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February 28, 2014

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Paul Krugman: No Big Deal

Posted: 28 Feb 2014 12:03 AM PST

It's not clear that the Trans-Pacific Partnership is a good idea:

No Big Deal, by Paul Krugman, Commentary, NY Times: Everyone knows that the Obama administration's domestic economic agenda is stalled in the face of scorched-earth opposition from Republicans. And that's a bad thing: The U.S. economy would be in much better shape if Obama administration proposals like the American Jobs Act had become law.
It's less well known that the administration's international economic agenda is also stalled, for very different reasons. In particular,... the proposed Trans-Pacific Partnership, or T.P.P. — doesn't seem to be making much progress...
And you know what? That's O.K. It's far from clear that the T.P.P. is a good idea. ... I am in general a free trader, but I'll be undismayed and even a bit relieved if the T.P.P. just fades away. ...
There's a lot of hype about T.P.P. .... Supporters like to talk about the fact that the countries at the negotiating table comprise around 40 percent of the world economy, which they imply means that the agreement would be hugely significant. But trade among these players is already fairly free, so the T.P.P. wouldn't make that much difference.
Meanwhile, opponents portray the T.P.P. as a huge plot, suggesting that it would destroy national sovereignty and transfer all the power to corporations. This, too, is hugely overblown. ...
What the T.P.P. would do, however, is increase the ability of certain corporations to assert control over intellectual property. Again, think drug patents and movie rights.
Is this a good thing from a global point of view? Doubtful. ... True, temporary monopolies are, in fact, how we reward new ideas; but arguing that we need even more monopolization is very dubious — and has nothing at all to do with classical arguments for free trade. ...
In short, there isn't a compelling case for this deal... Nor does there seem to be anything like a political consensus in favor, abroad or at home. ...
So what I wonder is why the president is pushing the T.P.P. at all. ... My guess is that we're looking at a combination of Beltway conventional wisdom — Very Serious People always support entitlement cuts and trade deals — and officials caught in a 1990s time warp, still living in the days when New Democrats tried to prove that they weren't old-style liberals by going all in for globalization. ...
So don't cry for T.P.P. If the big trade deal comes to nothing, as seems likely, it will be, well, no big deal.

Links for 2-28-14

Posted: 28 Feb 2014 12:03 AM PST

Brief Note

Posted: 27 Feb 2014 10:20 AM PST

Traveling today ...

February 27, 2014

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'Little Evidence of a 'Big Tradeoff' Between Redistribution and Growth'

Posted: 27 Feb 2014 12:33 AM PST

Redistribution does not appear to hinder economic growth:

Treating Inequality with Redistribution: Is the Cure Worse than the Disease?, by Jonathan D. Ostry and Andrew Berg: Rising income inequality looms high on the global policy agenda, reflecting not only fears of its pernicious social and political effects, (including questions about the consistency of extreme inequality with democratic governance), but also the economic implications. While positive incentives are surely needed to reward work and innovation, excessive inequality is likely to undercut growth, for example by undermining access to health and education, causing investment-reducing political and economic instability, and thwarting the social consensus required to adjust in the face of major shocks.
Understandably, economists have been trying to understand better the links between rising inequality and the fragility of economic growth. Recent narratives include how inequality intensified the leverage and financial cycle, sowing the seeds of crisis; or how political-economy factors, especially the influence of the rich, allowed financial excess to balloon ahead of the crisis.
But what is the role of policy, and in particular fiscal redistribution to bring about greater equality? Conventional wisdom would seem to suggest that redistribution would in itself be bad for growth but, conceivably, by engendering greater equality, might help growth. Looking at past experience, we find scant evidence that typical efforts to redistribute have on average had an adverse effect on growth. And faster and more durable growth seems to have followed the associated reduction in inequality. ...
To put it simply, we find little evidence of a "big tradeoff" between redistribution and growth. Inaction in the face of high inequality thus seems unlikely to be warranted in many cases.

