Results for “Larry Summers”
186 found

Assorted links

1. Do sex ratios affect bird behavior?  And moody lizards.

2. The Brazilian gun library.

3. The (homoerotic) culture that is Finland.  Note that the link is itself…homoerotic.  And the Indian Supreme Court recognizes transgender as a third gender.

4. Excellent Jesse Shapiro slides on how to give an applied micro talk (pdf).  It starts with: “Your audience does not care about your topic.  You have one or two slides to change their minds.”  And the short list for the Clark medal, Jesse is on it.

5. NYT profile of Peter Chang.

6. The problems of Singapore.

7. Scott Sumner on Larry Summers.

Assorted links

1. How the Japanese are reengineering (and improving) on American culture.

2. Viagra ice cream markets in everything.

3. Insights into Vox.com and how it views its competitors.  And here is Joshua Gans on Vox.

4. Philippe Legrain, European Spring, a useful and well-written popular look at the European economic mess, $2.99 on Kindle.

5. I call it the Thomas Piketty clothing line.  (The important point, however, is that Zara is much more important these days and that militates against Piketty.)  Here Diane Coyle reviews Piketty.

6. Chrystia Freeland dialogue with Larry Summers, starts at about 40:00.  It is the best Larry video I have viewed.  Here is a Sendhil Mullainathan talk on machine learning which I have not viewed.

7. Mohamed El-Arian is now writing for Bloomberg.

8. The new academic celebrity.

Assorted links

1. “A straightforward decomposition illustrates that the decline in LFPR [labor force participation rate] among prime-age workers is a major contributor to the overall decline in LFPR.

2. Is the individual mandate crumbling away?  Very good post.

3. Why do the Germans shun Twitter?

4. Harvard Business Review interview with me.

5. The cinnamon debate in Denmark.

6. Daniel Yergin on Mexico’s energy reforms.

7. Larry Summers lecture on our economic future.

Assorted links to close the day

1. On the partial end of the filibuster, Ezra Klein has a rundown on nine different ways it will matter.  Here is political scientist Gregory Koger on what it means.  Here are past posts from Monkey Cage.

2. Joe Weisenthal calls Magnus Carlsen the “first post-modern” world chess champion.  Yet I think Carlsen’s style is less boring than Weisenthal lets on — finding complexity in apparently dull positions is a skill of its own.  If Carlsen is so boring and one-dimensional as a player, why does he induce his opponents to make so many mistakes?  And how is it that Carlsen has ended up having better opening prep than Anand?

3. Larry Summers has a website.

4. Daniel Davies on demand-driven secular stagnation.  This is the version of the hypothesis which makes the most sense.

Are real rates of return negative? Is the “natural” real rate of return negative?

Here is a long and very interesting post by Paul Krugman, also referencing a recent talk by Larry Summers.  There is also this older Krugman post, and here is Gavyn Davies, and also Ryan Avent.  And Scott Sumner.  Do read and listen to these, there is much in there to ponder.  I do very much agree with the claim that lower rates of return make recovery more difficult and for the longer haul as well.  And I am happy to welcome these thinkers, or in the case of Krugman re-welcome, to stagnationist ideas.

I cannot, however, agree with the central arguments about negative real interest rates, and the necessity for negative natural rates of interest (there are a variety of interlocking claims here, so do read them for yourself.  I am not sure any brief summary can quite reproduce the arguments, which are also not fully clear).

As I frame the data, we have had negative real rates on government securities, but positive rates on many other investments in the U.S.  The difference reflects a very high real risk premium, which of course we would like to lower, and the differences also reflect some degree of investment segmentation.  The positive rates on these other investments are evidenced by recent broad stock market gains, observed rates of productivity growth (low but clearly positive), high internal corporate hurdle rates, and so on.  The “average vs. marginal” distinction is an important one, but still I don’t see how it can be used to push us away from seeing relevant real rates of return as positive.  Nor do I think monopoly is widespread enough for that assumption to be a game-changer.  Even Apple competes with Samsung and others in its major product lines.

Given the multiplicity of real rates in the American economy, I get nervous when I read about the real rate or the natural rate.  (Don’t forget Sraffa [1932] and also Arnold Kling discusses the different issue of varying rates across people.  Interfluidity questions whether the idea of a natural rate makes sense at all.)  I also get nervous when I do not see serious talk about the embedded risk premium in the observed structure of market rates.  I grow more nervous yet when the average vs. marginal question is not spelled out more explicitly.

