Matthew C KleinRead Biography
Donald Trump will be the next president of the United States. The outcome has stunned not only Hillary Clinton supporters but also the pundits who failed to anticipate his rise, the professional pollsters who bafflingly underestimated his chances of defeating Clinton, and perhaps even a non-trivial number of his own voters. As a candidate, Trump won not only despite having broken traditional rules of politics, but also despite violating many of the social norms that govern decent, humane behaviour.
It’s not usually a good thing when your biggest export market, biggest source of foreign direct investment, and the country that owns your entire banking oligopoly experiences a major economic slowdown. Yet New Zealand, at least in the past decade or so, watched its fortunes wane as Australia’s mining sector boomed, while the bust in Oz has gone hand-in-hand with stronger growth in Middle Earth.
You might think a central bank looking at inflation significantly below its target, a relatively weak jobs market, and a policy interest rate well above zero would be keen on loosening up. In the case of Australia, however, you would be wrong.
Some new economic research argues America’s slow recovery since the financial crisis had nothing to do with household deleveraging or unusually weak business spending. Instead, it can be entirely attributed to changes in demographics, weakness abroad, and fiscal austerity. But does it make sense?
- Maria Konnikova on social-science methods, cognitive biases, and the psychology of cons
- Our long chat with Paul Volcker (plus transcript and highlights)
- Brad DeLong on Hamiltonian economics and US economic history
- Charles Kenny on trade adjustment, deindustrialisation, development and more (full transcript)
- Inside the Washington Post: a chat with Marty Baron and Shailesh Prakash (plus transcript)
- Clay Shirky and Emily Parker on Xiaomi, technology and information flows in China (updated with transcript)
- Simon Kuper’s panel on the cultural forces of football
- Claudia Goldin on the history of women in the workplace (updated with transcript)
- Our podcast chat with Reihan Salam
- Our chat with Esther Duflo — now with transcript
Alan Greenspan’s reputation over five decades in public life has gone through wilder swings than the value of technology stocks or Las Vegas real estate during his tenure as Federal Reserve chairman. Sebastian Mallaby has produced the definitive account of Greenspan’s life, career, and the context in which he operated: The Man Who Knew. Mallaby recently came by the FT office to record a wide-ranging conversation about this accomplishment.
If you remember the early ’90s, other than, I would say, 1928, there was nothing even close. The conditions facing real estate developers in that early ’90 period were almost as bad as the Great Depression of 1929 and far worse than the Great Recession of 2008. Not even close. — Donald Trump, via Vox This statement has gotten some (undeserved) criticism. Here’s the Associated Press with a “fact check”:
Compared to most rich countries, Sweden handled the twin challenges of the 2007-8 crisis and the never-ending euro crisis with aplomb. The share of people in Sweden with a job is at all-time highs. Real output per person is at all-time highs, and has grown much more than in most other rich countries over the past ten years. Underlying inflation is essentially at its long-term average. The trade surplus remains massive. And Swedish house prices continue to float into the stratosphere. Yet despite all this, Sweden’s central bank has been unusually aggressive in trying to stimulate its economy by cutting interest rates far below zero, buying assets, and cheapening its (already undervalued) currency. We recently had the chance to talk to a former Swedish central banker about this. He suggested the Riksbank could potentially justify its behaviour as an attempt to heal structural problems in Sweden’s jobs market.
There are lots of good reasons to study history, but perhaps the best is to avoid being misled by people who claim to have “learned the lessons” from the past when they don’t actually know what they’re talking about. For example, the policy mistakes exacerbating the euro crisis may have been partly caused by a profound misunderstanding of the causes of the French Revolution. The thought occurred to us while reading The Euro and the Battle of Ideas, an intriguing new book we reviewed in this weekend’s FT. Two of the authors, Markus Brunnermeier and Harold James, are academics at Princeton. The third, Jean-Pierre Landau, was Deputy Governor of the Banque de France from 2006-2011 after a long career in the French Treasury and the International Monetary Fund. Consider the following passage, from pages 256-7 in the hardcover, emphasis ours:
We don’t really understand how changes in the level of short-term interest rates affect things we actually care about, such as growth and employment. There are too many moving parts and leaps of logic required, many of which are based on bogus assumptions about how the world works. So it’s always nice to find new research into a small piece of the monetary transmission mechanism that’s grounded in facts. Researchers at TransUnion, the credit reporting company, looked at which American consumers would be exposed to an increase in the Federal Reserve’s policy rate corridor and the dollar magnitude of the impact of different tightening paths. We recently had a chance to discuss their findings with Nidhi Verma, who led the project.
The tendency toward restriction that runs through the tone of the presentation seems to me to be quite problematic. It seems to me to support a wide variety of misguided policy impulses. –Larry Summers, Jackson Hole 2005 You might think Summers had changed his mind in the eleven years since he called Raghuram Rajan a “Luddite” for daring to suggest the financial system had gotten riskier since the 1970s thanks to competition and the rise of performance-based pay. After all, in a new paper, Summers and graduate student Natasha Sarin not only cited Rajan’s work approvingly, they concluded lenders are still too vulnerable to panics. You would, however, be wrong.