The Obama Stimulus

Posted: 27 Feb 2014 12:24 AM PST

Jeff Frankel says the stimulus worked:

Guest Contribution: "The Obama Stimulus and the 5-Year Anniversary of Market Turnaround", econbrowser: Commentators are taking note of the five-year anniversary of the fiscal stimulus that President Obama enacted during his first month in office. Those who don't like Obama are still asking "if the fiscal stimulus was so great, why didn't it work?" ... Listening to these arguments, one would think that no effect of the Obama stimulus could be seen by the naked eye in the U.S. economic statistics of 2009. Nothing could be further from the truth. ...
If one judges by the economic statistics, the effect could not have been much more immediate, whether one looks at job loss, GDP, or financial market indicators. Look at the graphs below. ...
Of course there are always a lot of things going on. One cannot say for sure what was the effect of the Obama stimulus. And one can debate why the pace of the expansion slowed after 2010 (my own prime culprit is the switch to fiscal austerity). But whether looking at indicators of economic activity, the labor market, or the financial markets, one cannot say that the fiscal stimulus of February 2009 had no apparent impact in the graphs.

Links for 2-27-14

Posted: 27 Feb 2014 12:06 AM PST

'The Pattern of Job Creation and Destruction by Firm Age and Size'

Posted: 27 Feb 2014 12:03 AM PST

What age and size firms have the highest net job creation rates?

The Pattern of Job Creation and Destruction by Firm Age and Size, by John Robertson and Ellyn Terry, macroblog: A recent Wall Street Journal blog post caught our attention. In particular, the following claim:
It's not size that matters—at least when it comes to job creation. The age of the company is a bigger factor.
This observation is something we have also been thinking a lot about over the past few years (see for example, here, here, and here).
The following chart shows the average job-creation rate of expanding firms and the average job-destruction rates of shrinking firms from 1987 to 2011, broken out by various age and size categories:
In the chart, the colors represent age categories, and the sizes of the dot represent size categories. So, for example, the biggest blue dot in the far northeast quadrant shows the average rate of job creation and destruction for firms that are very young and very large. The tiny blue dot in the far east region of the chart represents the average rate of job creation and destruction for firms that are very young and very small. If an age-size dot is above the 45-degree line, then average net job creation of that firm size-age combination is positive—that is, more jobs are created than destroyed at those firms. (Note that the chart excludes firms less than one year old because, by definition in the data, they can have only job creation.)
The chart shows two things. First, the rate of job creation and destruction tends to decline with firm age. Younger firms of all sizes tend to have higher job-creation (and job-destruction) rates than their older counterparts. That is, the blue dots tend to lie above the green dots, and the green dots tend to be above the orange dots.
The second feature is that the rate of job creation at larger firms of all ages tends to exceed the rate of job destruction, whereas small firms tend to destroy more jobs than they create, on net. That is, the larger dots tend to lie above the 45-degree line, but the smaller dots are below the 45-degree line. ...
Apart from new firms, it seems that the combination of youth (between one and ten years old) and size (more than 250 employees) has tended to yield the highest rate

Links for 2-26-14

Posted: 26 Feb 2014 10:25 AM PST

Fed Watch: Tarullo on Monetary Policy and Financial Stability

Posted: 26 Feb 2014 06:36 AM PST

Tim Duy is helping to fill the void -- thanks Tim:

Tarullo on Monetary Policy and Financial Stability, by Tim Duy: Federal Reserve Governor Daniel Tarullo tackled the issue of financial stability in a speech that I think is well worth the time to read. The starting point is that many lessons have been learned over the past two cycles, including the perils of ignoring financial stability issues. But how should such concerns be incorporated into the policymaking process? Tarullo:

While few today would take the pre-crisis view common among central bankers that financial stability should not be an explicit concern of monetary policy, there is considerable disagreement over--among other things--the weight that financial stability concerns should carry compared with traditional monetary policy goals of price stability and maximum employment.

Tarullo begins with a brief overview of the financial crisis and the Fed's response, declaring partial victory:

...while the recovery has been frustratingly slow and remains incomplete, there has been real progress, despite the fact that in the past couple of years a restrictive fiscal policy has been working at cross-purposes to monetary policy, and that balance sheet repair and financial strains in Europe have made it more difficult for the economy to muster much self-sustaining momentum.

