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.

When commenters asked me why I worried about Trump’s foreign policy, I used the Iraq Gulf War analogy.  In that case, the US had sent Saddam mixed signals about his “border dispute” with Kuwait.  Saddam wrongly took that as a green light for invasion—the US didn’t seem to care about the issue.  But he was wrong; the US did care.  We ended up capturing Saddam and he was executed. Of course lots of other people also died.  In retrospect, it would have been better if we had been crystal clear about our intentions from the very beginning.

Update:  I botched the first paragraph.  I meant to refer to the first Gulf War.  This is what happens when you write a blog post while heavily medicated.

Last week, the administration suggested that was up to the Syrian people as to whether Assad could stay in office.  (Which is kind of silly, given their don’t have anything like free elections.)  Assad took that as implying that we didn’t care about Syria.  So he was emboldened to launch a chemical attack on civilians.  But just like it turned out that Bush did care about Kuwait, today Trump tells us that he does in fact care when Assad kills babies with chemicals.  (It’s a pity Trump didn’t say that before all those babies were killed.) Trump said that lots of red lines were crossed.  I don’t know where all this leads (or what our policy should be), but we are learning the costs of ambiguity in foreign policy.  Ambiguity leads to misunderstandings which leads to war.  Trump’s buddy Putin provides logistical support for Assad’s attacks on babies, and so any US retaliation could result in us confronting Russia, perhaps unintentionally.  (My criticism applies equally to Obama’s “red line” fiasco.)

Back in January, I pointed out that Trump’s appointment of nuts like Flynn and Bannon to the NSC was very worrisome.  So today I should be happy that they are both off the council. The grown-ups are taking charge.  And I am happy.  I’m also happy that today Trump admitted that I was right about Assad, and that my Trumpista commenters were wrong.  But I still think it’s dangerous to have a ignorant idiot like Trump as President.  Basically we are continually hoping that the experts can prevent Trump’s mistakes from doing great damage.  Maybe they can, but I’d rather we had someone that didn’t require this constant babysitting.

Fortunately, American presidents have far less power than most people believe, we have a “deep state.”  But let’s not push our luck—they still have some power.

And of course lots of other typical Trumpisms today—accusing someone of a crime without providing any evidence, and then suggesting Bill O’Reilly was innocent despite a mountain of evidence against him (as he had previously done for Roger Ailes.)  But then we all know that sexual predators like to stick up for each other.  You can find occasional examples of this with other Presidents (such as Obama in the policy brutality cases), but with Trump it’s a firehose of idiocy every single day of the week.

I haven’t had much time recently, but a few comments on other things I’ve come across recently.

This caught my eye:

New York Federal Reserve Bank President William Dudley said Monday it may be time to consider making college tuition free because of the impact of student debt on the economy. Dudley said during a press briefing the burden of student loan debt has a negative impact on household spending power.

The comments followed the Federal Open Markets Committee decision last month to hike short-term interest rates by 0.75 percent to 1 percent, pushing rates to their highest level since 2008, with expectations for at least two more hikes this year.

This is wrong on so many levels that I wouldn’t even know where to begin.

The Atlantic reports that very liberal feminist professors no longer think somewhat liberal feminist professors should be allowed to speak at Wellesley.

The Guardian explains why Stalin was not such a bad guy:

No one, not even Stalin, ever became a communist in order to do evil, whereas that’s the whole point in becoming a fascist.

And people tell me that the Guardian is the NYT of Britain.

According to Inc., we now live in a world where this is considered a defense of intolerance:

From Buytaert’s statement, it is clear that Garfield’s expulsion was based on his ideology–or assumptions about his ideology–not his actions.

The National Review tries to imitate The Onion:

Do conservatives — or, for that matter, non-leftists — appreciate just how terrific Donald Trump has been as president? And how lucky we are that he won the presidency?

I don’t know the answer.

What I do know is that they ought to be deeply appreciative of him, and deeply grateful to luck or Providence, and certainly to Trump himself, that he was elected president.

