Month: January 2024

What if you have a favorable AS shift and a negative AD shift?

by  Tyler Cowen in

The negative AD shift comes from the Fed’s extreme tightening plus the phasing out of fiscal stimulus.  That might hurt housing markets the most, plus whatever consumers were wanting to spend their extra cash on (travel, restaurants?).  It should hurt a lot of service sectors with sticky nominal prices quite a bit.  And, we are told, that is quite a few sectors.

The positive supply shock comes from supply chains untangling, post Russian invasion, plus mopping up the residue from Covid restrictions.  It shouldn’t help most service sectors very much, but a lot of manufactured goods, and resource-intensive goods, and agricultural foodstuffs should boom from this.  Imports too, especially if they come by ship rather than by plane.  Note that foreign trade is not a huge share of the American economy, though, and America is the world’s leading oil exporter.  Falling energy prices may not help us much if at all, not in the aggregate.

You might think these dual shifts can, on net, work out for the better.  Maybe.  But part of the mix should be a fairly extreme volatility across sectors.  You have a lot of service sectors that get hit hard from the negative AD shock and which don’t benefit so much from the supply chain untangling.

Is that what we see in the data?  It seems most service sectors have done fine, and we’ve had a high degree of comovement, though I would note continuing issues in real estate markets and also in banking.

These days the Keynesians think you can get so much general positive comovement from the supply shocks resolving themselves — hilarious!  For decades they have been criticizing the real business cycle theorists along those lines, and that was without a simultaneous major disinflation staring us in the teeth.

No one should be patting themselves on the back for having figured all this out.

Interview with Weight Loss Drugs Inventor Lotte Bjerre Knudsen

by  Tyler Cowen in

Knudsen: I don’t care that much about money, I’m a socialist! Here in Scandinavia, we teach our children teamwork from an early age. It’s not about the individual. And that’s how I am too. I have never asked for a raise in 34 years.

DER SPIEGEL: You never got more money? Not even now?

Knudsen: Yes, of course. But I didn’t push. I can’t see that capitalism and money make people happy. At Novo Nordisk, I have always preferred to use my credibility to demand more funding for science, not more salary for myself. I also have no intellectual property rights. They belong to the company because I gave them up when I was employed.

Here is the full interview, interesting throughout.  Via the ever-excellent The Browser.

My “writing every day” awards

by  Tyler Cowen in

Since I recommend the practice of writing every day, or virtually every day (every day is better!), I thought I should give awards for 2023.

Clear winner in my view in Noah Smith, who just keeps on writing and being productive and improving.  Here is Noah’s Substack.

Runner-up awards go to the blog Economists Writing Every Day (duh).

Cass Sunstein remains extraordinarily prolific, and Rainer Zitelmann keeps on writing books, he has a new one Unbreakable Spirit: Rising Above All Odds.

I wonder if the exact same people will win next year?  If you don’t see these awards given again, that means the answer has been “yes.”

Income redistribution through taxes and transfers continues to rise

by  Tyler Cowen in

That is the theme of my latest Bloomberg column, here is the introductory bit:

The broader historical trends show that the US tax-and-transfer system is getting more progressive, including in recent years. And the US government is increasingly redistributing wealth to the bottom half of the income distribution.

And:

The best information indicates that transfer income is rising over time, one example being the increasing numbers of states accepting the expansion of Medicaid under the Affordable Care Act. Even following the Clinton-era welfare reforms, the real resources that US governments (at all levels) sent to the poor continued to increase. Welfare itself became more temporary, but aid for food and child care, among other needs, rose in real value.

In a recent study, Thomas Coleman and David A. Weisbach of the University of Chicago focus on research of tax-and-transfer progressivity and establish some ground rules for judging its reliability: It should measure income comprehensively; look at both taxes and transfers; examine the issue over decades; and make their data available. Under these criteria, only three studies qualify. After scrutinizing that research, Coleman and Weisbach conclude:

Methodological choices produce some differences in the size of their estimates and the size of the trends, but the central story in all these studies is the same: the dominant change in the tax and transfer system over the past half-century has been an increase in transfers to the bottom. … All three studies show that the tax and transfer system has become more progressive and more redistributive.

A good rule for thumb for articles, policy papers, and tweets: if you see the word “gutted” used (but not as a reference to others), the output is likely bad.

How women are perceiving the economics profession

by  Tyler Cowen in

Fewer women reported being satisfied with the climate in the economics profession in 2023 compared to five years ago, despite efforts during that time to improve conditions for women in the field, according to a new survey.

About 17% of women in economics said they strongly agreed or agreed with a statement about being satisfied in the profession, down from 20% in 2018, according to the topline results of a survey conducted in the fall. The preliminary findings were presented by University of Chicago Booth School of Business economist Marianne Bertrand Friday at the American Economic Association’s annual meeting in San Antonio.

The gap between women and men’s experience in economics widened slightly over the past five years, with 39% of men saying they were satisfied with the profession’s climate, compared to 40% in 2018.

Women made up just 17.8% of full economics professors in 2022. While representation is higher among students and associate professors, the share of new economics doctoral degree recipients that were women fell in 2023, Bertrand said Friday.

Here is more from Catarina Saraiva at Bloomberg.