As Tarullo notes, the Fed's actions have not come without backlash. Of much focus is the size of the balance sheet, and the likelihood of unwinding the resulting liquidity should inflation rear its head. Tarullo quickly dismisses this concern as no longer of major concern given the expansion of the Fed's toolkit. He turns his attention toward bigger game:

The area of concern about recent monetary policy that I want to address at greater length relates to financial stability. The worry is that the actual extended period of low interest rates, along with expectations fostered by forward guidance of continued low rates, may be incentivizing financial market actors to take on additional risks to boost margins, thereby contributing to unsustainable increases in asset prices and a consequent buildup of systemic vulnerabilities. Indeed, in the years preceding the crisis, a few prescient observers swam against the tide of conventional wisdom to argue that a sustained period of low rates was inducing investors to "reach for yield" and thereby endangering the financial system.

Policymakers currently anticipate the Fed will hold interest rates near zero into 2015, followed by only a gradual path of tightening. The concern is that such a long period of low rates will spawn an asset bubble, or bubbles, similar to the process that many feel fueled the housing boom last decade. The eventual unwinding of any bubbles would likely be unpleasant. But, presumably, the period of low rates occurred for a reason - to support economic activity. Therein lies the conundrum for policymakers:

The very accommodative monetary policy that contributed to the restoration of financial stability could, if maintained long enough in the face of slow recovery in the real economy, eventually sow the seeds of renewed financial instability. Yet removal of accommodation could choke off the recovery just as it seems poised to gain at least a bit more momentum.

So how can the Federal Reserve protect against financial instability? Tarullo here makes a point I think the Fed will frequently reiterate:

As a preliminary matter, it is important to note that incorporating financial stability considerations into monetary policy decisions need not imply the creation of an additional mandate for monetary policy. The potentially huge effect on price stability and employment associated with bouts of serious financial instability gives ample justification.

By addressing financial instability risks, they are attempting to minimize deviations in inflation and unemployment. In effect, they might slow the pace of activity on the upside in return for minimizing the downside. This, however, is easier said then done, as it is difficult to sell delaying progress on the real problems of low inflation and high unemployment to fight against a phantom downturn:

Of course, this preliminary observation underscores the fact that the identification of systemic risks, especially those based on the putative emergence of asset bubbles, is not a straightforward exercise. The eventual impact of the bursting of the pre-crisis housing bubble on financial stability went famously underdiagnosed by policymakers and many private analysts. But there would be considerable economic downside in reacting with policy measures each time a case could be made that a bubble was developing.

The Fed is actively paying attention to markets in the search for stability risks. Tarullo reports the outcome of the Fed's new macroprudential efforts:

At present, our monitoring does find some evidence of increased duration and credit risk, but the increases appear relatively moderate to date--particularly at the largest banks and life insurers. Moreover, valuations for broad categories of assets such as real estate and corporate equities remain within historical norms, suggesting that valuation pressures, if present, are confined to narrower segments of assets. For example, valuations do appear stretched for farmland, although recent data are suggesting some slowing, and for the equity prices of some small technology firms.

No broad-based concerns such as the equity surge of the 1990s or the housing boom of the 2000s. Just pockets of issues here and there. That said, all is not perfect:

Still, there are areas where investors appear to have been very sanguine regarding certain types of exposure and modest in their demands for compensation to assume such risk. High-yield corporate bond and leveraged loan funds, for instance, have seen strong inflows, reflecting greater investor appetite for risky corporate credits, while underwriting standards have deteriorated, raising the possibility of large losses going forward.

Weak underwriting for risky, leveraged assets that investors seem eager to acquire for unusually little reward. This is the kind of situation, especially with leveraged assets, that will repeatedly gain the Fed's attention going forward. What action has the Fed taken? Tarullo:

In these circumstances, it has to date seemed appropriate to rely on supervisory responses. For example, in the face of substantial growth in the volume of leveraged lending and the deterioration in underwriting standards, the Federal Reserve, the Office of the Comptroller of the Currency, and the Federal Deposit Insurance Corporation issued updated guidance on leverage lending in March 2013. This guidance outlined principles related to safe and sound leveraged lending activities, including the expectation that banks and thrifts originate leveraged loans using prudent underwriting standards regardless of their intent to hold or distribute them.