If you read the links in this passage from a Scott Alexander post, you’ll learn a lot about the relationship between science and the left:

Jerry Coyne’s negative review of Cordelia Fine’s new book on the biology of sex/gender. Stuart Ritchie’s negative review. Greg Cochran’s negative review. Positive reviews from PZ Myers (though he possibly admits he gets his science wrong while also criticizing “the humanity” of anyone who points it out?) and of course the New York Times.

I’d like to end on a more positive note.  If you are a fan of G.K Chesterton (and if you are not you should be) then I recommend this, also from Slate Star Codex.

I also recommend Ezra Klein’s interview of Tyler Cowen

There is one country that does not seem to be going completely insane, at least when it comes to education:

The Singapore curriculum is more stripped down at primary level than in many western countries, covering fewer topics but doing so in far greater depth — a crucial factor in its effectiveness, according to the OECD’s Schleicher. “When you look at England and the US, [their curriculums] are mile-wide and inch-deep,” he says. “They teach a lot of things but at a shallow level. Mathematics in Singapore is not about knowing everything. It’s about thinking like a mathematician.”

In contrast, my daughter is forced to memorize massive quantities of trivial information.  I guess the new trend in American education is getting students to pass standardized tests.

I recently listened to David Beckworth’s interview with Tim Duy.  Tim is one of most talented Fed watchers, and had a number of astute observations about the way the Fed communicates.  At one point David was asking why the Fed seemed to be behind the curve in 2008.  Duy said something to the effect that the Fed hadn’t expected to encounter a situation like that, and wasn’t quite ready to deal with the need for policy alternatives at the zero bound.  (Not his exact words.)

I think that’s probably right, but it’s interesting to think about why the Fed was not better prepared for 2008.

According to Lawrence Ball, Bernanke came to the Fed with pretty well formed ideas of how to deal with a liquidity trap.  Indeed that’s why I was so pleased when Bernanke was picked. But at an early meeting (in 2003), his views on policy options at the zero bound were dismissed or ignored by the Fed policy establishment.  According to Ball, after that meeting Bernanke mostly adopted the policy options of that establishment, not the options that Bernanke had previously recommended to the Japanese.

So why was the Fed so complacent?  I’m not sure the answer, but I do believe that this is a key question for the Fed going forward.  I’m convinced that there were alternative monetary policy options (such as NGDPLT) that would have led to a much milder recession.  But what does the Fed think?  Here are 4 options:

1.  By 2008, nothing could have prevented a severe recession, even with 20/20 hindsight.

2.  By 2008, a severe recession could only have been prevented by switching to a different regime, such as price level targeting or NGDP level targeting.  And the Fed is not willing to make that switch.

3.  By 2008, a severe recession could have been prevented by being much more aggressive with existing tools such as cutting rates sooner, doing QE sooner and more aggressively, and doing more aggressive forward guidance.  No regime change was needed.  But the Fed had no way of knowing (in 2008) that this sort of aggressive policy response was appropriate.

4.  By 2008, a severe recession could have been prevented being much more aggressive with existing tools such as cutting rates sooner, doing QE sooner and more aggressively, and doing more aggressive forward guidance.  No regime change was needed.  And the Fed could have seen the need for this if they had focused on NGDP forecasts rather than inflation, or perhaps if they had focused on TIPS spreads rather than past inflation rates.

I believe that #1 and #3 are false, and #2 and #4 are true.  But what does the Fed believe?  It would be nice if the Fed put together a report on what sort of policy would have been appropriate, in retrospect, during 2008.  The report should also discuss whether enough has been learned so that the same mistakes would not be made, should we ever face a similar situation.

PS.  While the Fed has been too complacent about the risks posed by the zero bound, the voters of LA have been exactly the opposite—rejecting complacency by an overwhelming margin:

Angelenos on Tuesday resoundingly voted down a ballot measure aimed at limiting the construction of big, tall buildings in the city of Los Angeles.