The culture that was East German

by  Tyler Cowen in

This paper studies important determinants of adult self-control using population-representative data and exploiting Germany’s division as quasi-experimental variation. We find that former East Germans have substantially more self-control than West Germans and provide evidence for government surveillance as a possible underlying mechanism. We thereby demonstrate that institutional factors can shape people’s self-control. Moreover, we find that self-control increases linearly with age. In contrast to previous findings for children, there is no gender gap in adult self-control and family background does not predict self-control.

That is from the Economic Journal by Deborah A Cobb-Clark, Sarah C Dahmann, Daniel A Kamhöfer, and Hannah Schildberg-Hörisch, via the excellent Kevin Lewis.

Kamil Kovar on the German debt brake (from my email)

by  Tyler Cowen in

I was wondering if you would consider writing a post about the German debt brake in light of recent developments? Personally, I am not a huge fan of discussions about fiscal policy (or even worse, austerity…), as I feel they are mostly Rorschach test without much deep thinking. But I did find the recent developments intriguing because they challenge my priors so I am wondering what whether your thinking has changed as well.

My prior was that some form of constitutional debt break is a reasonable mechanism to deal with the pro-debt bias resulting from democratic political process. Of course, some of the recent German experience has challenged that. For example, debt break legislation lead to a lot of “bad” legislating, which was exposed by the court recently. Similarly, the debt break is leading Germany to cut spending and increase taxes relative to what the government would want; given the weakness in German economy this does not seem like optimal fiscal policy (but might be – monetary policy by choice restrictive, and many have called on fiscal to be too). And more broadly, there is a fair argument to be made that it has constrained government investment during last decade, which was an optimal time to do government investment given the negative interest rates.

Part of this I think is a question of imperfect design/implementation. The deficit threshold of -0.35% is higher than I would imagine. Absence of any relationship to current interest rates or effect on future debt levels ala CBO analysis is probably not what finance theory would suggest. And the cyclical adjustment seems suspicious: my understanding is that currently the cyclical adjustment allows for 0.1% of GDP of extra deficit, corresponding to 1% output gap and 1/10 elasticity, see here.[1] But I suspect imperfect design/implementation will always be a feature of these kind of legalistic rules, so should not be waved away.

At the same time, I find lot of the commentary rather subpar. I have in mind for example arguments in this article. While I can see that investment would likely be higher last decade in absence of debt break, saying that debt break results in “Germany that doesn’t invest and massively falls behind in economic terms” is just shocking, as it implies that investment can be only done through higher deficits. Moreover, arguing that debt break has to be abolished so that Germany can invest to deal with geopolitics and green transition is simply ignoring that Germany already found a legally-sound solution to such kind of problems when it constitutionally created its 100 billion euro defense spending fund. Together with the wise use of debt break suspensions during last 4 years this shows that there is sufficient flexibility built into this, despite what the commentators would suggest (“but in practice it’s too inflexible”), as long as there is consensus on such actions. But maybe this points towards the actual problem: maybe in current society building political consensus has become too hard, so that mechanisms which rely too much on such consensus are doomed to create more problems than their benefit. The US debt ceiling comes to mind. Similarly, I think CDU secretly agrees with some of the governments desires, but will not act on them either because it wishes for the government to collapse or is afraid of voters’ reaction.

Very curious what is your thinking and how it has changed.

Kamil

P.S.: Relatedly, I often see left-of-center economists citing IMF research that austerity does not yield decrease in government debts relative to GDP. While I understand the value of such research, I am not sure what are the people suggesting. If austerity cannot lower debt to GDP, what can? I don’t think that most economists would suggest that large scale government investment is going to lower debt to GDP. So it the conclusion that we can never lower debt to GDP?

Kamil expands on these points in a blog post, concluding:

So maybe this is the main critique of the constitutional debt break: In the older world it might have been an good tool, but given the general unravelling of political process around the world, it adds too much of a constraint leading to worse outcomes. It simply is not fit for the current times. It might not be. As for me, I am currently in state of “not sure”.

What I’ve been watching

by  Tyler Cowen in

Poor Things created a visual and stylistic and historical world all of its own.  Not a perfect movie by any means, but entrancing throughout.  I took the central idea to be why (different kinds of) men are attracted to autistic women, but I do understand no one else saw it that way.

American Fiction I soured on.  I guess I don’t get enough jollies from making fun of the Wokies, because the movie didn’t add to my understanding and just made them stupid targets.  I can (and do) get that on Twitter any day.  Some people will really like this one, but I wouldn’t have minded missing it.

Anselm 3-D is excellent if you know a lot about Kiefer, various German Kriegsauseinandersetzungen, and if you want a look into art production in factory settings.  I meet all three of those standards, and then some.

Saturday assorted links

by  Tyler Cowen

1. Flowers are evolving (rapidly) to have less sex (NYT).

2. Europe’s political stupor, excellent essay by Leopold Aschenbrenner.

3. Navajo Nation’s objection to landing human remains on the moon prompts last-minute White House meeting.

4. Horse cloning transforms polo in Argentina.  “Using embryo transfers, a single horse can now give birth to as many as 10 foals per year, instead of one…”

5. Model this (NYT): “Maine at Augusta spent $15,225 last year for the right to market U.S. News “badges” — handsome seals with U.S. News’s logo — commemorating three honors: the 61st-ranked online bachelor’s program for veterans, the 79th-ranked online bachelor’s in business and the 104th-ranked online bachelor’s.”

6. Mexican drone attack kills 30 in Guerrero (in Spanish).