In addition, the Federal Reserve, alongside other regulators, has been working with the firms we supervise to increase their resilience to possible interest rate shocks...Our analysis to this point (undertaken outside of our annual stress test program) suggests that banking firms are capitalized to withstand the losses in asset valuations that would arise from large spikes in rates, which, moreover, would see an offset from the increase in the value of bank deposit franchises. This finding is consistent with the lack of widespread stress during the period of May through June 2013 when interest rates increased considerably. The next set of stress-test results, which we will release next month, will provide further insight on this point, both to regulators and to markets.

Some enhanced guidance and additional stress tests. I think it would be reasonable to describe this response as underwhelming. Would "additional guidance" have deterred lending activity during the housing bubble? I somehow doubt it. Indeed, Tarullo has his doubts:

While ad hoc supervisory action aimed at specific lending or risks is surely a useful tool, it has its limitations. First, it is a bit too soon to judge precisely how effective these supervisory actions--such as last year's leveraged lending guidance--have been. Second, even if they prove effective in containing discrete excesses, it is not clear that the somewhat deliberate supervisory process would be adequate to deal with a more pervasive reach for yield affecting many areas of credit extension. Third, and perhaps most important, the extent to which supervisory practice can either lean against the wind or increase the overall resiliency of the financial system is limited by the fact that it applies only to prudentially regulated firms. This circumstance creates an incentive for intermediation activities to migrate outside of the regulated sector.

The last point is critical. Increased regulatory activity might just push more activity into the shadow banking realm. There the threat of financial instability might increase exponentially, but without a regulator as a backstop. I think this issue will tend to restrain the Fed's interest in heavy-handed regulatory activity.

Tarullo follows with a discussing of time-varying policies, citing the example of increased loan-to-value requirements for mortgages as lending accelerates. This is an area to watch, as Tarullo sees value in this approach:

...I would devote particular attention to policies that can act as the rough equivalent of an increase in interest rates for particular sources of funding. Such policies would be more responsive to problems that were building quickly because of certain kinds of credit, without regard to whether they were being deployed in one or many sectors of the economy...

Such policies could slow the progress of an asset bubble and, as Tarullo points out, provide additional time for policymakers to determine if the situation requires a change in overall monetary policy. Ultimately, however, Tarullo is a realist. He doesn't intent to put all his eggs in the macroprudential basket:

The foregoing discussion has considered the ways in which existing supervisory authority and new forms of macroprudential authority may allow monetary policymakers to avoid, or at least defer, raising interest rates to contain growing systemic risks under circumstances in which policy is falling well short of achieving one or both elements of the dual mandate. However, as has doubtless been apparent, I believe these alternative policy instruments have real limitations.

As he later says, this means that the Fed should not take the direct monetary policy action "off the table" when it comes to addressing financial instability. What does that mean for policy in the near term? Tarullo:

As I noted earlier, I do not think that at present we are confronted with a situation that would warrant a change in the monetary policy we have been pursuing...

Not terribly surprising. After all, given that policymakers expect a long period of low rates, they obviously are not expecting sufficient financial instability to justify changing that outcome. But expect more talk about the topic:

...But for that very reason, now is a good time to consider these issues more actively. One useful step would be development of a framework that would allow us to make a more analytic, less instinctual judgment on the potential tradeoffs between enhanced financial stability and reduced economic activity. This will be an intellectually challenging exercise, but in itself does not entail any changes in policy.

Bottom Line: The Fed continues to explore the role of monetary policy in addressing asset bubbles. But engaging such concerns head on with tighter policy remains a secondary option. The first option is a variety of macroprudential tools. Moreover, policymakers believe they have the time to explore such tools, much as they have had time to consider managing their expanded balance sheet. They will also remain cautious to act out fear of increasing the risk of instability by driving activity out from under their purview. At this point, my gut reaction is that by the time the Fed feels they are left with no other option but to tighten policy to limit financial instability risks, the damage will already have been done.

February 26, 2014

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Legal Scholarship and Monetary Policy

Posted: 25 Feb 2014 09:22 PM PST

This will be good for my monetary theory and policy class:

...should scholars refrain from writing about legal issues in macroeconomics, specifically monetary policy?