Measure S—an initiative supported by residents frustrated with large-scale development—took a beating at the polls, winning just 31.15 percent of votes, when it needed a majority to pass.

Launched and funded primarily by the nonprofit AIDS Healthcare Foundation, the measure would have placed a two-year moratorium on buildings that did not conform with the city’s outdated General Plan, which is like the bible for zoning and land-use.

So it seems the public actually opposes NIMBYism, it’s the special interest groups that support it.

Or more specifically one special interest group:

With city elections rapidly approaching, the AIDS Healthcare Foundation continues to pour money into Measure S, contributing nearly $3 million since the start of the year.

In the first three weeks of the year, the foundation poured $300,000 into the campaign, then it funneled $1.95 million to the campaign in the three weeks from January 22 to February 18. The latest filings show it has since given another $600,000.

The AIDS Healthcare Foundation has been the main backer of the March 7 ballot measure since its inception in November 2015. If passed by voters, Measure S would put a two-year moratorium on all development projects requiring zoning or height changes or adjustments to the city’s General Plan.

Numerous individual donors have also kicked in small contributions to the Measure S campaign—but more than 99 percent of the money raised during that three-week period came from the foundation.

99 percent?  Who knew?

After my Trump posts, I feel I’ve completely run out of sarcasm.  Let’s see what commenters can come up with here.

1. There’s an interesting story in the WaPo showing the steep decline in the number of college students who favor free speech.  In 1976 (when I was in college), about 90% favored allowing communists to speak on campus, whereas today the figure is below 75%.  Even steeper drops occurred regarding free speech for racists.  Unfortunately, the academic study is gated.  I’d love to know what sort of overlap there was between those opposed to free speech for racists and those opposed to free speech for communists.  (And please don’t tell me that “it’s obvious”, as it most certainly is not.)

2.  When I waste time pointing to one of Trump’s many lies, his supporters will leave comments providing preposterous defenses for his statements—even libertarians who should know better.  Now we see that his press secretary thinks it’s so obvious to everyone that Trump is a pathological liar that he can freely joke about it with the press corps.

3.  Speaking of Trump lies, Max Boot thinks that Trump’s recent lies about Obama engaging in criminal acts are the sign of a desperate man who thinks the Feds are closing in on him. Interesting article.

4.  And McCain wonders why Trump doesn’t simply release the evidence:

“The president of the Unites States could clear this up in a minute,” McCain said. “All he has to do is pick up the phone, call the director of the CIA, director of National Intelligence and say, ‘OK, what happened?’ Because they certainly should know whether the former president of the United States was wiretapping Trump Tower.”

Indeed, if Trump had obtained wiretapping information from his own intelligence sources, he would have the authority to declassify the material and substantiate his claims.

“It looks as if the president just for a moment forgot that he was president,” former NSA and CIA Director Michael Hayden said last week on Fox News. “Why didn’t he simply use the powers of the presidency to ask the acting director of national intelligence, the head of the FBI, to confirm or deny the story he apparently read from Breitbart the evening before?”

So Trump knows not his own presidential superpowers.

5.  The FT has a very interesting article about the civil war within the White House over trade.  Trump seems to side with the protectionists like Bannon and Navarro, but the free traders like Cohn seem to have the upper hand.  This will be an interesting test of my claim that presidents are much less powerful than people assume.

And what does the Secretary of State think about this issue?  Last time I saw Tillerson his face was on the side of a milk carton.  (Oops, someone beat me to it.)

If you aren’t having fun watching the Trump show, then you really should consider psychiatric evaluation.

Update:  Miguel Madeira left this very informative comment on the poll results:

“I’d love to know what sort of overlap there was between those opposed to free speech for racists and those opposed to free speech for communists. ”

In the GSS it is possible to have an idea, because is a database with public access on-line.

Go there http://sda.berkeley.edu/sdaweb/analysis/?dataset=gss14

In “Row” write SPKRAC; in “Column” write SPKCOM; run the table.

