. But then I suppose I was poor back then, so it was OK.

PS.  They’re actually not that bad, if dipped in ketchup.

PPS.  Recall when Trumpistas told us that we had to support Trump because Hillary was a left-wing supporter of big government?  Now you see Trumpistas rooting for Le Pen, who makes Hillary seem like Milton Friedman by comparison.  National socialism is back in style.