One thinks of monetary policy decisions—whether or not to raise interest rates, purchase billions of dollars of securities on the secondary market ("quantitative easing"), devalue or change a currency—as fundamentally driven by political and economic factors, not law. And of course they are. But the law has a lot to say about them and their consequences, and legal scholarship has been pretty quiet on this.

Some concrete examples of the types of questions I'm talking about would be:

  • Pursuant to its dual mandate (to maintain price stability and full employment), what kinds of measures can the Federal Reserve legally undertake for the purpose of promoting full employment?  More generally, what are the Fed's legal constraints?
  • What recognition should American courts extend to an attempt by a departing Eurozone member state to redenominate its sovereign debt into a new currency?

When it comes to issues like these, it is probably even more true than usual that law defines the boundaries of policy. Legal constraints in the context of U.S. monetary policy appear fairly robust even in times of crisis. For example, policymakers themselves often cite law as a major constraint when speaking of the tools available to the Federal Reserve in combating unemployment and deflation post-2008. Leading economics commentators do too. Yet commentary on "Fed law" is grossly underdeveloped..., legal academics have largely left commentary on the Fed and macroeconomics to the econ crowd....

[There's quite a bit more in the full post.]

Links for 2-25-14

Posted: 25 Feb 2014 01:18 PM PST

 I don't know if these are really early, or really late.

February 25, 2014

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Links for 2-25-14

Posted: 24 Feb 2014 10:36 PM PST

Thanks to Tim Duy for the links tonight:

Labor Department Weighs Cutting Data on Import and Export Prices to Save Money - Real Time Economics
The Great Recession! It's Right Behind You! - Free Exchange
Federal Reserve Appoints Portland Business Leader Charles Wilhoite to Western Economic Advisory Council - Oregonian
A Model of the Safe Asset Mechanism (SAM): Safety Traps and Economic Policy - NBER
What is the Stance of Monetary Policy - macroblog
Fracking Boom Leaves Texans Under a Toxic Cloud - Bloomberg
Dallas Fed's Fisher Wants to Continue Reducing Bond Purchases - Real Time Economics
You Won't Have Broadband Competition Without Regulation - Felix Salmon
Has Monetary Cooperation Broken Down? - PIEE
Why the Euro Inflation Number is Worse Than it Looks - Financial Times
My Quiz for Wannabe Keynesians - Roger Farmer
Global Growth After the G20 Summit - Gavyn Davies/Financial Times
Where a Higher Minimum Wage Hasn't Killed Jobs - Bloomberg
State Hiring Credits and Recent Job Growth - San Francisco Federal Reserve

Apologies To Everyone

Posted: 24 Feb 2014 07:13 PM PST

Apologies to everyone.

My life is in shambles.

Today was really hard.

I'll be back as soon as I can, but for now I need to heal.

Paul Krugman: Health Care Horror Hooey

Posted: 24 Feb 2014 11:32 AM PST

 Paul krugman:

Health Care Horror Hooey, by Paul Krugman, Commentary, NY Times: Remember the "death tax"? The estate tax is quite literally a millionaire's tax — a tax that affects only a tiny minority of the population, and is mostly paid by a handful of very wealthy heirs. Nonetheless, right-wingers have successfully convinced many voters that the tax is a cruel burden on ordinary Americans...
You might think that such heart-wrenching cases are actually quite rare, but you'd be wrong: they aren't rare; they're nonexistent. In particular, nobody has ever come up with a real modern example of a family farm so ld to meet estate taxes. The whole "death tax" campaign has rested on eliciting human sympathy for purely imaginary victims.
And now they're trying a similar campaign against health reform. ...
Even supporters of health reform are somewhat surprised by the right's apparent inability to come up with real cases of hardship. Surely there must be some people somewhere actually being hurt by a reform that affects millions of Americans. Why can't the right find these people and exploit them?
Sophistry, a concept taught by the ancient Greek philosophers in order for a rhetorician to recognise spurious logic and arguments, is alive...See All Comments Write a comment
The most likely answer is that the true losers from Obamacare generally aren't very sympathetic. For the most part, they're either very affluent people affected by the special taxes that help finance reform, or at least moderately well-off young men in very good health who can no longer buy cheap, minimalist plans. Neither group would play well in tear-jerker ads.
No, what the right wants are struggling average Americans, preferably women, facing financial devastation from health reform. So those are the tales they're telling, even though they haven't been able to come up with any real examples.
Hey, I have a suggestion: Why not have ads in which actors play Americans who have both lost their insurance thanks to Obamacare and lost the family farm to the death tax? I mean, once you're just making stuff up, anything goes.