Central bankers think steady price increases are a good thing. After all, inflation makes it easier for employers to cut real labour costs and helps monetary policy boost the economy without having to lower (nominal) interest rates below zero. Whether or not you agree, we thought it would be interesting to look at which products explain the rise of American consumer prices since 1990. As it turns out, just as the bulk of the growth in employment can be attributed to a few sectors where productivity is either low or unmeasurable, a whopping 88 per cent of the total rise in the price level boils down to four sectors of the US economy:
People enjoy work. Even those who don’t enjoy what they do enjoy the feeling of agency and being able to provide for others. For a world to work where a universal basic income accounts for the bulk of the consumer spending for many people, something else needs to account for the social side of work. It is disappointing to think that we’d have to create make-work for people, but it may be the hard truth. –Ryan Avent, September 6, 2016 Disappointing indeed, but the reality is rich countries have been dealing with this problem for decades. A staggering 96 per cent of America’s net job growth since 1990 has come from sectors known to have low productivity (construction, retail, bars, restaurants, and other low-paying services were responsible for 46 percentage points of total growth) and sectors where low productivity is merely suspected in the absence of competition and proper measurement techniques (healthcare, education, government, and finance explain the remaining 50 percentage points):
Inflation is always and everywhere a monetary phenomenon…Government spending may or may not be inflationary. It clearly will be inflationary if it is financed by creating money, that is, by printing currency or creating bank deposits. If it is financed by taxes or by borrowing from the public, the main effect is that the government spends the funds instead of the taxpayer or instead of the lender or instead of the person who would otherwise have borrowed the funds. Fiscal policy is extremely important in determining what fraction of total national income is spent by government and who bears the burden of that expenditure. By itself, it is not important for inflation. –Milton Friedman, “The Counter-Revolution in Monetary Theory” (emphasis in original) Friedman’s idea was radical when he suggested it in 1970, but it has since become boringly mainstream. Nowadays the standard line is that central banks have all the power and (usually) offset the impact of fiscal policy changes. So it was refreshing to read a speech by Christopher Sims at this year’s Jackson Hole economic symposium suggesting that the common view has things backwards. To the extent central banks have any impact on inflation, it’s by tricking elected officials:
Janet Yellen opened the festivities at this year’s Jackson Hole economic symposium by musing on what central bankers had learned since the crisis and how they can deal with future recessions in a world where interest rates are far lower than in the past. Unsurprisingly, bond-buying and “forward guidance” featured prominently in Yellen’s narrative of successful new tools. (On the other hand, scholars have estimated the combined impact of these measures was an unemployment rate a mere 0.13 percentage points below where it would have been using purely conventional instruments.)
- Trading Places and those frozen orange juice futures
- From the Trump to the Tramp
- The Trump economy
- The psychology and neuroscience of financial decisions
- Comparing the candidates’ tax plans, and a GBP view from the US
- Tim Harford on the unheralded virtue of messiness
- Ryan Avent on the social capital of firms, development economics, and monetary policy
- Dan Drezner on forecasting the next-gen political economy
- Alphachat bonus episode: Arlie Russell Hochschild’s guide to Trumpland
- The problem with drug pricing
Canada has a finely cultivated and, for the most part, well-deserved reputation for openness and cosmopolitanism. The existence of Supply Management — the country’s aggressively protectionist and anti-competitive system of production quotas and import tariffs for its dairy, poultry, and egg industries — thus appears starkly out of place. About a month ago Canadian expat George Pearkes, a macro strategist at Bespoke, pointed us to the Supply Management Wikipedia page page, where we learned of the remarkably high tariffs on imported cheese (nearly 250 per cent for imports above the allowable quota) and butter (nearly 300 per cent).
It may take a few minutes to wrap your head around it, but this chart from Richard Koo, borrowing heavily from the insights of W. Arthur Lewis, is a pretty good framework for understanding the history of the world since the start of the industrial revolution: For most of human history, technological progress was achingly slow, especially when it came to agricultural productivity. Unable to boost yields, populations couldn’t expand unless additional farmland were brought under cultivation. There were about as many people alive on Earth in the age of Caesar as there were more than a thousand years later. When that finally changed, farmers moved to urban factories and joined the proletariat.
Here’s an interesting thought from Grant Spencer, the Deputy Governor in charge of financial stability at the Reserve Bank of New Zealand: While boosting the capacity for development and housing supply is paramount, it is also important to explore policies that will keep the demand for housing more in line with supply capacity…We cannot ignore that the 160,000 net inflow of permanent and long-term migrants over the last 3 years has generated an unprecedented increase in the population and a significant boost to housing demand…There may be merit in reviewing whether migration policy is securing the number and composition of skills intended. While any adjustments would operate at the margin, they could over time help to moderate the housing market imbalance.