In my view very negative real rates of return would not be a “natural rate” giving rise to full employment through a better equilibration of planned savings and investment.  Given a pretty flat employment to population ratio, very negative real rates of return across the economy as a whole would have to mean negative economic growth and other attendant difficulties.

And no, I don’t think that output shrinkage associated with the persistently negative real interest rate would be expansionary through liquidity trap mechanisms; for one thing the negative wealth effect and the higher risk premium likely would offset the positive velocity effect on currency balances.  The velocity effect on currency balances, from inflation, just isn’t that strong.  At persistent negative rates of return we are much more likely to see an interdependence of AS and AD and some kind of cascading collapse of both.  Or maybe it is simply better to say the framework has broken down than to try to squeeze one’s own predictions out of that set up.

Furthermore if you think destruction will help you ought then think that capital obsolescence will pull us out of Hansen’s long-term stagnation within five to ten years.  On top of all that, I worry about the apparent “out of equilibrium” assumptions embedded in a model that has both a) negative real rates of return on investment and b) those investments being made in the first place, given that storage costs don’t seem to be enormously high.

I don’t mean this in a rude or polemic way, but the arguments we have been reading do not yet make sense.

Here is a claim I do find possible, although it is not one I am pushing.  That would be a neo-Wicksellian argument that rates of return on capital are positive but low, and investors need low and indeed very negative borrowing rates to reflate the economy, given how high the risk premium is.  I don’t read Krugman as promoting that view (note his citation of Samuelson’s OLG model for instance), although I think that is what the argument will have to boil down to.  Otherwise it ends up being a call for output destruction, which, while I do understand how in some models at some margins that can help, I don’t think at current margins is going to be anything other than an unmitigated disaster.  Literally.

I see it this way.  If you are postulating a stagnation across the longer run, ultimately it will have to boil down to supply side deficiencies.  The simple way to explain the mediocre recovery is to tack on slow growth assumptions to the underlying demand deficiencies.  But that would constitute a big concession to real business cycle theory and it would put Thiel-Mandel-Gordon-Cowen stagnationist views in the driver’s seat, all the more so over time.  The look back to Alvin Hansen is an effort to work in some (very much needed) stagnationist ideas, while at the same time doubling down on a demand-side perspective.

That just isn’t going to work.

On the importance of symbolic victories in politics

Harold Meyerson writes:

The Democratic Party’s romance with Wall Street may finally be breaking up. In the past 10 days, a diverse group of Democratic senators scuttled Larry Summers’s candidacy for Federal Reserve chair and New York Democrats voted for the mayoral candidate whose campaign was an attack on Michael Bloomberg’s care and feeding of the super-rich at the expense of the rest of the city. Former commerce secretary (and JP Morgan Chase executive) William Daley’s surprise withdrawal from the Illinois Democratic gubernatorial primary is one more indication of Wall Street’s diminished sway.

There is more at the link.

Yet I view it differently.  As I observe the new equilibrium, the Left won a big symbolic victory by striking down the Summers nomination.  But it was precisely that — a symbolic victory.  When it comes to banking regulation, there is not much reason to believe that “Summers plus current political forces” would have been very different from say “Yellen plus current political forces” or for that matter Donald Kohn.

Symbolic victories are a relatively cheap way to buy off or appease interest groups, and arguably you can view this as part of a broader portfolio — from the Democrats too — to continue catering to Wall Street, for better or worse.  After all, share prices did rise on the Summers withdrawal (which by the way does not have to mean he was a bad pick, perhaps Wall Street simply did not like the uncertainty of a highly politicized confirmation battle), so that is hardly a slap in the face to the Street.

One might also expect that, as political polarization increases, political agents will allow more such symbolic fights to arise, or perhaps even manufacture them deliberately.  These symbolic fights make it easier to trade with the more extreme or dissident elements in a political party or movement.

The problem with the current budget negotiations is that the Republicans have not yet seized upon what would be the suitable symbolic victory to take home to some of their supporters.  Yet likely such a symbolic “victory” (also known as “defeat”) exists and it will be found, and that is one reason why stock markets are up and interest rates remain low.

Bits of wisdom from the FT

On the new EU banking arrangement, here is Wolfgang Münchau:

If you study the details of what was agreed last week, the substance evaporates. The common supervisory structure will affect only about 100 to 150 banks out of a total of 6,000 – those with assets of more than €30bn. The ECB can usurp supervisory powers from national regulators but the rules of engagement are not clear. Wolfgang Schäuble, the German finance minister, said when he left the meeting that the ECB would need to make a well-argued case. But it is not clear how this would work in practice.

