Archive for July 2017


A third possibility

During the campaign, there was a vigorous debate in the comment section of this blog. One side agreed with my claim that Trump was a clown and a buffoon, while the other insisted that I was being hysterical.  Interestingly, I don’t recall anyone advocating a third view, that I was being far too generous in my characterization of Trump.

Update:  Jonah Goldberg has an amusing take on “Mooch”, pointing out that the guy who wants to kill all the leakers actually confessed to a failed attempt at leaking White House info, but seems too dense to realize what he had done.

Think about this for a moment. Scaramucci suggests that he was betrayed by Lizza because he believed this conversation would be off the record or on background. That means he thought he was leaking to the press about the internal dynamics of the White House. Ergo, Scaramucci is a leaker (something we knew already, by the way).

Matt Yglesias suggests that the Mooch made his money the same way that Trump did, by bilking foolish investors:

At the same time, Mooch is a very Trumpy figure — and not just in his bridge-and-tunnel mannerisms. He’s a “hedge fund guy” but not a guy like George Soros, who made money with smart investments. He built his fortune on what amounts to a high-end swindle, successfully marketing a high-fee, low-performance investment vehicle. And he now stands to make even more money by selling the company while simultaneously serving at a high level in the American government — the kind of blatant, obvious conflict of interest that no other president would even consider tolerating in a senior White House official.

Both pieces are worth reading.

Lost in America

Due to the positive reaction to my previous post, I’ll do something even more self indulgent–keep a running tab of my trip. I write this from a secure undisclosed Red Roof Inn in Utica.

July 20:  After packing I got gas, and was told my sticker had expired months ago Got to get out of Massachusetts before they catch me.  Two blocks from home I enter the Mass Pike (I-90) in the evening “rush” hour.  Not a good start.  Over my entire life I’ve lived in a string of locations along I-90–which means I should have moved to the beautiful Pacific Northwest.

Just as I entered the Hudson River valley, a corny Thomas Cole sunset appeared in front of me, with musical accompaniment from a Joy Division CD.  Surreal. Stopped at a NY wayside at 9:30 and got a stale cheeseburger for dinner.  The AC was so cold it was painful.  Picked up one of those coupon magazine and tried to book a motel an hour down the road.  The call lasted forever–why does modern life have to be so complicated–do you have a room or not?

And that’s it.  Hopefully something more exciting will happen later on the trip. Perhaps my wife will gamble away our 401k plan in Vegas.  (She’s not with me now, but we’ll meet up in the midwest.)  Maybe I’ll find a picture or two to post.

July 21.  Before describing today’s trip I have one request.  I am working on a principles textbook and need some cartoons with economic themes.  I am trying to find one that I recall with a king who is relieved to hear the kingdom is merely run out of gold, not paper and green ink.  If you know any good econ-oriented cartoons (any field within econ), please leave a link in the comment section.

Right next to my hotel in Utica I found an actual original McDonald’s:

After my Egg McMuffin I took off in my new (used) Maxima.  First stop Buffalo, which has one of Frank Llyod Wright’s greatest houses, the Martin house designed in 1903:

So far they’ve spent over $40 million on the restoration, and it shows.  The interior is amazing.  The neighborhood is full of nice old homes.

Then on to the Knox-Albright art museum, which I found disappointing–not at all my taste in art.

Downtown is pretty quiet–much easier to park than in Boston.  But it’s full of nice buildings like this art deco gem:

With a lovely art nouveau mural in the lobby:

Then late at night I arrive at my surprisingly expensive “Super 8” motel, and had endless trouble getting my room key to work.  Remember when hotels had actual keys, which generally worked?  Then a quick KFC dinner, which is pretty horrible stuff, but surprisingly tasty.  I believe it’s the number one fast food in China. The checkout guy described all the deer he had hit with his car, in gory detail.  I was tired and just wanted to get back to my hotel, but I’m too polite, and just waited him out.

I forgot to mention an interesting incident when the packers loaded our furniture on Thursday. They spoke a romance language I could not place (which I usually assume means Portuguese), but had an eastern European accent.  It turns out they were Moldovan–I suppose they were speaking Romanian.  In any case I talked to a big burly guy named Vitalia afterwards and he asked what I did.  I said economic research and he asked what area.  I said monetary policy, and then explained that that related to the Federal Reserve (many Americans have no idea what monetary policy is.)  He smiled and said he knew what it was, and then asked me if I was the guy with a blog on the subject.  It turns out he reads my blog, and even described some of the amusing items in the in the comment section.  Lessons? It’s a small world, prob. values of 0.05 are meaningless, and never assume a big muscular worker is not highly educated.

July 22:  I was blown away by the quality of Detroit’s highway system.  It’s far better than what Chicago has, and serves a much smaller population.  You want infrastructure, Detroit has plenty.  And very few cars on either the downtown streets or the expressways.  I also saw lots of new apartment construction along Woodward Ave., which I drove from downtown out to Wayne State, where Detroit’s fine art museum is located.  Speaking of art museums, Toledo has probably the most underrated collection in all of America.  It’s a comprehensive collection, but I only had time to look at the paintings (I’m told they have an impressive glass collection, in another wing.  Toledo is glass city.)