You will find that 68.6% of the respondents who say that communists should not be allowed to speak also say that racists should not be allowed to speak.

No, return to the main page and in “Control” write YEAR; run the table; now, you can see the evolution during the years; my impression is that the overlap is growing: in 1976, only 63% of the people who wanted to ban communist speech wanted also to ban racist speech; in 2014, 75% of the people who wanted to ban communist speech wanted also to ban racist speech.

 

Nick Rowe has a post discussing the post-2008 slowdown in trend growth, which has occurred in many countries.  (I’ll focus on the US, which I know best).  He suggests that the failure of monetary policy during the Great Recession may have increased perceptions of risk going forward, particularly relative to during the Great Moderation, when people had grown more confident in economic stability.  This increased perception of risk may have depressed investment.  Because my previous post predicted that we are in a newer and even greater moderation (and hence that increased perceptions of risk are unwarranted), I feel that I need to address his post.  I left a comment:

Nick, You said:

“And it is indeed too big a coincidence to suppose that an exogenous slowdown in long-run growth just happened to coincide with the Great Recession.”

I think that this may be exactly what happened. The growth slowdown would have occurred even if we had not had the Great Recession. (It’s partly demographics). I’d go further and argue that the slowdown in trend growth helped to cause the Great Recession. The slowdown reduced the Wicksellian natural rate, and the world’s central banks were slow to spot this change. Taylor Rule type thinking led to unintentional monetary tightening in 2008. A given interest rate setting (2% after Lehman failed) was much tighter than the Fed assumed.)

Note that this slowdown began before the Great Recession, as the equilibrium real interest rate has been gradually declining for several decades.

And Nick responded:

Scott: The slowdown in labour force growth was clearly partly due to demographics, and that part would have happened anyway. Though that would not have explained slowing productivity growth. And maybe there was a steady slowing of investment that would have happened anyway. But the apparent break in the trends just looks too big and sharp. Like in Simon Wren-Lewis’ chart of UK GDP per capita. The same trend line works pretty well, from 1955 to 2008. Then it doesn’t.

So I decided to check investment (excluding residential) as a share of GDP, and found this graph.  (Non-housing investment seemed more relevant to productivity growth, but perhaps that assumption is wrong):

This surprised me.  I had no idea that the late 1970s and early 1980s were “peak investment”, especially given the poor performance of the economy.  Nor did I expect recent investment levels to exceed all pre-1975 business cycles, including the fast-growing 1960s.  It is similar to the late 1980s, or 2002-05, when growth was far higher. Yes, investment is slightly below the levels of the late 1990s, but I’m not seeing a big enough fall in investment to explain trend growth falling from about 3% per year for the entire 20th century to perhaps half that figure today.  (Yes, RGDP growth has recently averaged 2%, but that’s during a period of recovery and rapidly falling unemployment, which means trend growth has probably fallen below 2%.)

I think the recent growth slowdown is unrelated to the Great Recession.  What do you think?

PS.  If output was above trend in 2007, then the post-2008 slowdown may not be as sudden as Nick assumed, just by looking at the graph.

PPS:  This article in The Economist presents another problem with the argument that uncertainty is reducing investment:

There is an alternative explanation for the failure of expectations to shift. Both businesses and investors, realising that the economic outlook is uncertain, may be demanding a higher risk premium for starting new projects or buying shares. That explanation is a little hard to square, however, with the repeated new record highs being scaled by stockmarkets or with the high valuations afforded to American equities.

Since the market low in March 2009, dividends have risen by 48% in real terms and real share prices have risen by 167%, according to Robert Shiller of Yale University. The cyclically-adjusted price-earnings ratio (or CAPE), which averages profits over ten years, is 28.7, its highest level since April 2002. In the past, very high CAPEs have been associated with low future returns.

Indeed, having analysed the data, Messrs Dimson, Marsh and Staunton reckon global investors are expecting a risk premium of 3-3.5% relative to Treasury bills—a level that is lower, not higher, than the historic average. So something does not add up.