Links for 02-24-2014

Posted: 24 Feb 2014 05:32 AM PST

February 24, 2014

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'Housing Weakness: Temporary or Enduring?'

Posted: 23 Feb 2014 10:03 AM PST

CR:

Housing Weakness: Temporary or Enduring?, by Bill McBride: The recent data for housing has been weak, with new home sales and housing starts mostly moving sideways over the last year (with plenty of ups and downs, and I expect downward revisions to Q4 new home sales). Existing home sales have declined 14% from a peak of 5.38 million in July 2013 on a seasonally adjusted annual rate basis (SAAR), to just 4.62 million SAAR in January.

There are several reasons for the recent weakness...

February 23, 2014

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Links for 02-23-2014

Posted: 23 Feb 2014 12:03 AM PST

'Winners Take All, but Can’t We Still Dream?'

Posted: 22 Feb 2014 01:02 PM PST

Robert Frank:

Winners Take All, but Can't We Still Dream?, by Robert Frank: It's clear that the lives of many creative artists are being transformed by digital technology. But competing schools of thought cite the very same technology in support of strikingly different conclusions.
One group, for example, says the ability to widely distribute the best performers' products at low cost portends a world where even small differences in talent command huge differences in reward. That view is known as the "winner take all" theory.
In contrast, the "long tail" theory holds that the information revolution is letting sellers prosper even when their offerings appeal to only a small fraction of the market. This view foresees a golden age in which small-scale creative talent flourishes as never before.
These dueling theories strike close to home. My personal intellectual bets have given me a strong rooting interest in the winner-take-all view. But even the most flint-eyed economist has a romantic side. That part of me wants the long-tail outlook to prevail, and not just because of its hopeful message for underdogs. ...

February 22, 2014

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Links for 02-22-2014

Posted: 22 Feb 2014 12:03 AM PST

'What Do Obamacare and the EITC Have in Common with Cap-and-Trade?'

Posted: 21 Feb 2014 11:27 AM PST

Jeff Frankel has a follow-up to a post I highlighted a few days ago:

What Do Obamacare and the EITC Have in Common with Cap-and-Trade?: My preceding blog post described how market-oriented mechanisms to address environmentally damaging emissions, particularly the cap-and-trade system for SO2 in the United States, have recently been overtaken by less efficient regulatory approaches such as renewables mandates. One reason is that Republicans — who originally were supporters of cap-and-trade — turned against it, even demonized it.
One can draw an interesting analogy between the evolution of Republican political attitudes toward market mechanisms in the area of federal environmental regulation and hostility to the Affordable Care Act, also known as Obamacare. ... One can trace through the parallels between clean air and health care. ... A third example is the Earned-Income Tax Credit. ...

'What Game Theory Means for Economists'

Posted: 21 Feb 2014 08:13 AM PST

At MoneyWatch:

Explainer: What "game theory" means for economists, by Mark Thoma: Coming upon the term "game theory" this week, your first thought would likely be about the Winter Olympics in Sochi. But here we're going to discuss how game theory applies in economics, where it's widely used in topics far removed from the ski slopes and ice rinks where elite athletes compete. ...

February 21, 2014

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Paul Krugman: The Stimulus Tragedy

Posted: 21 Feb 2014 12:24 AM PST

The stimulus package was more effective than people realize:

The Stimulus Tragedy, by Paul Krugman, Commentary, NY Times: Five years have passed since President Obama signed the American Recovery and Reinvestment Act — the "stimulus" — into law. With the passage of time, it has become clear that the act did a vast amount of good. It helped end the economy's plunge; it created or saved millions of jobs; it left behind an important legacy of public and private investment.
It was also a political disaster. And the consequences of that political disaster — the perception that stimulus failed — have haunted economic policy ever since.
Let's start with the good stimulus did..., most careful studies have found evidence of strong positive effects on employment and output.
Even more important, I'd argue, is the huge natural experiment Europe has provided... You see,... austerity led to nasty, in some cases catastrophic, declines in output and employment. And private spending in countries imposing harsh austerity ended up falling..., amplifying the direct effects of government cutbacks.
All the evidence, then, points to substantial positive short-run effects from the Obama stimulus. And there were surely long-term benefits, too: big investments in everything from green energy to electronic medical records.
So why does everyone ... except those who have seriously studied the issue ... believe that the stimulus was a failure? Because the U.S. economy continued to perform poorly — not disastrously, but poorly — after the stimulus went into effect.
There's no mystery about why: America was coping with the legacy of a giant housing bubble. ... And the stimulus was both too small and too short-lived...
There's a long-running debate over whether the Obama administration could have gotten more. The administration compounded the damage with excessively optimistic forecasts, based on the false premise that the economy would quickly bounce back...
But that's all water under the bridge. The important point is that U.S. fiscal policy went completely in the wrong direction after 2010. With the stimulus perceived as a failure, job creation almost disappeared from inside-the-Beltway discourse, replaced with obsessive concern over budget deficits. Government spending, which had been temporarily boosted both by the Recovery Act and by safety-net programs like food stamps and unemployment benefits, began falling... And this anti-stimulus has destroyed millions of jobs.
In other words, the overall narrative of the stimulus is tragic. A policy initiative that was good but not good enough ended up being seen as a failure, and set the stage for an immensely destructive wrong turn.

Links for 02-21-2014

Posted: 21 Feb 2014 12:03 AM PST

'Moore's Law: At Least a Little Longer'

Posted: 20 Feb 2014 12:17 PM PST

Tim Taylor:

Moore's Law: At Least a Little Longer: One can argue that the primary driver of U.S. and even world economic growth in the last quarter-century is Moore's law--that is, the claim first advanced back in 1965 by Gordon Moore, one of the founders of Intel Corporation that the number of transistors on a computer chip would double every two years. But can it go on? Harald Bauer, Jan Veira, and Florian Weig of the McKinsey Global Institute consider the issues in "Moore's law: Repeal or renewal?" a December 2013 paper. ...
The authors argue that technological advances already in the works are likely to sustain Moore's law for another 5-10 years. This As I've written before, the power of doubling is difficult to appreciate at an intuitive level, but it means that the increase is as big as everything that came before. Intel is now etching transistors at 22 nanometers, and as the company points out, you could fit 6,000 of these transistors across the width of a human hair; or if you prefer, it would take 6 million of these 22 nanometer transistors to cover the period at the end of a sentence. Also, a 22 nanometer transistor can switch on and off 100 billion times in a second. 
The McKinsey analysts point out that while it is technologically possible for Moore's law to continue, the economic costs of further advances are becoming very high. They write: "A McKinsey analysis shows that moving from 32nm to 22nm nodes on 300-millimeter (mm) wafers causes typical fabrication costs to grow by roughly 40 percent. It also boosts the costs associated with process development by about 45 percent and with chip design by up to 50 percent. These dramatic increases will lead to process-development costs that exceed $1 billion for nodes below 20nm. In addition, the state-of-the art fabs needed to produce them will likely cost $10 billion or more. As a result, the number of companies capable of financing next-generation nodes and fabs will likely dwindle."
Of course, it's also possible to have performance improvements and cost decreases on chips already in production: for example, the cutting edge of computer chips today will probably look like a steady old cheap workhorse of a chip in about five years. I suspect that we are still near the beginning, and certainly not yet at the middle, of finding ways for information and communications technology to alter our work and personal lives. But the physical problems and  higher costs of making silicon-based transistors at an ever-smaller scale won't be denied forever, either.

'Random Variation'

Posted: 20 Feb 2014 08:31 AM PST

James Kwak:

... I used to believe that no one could beat the market: in other words, that anyone who did beat the market was solely the beneficiary of random variation (a winner in Burton Malkiel's coin-tossing tournament). I no longer believe this. I've seen too many studies that indicate that the distribution of risk-adjusted returns cannot be explained by dumb luck alone; most of the unexplained outcomes are at the negative end of the distribution, but there are also too many at the positive end. Besides, it makes sense: the idea that markets perfectly incorporate all available information sounds too much like magic to be true. ...