If you can get through the link there is much more, all devastating.  There is of course no banking union whatsoever and no set of mutual guarantees.  And this:

What happened was that the OMT has killed any appetite for a fiscal union, and has turned the banking union into a phantom.

The effect of the OMT will be negative in the long run because it has provided policy makers with a false sense of security. That was not the intention but the effect.

Let’s not leave Larry Summers out of the mix:

…the richest taxpayers actually make relatively little use of deductions and credits.

It is an excellent piece on tax reform.

A short note on the gold standard

I do not favor a gold standard, nor do I for that matter favor price stability, nor do I think a gold standard brings short-run price stability.  I think a gold standard today would be much worse than the 19th century gold standard, in part because commodity prices are currently more volatile and may be for some time.  I do not favor commodity bundle standards.  I favor some amount of ongoing inflation, and my reasons for this view are close to those of Larry Summers.

That all said, when I read recent critiques of the gold standard, occasioned by recent GOP debates on the topic, I feel I am living in a different universe than those who wrote them.  A few points:

1. Jim Hamilton aside, hardly anyone has reported the denouement: “…the final document [the GOP platform] makes no mention of gold, and instead seems to have settled on a proposal that is unlikely to do any harm…”

2. Why is no one mentioning Christina Romer’s work on how discretionary macroeconomic management does not have a totally superb comparative historical record in lowering volatility?  Start here, but there is more in this literature.  She is still a prominent economist.

3. Dare anyone critical of the gold standard bring themselves to utter these (roughly true) words?: “For the Western world, the gold standard era, defined say as 1815-1913, was arguably the greatest period of human advance ever, at least in matters of economics, culture, and technology.”  Chunks of the post-WWII era contend for this designation, but still this sentence is not a crazy one.

4. I remain baffled by treatments of Japan’s slow growth era as primarily a monetary phenomenon.  Under such a view, how was Europe’s 19th century possible at all?  Why wasn’t it a total economic disaster?  Data from government bonds show that “expected inflation” across the period was close to zero, yet somehow “For the Western world, the gold standard era, defined say as 1815-1913, was arguably the greatest period of human advance ever, at least in matters of economics, culture, and technology.”

Good economics is to integrate #2 and #3 with the fact that one need not favor a gold standard.  I’ve been seeing a lot of arguments against gold standards, many of which I agree with.  What I haven’t been seeing is the integration with the broader set of relevant facts, which of course present a more complicated picture.

Reminiscences of Miles Kimball, and others

Miles and I were in the same entering class in Harvard.  Miles and Abhijit Banerjee were for economic theory the sharpest students in the group and it must have been an absolute terror to teach them.  Both were gentlemanly in the extreme, but if a mistake or ambiguity were on the board, or in a paper, you could be sure they would find it and point it out.  I recall Abhijit answering a question on the macro final exam and showing that what he thought would be the supposed Harvard faculty member answer was in fact wrong, in addition to solving for the right answer, finding a few other possible equilibria, and acing the rest of the exam in but a few hours’ time.  Steve Kaplan, from the same class, later became known as an empirical economist but his theoretical acumen was remarkably good.  Those three dominated a lot of the discussions.  Mathias Dewatripont was also no slouch in theory though temperamentally quieter.  Alan Krueger, in his third year, obtained the reputation of having the best eye for an important empirical paper and how to execute it; he learned the most from Larry Summers.  Nouriel Roubini was generally quiet, though he looked all-knowing and at times slightly jaded.

Brad DeLong was a few years older.  He was thought of as the slightly right-wing guy (compared to his peers he was) who read a lot of unusual history of economic thought, including Adam Ferguson.  He and his girlfriend (now wife) were inseparable and always affectionate.

Miles struck me as a mind in perpetual motion, in the best sense of that phrase.  I was not surprised, in 1984, when I heard about his linguistics Master’s thesis, which includes a learned and original discussion of Charles Peirce.  Miles is also a cousin of Mitt Romney, and he will soon blog “Will Mitt’s Mormonism Make Him a Supply-Side Liberal?”.  I wonder what he makes of us all.

Here are his early tweets.

One feature about his blog which is refreshing is that he is neither a libertarian nor a progressive, though he incorporates ideas from both approaches.  My RSS feed is mostly libertarians and progressives, but that is part of the strange selection mechanism of the blogosphere, not a reflection of the economics profession.

Again, Miles’s blog is here and Miles on Twitter is here.  Most of all, he seems to be a great dad, or at least his daughter thinks so.  She too is studying at Harvard, for an MBA.  Here is her project Expert Novice, “Every month or so, I write a letter about what I’ve learned lately.”