I’m normally pleased when a small city museum has a couple of gems, but Toledo has dozens, with strength in both old masters and impressionism/post-impressionism. To my eye Rubens can seem a bit overdone, but when he’s on his game no one produces more beautiful paintings:

And here is a dazzling Bonnard (much more impressive in real life):

Also some cute modern art:

July 23:  Left Ann Arbor and drove to a house on Lake Michigan, owned by a commenter to this blog.  Once I reached Battle Creek it became an exercise in nostalgia.  As a child we drove once or twice a year from Madison to Lansing, to see family.  That was our one vacation of the year.  The trip was originally 12 hours, but fell to 6 after the interstates were built.  I used to be glued to the window, and now I started seeing a few familiar milestones—Kalamazoo, Paw Paw, and other oddly named towns.  (My grandmother was born in Hell, Michigan.)  But there were a few new additions, signs for “Sun Spa” and “Oriental Health Massage–open until 1am”.  After lunch my 3 hour trip from Benton Harbor to Rockford became 5.5 hours, as traffic in northern Indiana came to a standstill.  Out of frustration I decided to take local roads, the old highway 20.  It passed though downtown Gary as a thunderstorm was approaching.  To say Gary has seen better days would be an understatement–it seemed like a third world country.  I should have taken some pics, but didn’t know if the local residents would appreciate a visit by an aficionado of “ruin porn”.  I’m a long way from Mission Viejo.

July 24:  I returned to my hometown yesterday. In an earlier post, I explained why Madison, Wisconsin has convinced me that progressives are wrong about race in America.

In another post, I discussed my brother Mark’s amazing collection of old stuff.  He was featured on “American Pickers” (the second part of the episode entitled “Catch 32”.)  My best friend is an equally serious collector, except that he collects much larger objects.  Whenever I return to Madison I can count on seeing something new, and this time I was not disappointed.  Roger has purchased the original train station in Madison, as well as a big long train:

I’ve known Roger since I was 5.  When we were 14 we’d go to the rail yards in downtown Madison in the middle of the night, to collect unused flares.  The material was then packed into long aluminum tubes to make fireworks.  (Today we’d be investigated for suspicion of terrorism.)  We were roommates in college, and he started buying and selling bikes out of our apartment.  He gradually built that up into a bike retailing business with many stores, by working harder than anyone I’ve ever met.  The old Madison train station is now one of those stores.

My brother, Roger, and I share a strong interest in the past, and a fascination with old objects, buildings, photos, posters, etc.  Roger’s much more interested in the project of restoring an old building than in any money he’ll make from the venture.

I’m drawn to people who have a strong sense of nostalgia.

BTW, Roger chartered a boat trip for us yesterday, which provided a nice view of the Frank Lloyd Wright convention center and the capital.  Otis Redding died in December 1967, when the plane he was on crashed into this lake:

July 25:  Still in Madison.  Here are some pics from my brother’s “house”, which is more like a museum.  It’s a 5000 sq. foot Ford dealership from 1918, and the inside feels like you are back in time, with old store fronts hiding bedrooms:

Here is a giant clock face from an old bank in Illinois:

And here is “naked Santa”:

This is just the tip of the iceberg.

July 26:  Last day in Madison, not much to report.  Visited my favorite modern housing development (Middleton Hills), which consists of nothing but prairie-style or craftsman style homes:

I was very happy to see that the Wisconsin state capitol building in Madison still has no security at the entrance.  You can just walk right in.  Perhaps there is still a sliver of hope for America.

July 27:  Long drive from Rockford to Bartlesville, OK.  Drove through some of the best farmland in the world in north central Illinois.  My two favorite America hotels are in Oklahoma. Tomorrow we have lunch at the 21 Museum Hotel in OKC, while last night we stayed at the wonderful Price Tower Inn in Bartlesville.  It’s well off the beaten track, but worth it:

July 28:  Driving through Oklahoma reminded me of a trip I took in 1976 (with three others), driving from Madison to Yucatan over Christmas break.  The first “day” was Madison to San Antonio almost non-stop.  By the time we got to Oklahoma is was the middle of the night and there was a freezing rain outside.  The next day the driver of the Oklahoma segment told us he kept trying to keep his eyes open as he zoomed 80 mph over frozen bridges at 4am.  Of course we all laughed it off.  Now I’d be angry about something like that.  What makes 20 year olds so much braver than 60 year olds, despite having far more to lose (in terms of foregone years of life.)

We saw some nice art deco buildings in Tulsa:

Had lunch with Steve Winkler at the Museum Hotel in OKC.  The lobby is full of art—perhaps this one is a comment on the modern GOP:

North Texas is full of windmills—there seems to be thousands of them.  I enjoy driving the old Rte 66:

July 29:  I expected Arizona and New Mexico to be wide open highways and sunny skies.  Instead it was rainy with lots of traffic jams on I-40. Truckers like to drive side by side at 60 mph on a 75 speed limit highway.  What’s up with that? Albuquerque is a mess—no wonder New Mexico is the only state in that part of the country that does not have fast population growth.  However I saw some wonderful old 50s signs and motels along the way.

July 30:  Just arrived in Orange County.  Exhausted.  California traffic was bad, as expected, except the last 20 miles which were like my own private highway.  Wait, it was a toll road, which is sort of like a private highway.  Had dinner at a nice Japanese place on a lake, within walking distance of our house.  It’s 78 degrees and dry, with a cool breeze off the lake.  Paradise:

And had some yummy shrimp wrapped in pork:

No internet connection for the next few days, so blogging will be slow.

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.