Category Archives: macroeconomy

Ben Bernake’s speech and why planners should care

For a scholarly discipline that has produced some pretty amazing students of globalization (John Friedmann, for one), my discipline rather rigorously puts its head down and refuses to be pay attention to macro changes. For instance, American planners are still obviously focussed on sprawl even though it has, as an issue, lost tremendous salience. Yes, Americans still drive too much and suburbs are still bad, blah blah blah, but the markets that many planners have insisted don’t work properly eventually came around to discipline fringe and housing over-investment. The driving forces prompted planners and architects to become self-appointed sprawl tamers—and what made planning relevant to people who wanted their regions to stop growing during the housing expansion—are mostly gone, and don’t appear to be coming back any time soon.

Ben Bernake’s cautionary speech last week went largely unnoticed, and it shouldn’t have. Because his remarks carry all the hints about of a “recovery” that means major problems for the US, planning, and cities.

There are four reasons why we should be worried:

1) A growing share of US growth will continue to come from overseas, despite Obama’s export plan, at the expense of US employee income growth. That means continued globalization of US companies, and greater competition for US workers who aren’t served very well by their own education system.

2) The pendulum of power in the US has swung sharply from public to corporate, and that power means that problem #1 is not a problem for the people who are driving policy. Profits at the expense of income growth is just fine in that power balance because democratic discontent means little.

3) The emergence of two-tiered workforce means that while the US is adding jobs, it is doing so in such a way that median income will fall. (Not unlike the last “jobless recovery” we got to enjoy.)

So you know all that screaming about adjuncts in the academy and how wrong it is? Sure, it’s wrong, but it’s also par for the course in industries around the US where young workers are typically getting much, much lower starting wages and benefit packages than older workers were hired at.

4) Our balkanized politics offers us no way out soon

To wit; corporate profits have been soaring happily throughout most of the downtown while the US only just added enough jobs to keep people like me from tossing ourselves in front of buses.

Corporations are not people, as Mitt Romney pointed out in his chronic inability to not give a counter-productive sound bite (are he and Larry Summers twins and I’m not aware of it?). Corporations are institutions that already enjoyed extreme legal privilege prior the bailout precedent. They may employ people, but there is no reason to believe that what benefits capital also benefits labor in the distributive function of those organizations.

Planners should care about deepening inequality and a hollower state because they’re employed by the public sector both in public agencies and the consulting firms that cater to those agencies. So there’s the self-interest. The general case is: what does it mean for your profession when the rich don’t need you, or the amenities you advocate for (they can get their own, without public finance), and the poor can’t afford you?

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The Berkeley Blog: Why it’s China’s turn to worry about manufacturing

Visiting prof Vivek Wadhwa suggests that robotics and AI will bring manufacturing back to the US:

Why it’s China’s turn to worry about manufacturing:

America has been extremely worried about the loss of manufacturing to China. Seduced by subsidies, cheap labor, lax regulations, and a rigged currency, American industry has made a beeline to China.

But the tide may soon turn.

New technologies will likely cause the same hollowing out of China’s manufacturing industry over the next two decades that the U.S experienced over the past twenty years. That’s right. America is destined to once again gain its supremacy in manufacturing, and it will soon be China’s turn to worry.

China’s largest hi-tech product manufacturer Taiwan-based Foxconn Technology Group, made waves last August when it announced plans … More >

(Via The Berkeley Blog)

I’m pretty excited about our robot overlords coming soon…

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Filed under Economic development, macroeconomy

Gideon Rose on the Clash of Ideas in Foreign Affairs

Well worth watching

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Something intelligent on American saving behavior

Don’t know about the rest of the you, but I generally find that most pieces about American saving behavior full of empty assertions about how bad Americans are, like the writer is some Presbyterian minister rebuking sin using the same boring old tropes about American excess. This NPR story about Princeton’s Sheldon Garon strikes me–finally!–as something policy relevant. Go listen.

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Filed under macroeconomy, Uncategorized

Richard Green’s testimony on how to work through foreclosures

My wonderful colleague, Richard Green, testified in front of the Senate Banking Committee. He’s convinced me, and I’ve been a bit dubious about bailing out homeowners (still: why didn’t we make the banks refinance when we were handing the banks money with TARP? I don’t get it). Here’s my favorite part of the testimony

There are those who argue that it was the attempt to advance
mortgage credit to minorities that led to our current condition—
I do not accept that argument. The loans that have performed
most poorly were originated by institutions that were not
covered by the Community Reinvestment Act or the Affordable
Housing Goals. Moreover, as Mr. Wallison himself once noted,
Fannie Mae and Freddie Mac did not do a good job of advancing
credit to minorities or low-income neighborhoods. While this is
to their discredit, it undermines the argument that their
troubles arose because they made too many loans to underserved
borrowers.

Brilliant.

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Filed under housing, macroeconomy, social justice

The myth of the men-only recession and cutting budgets for growth

I was reading Bloomberg this morning, and the California jobs numbers are enough to make me take to the vermouth at 9 am. These jobs numbers are nothing less than disgusting.

55 percent of the state’s workers are employed. It’s heartbreaking.

Early on in the recession, I lost count of the the number of times I had to sit through my male colleagues discussing how “men are being especially hard hit” by the recession. I objected: we didn’t really know the relationship between gender and job loss because at the early stages of recessions (this was primarily in 2008 and somewhat later), you are likely to see predominately male job loss due to their prevalence in the workforce in construction–a leading indicator for a reason.

So as usual, I am right and they were wrong:

Job losses in local government, health care and other industries where women make up a large portion of the workforce contributed to the weak employment picture. Women have lost jobs in industries such as retail and financial services, while men in those fields gained.

“As businesses cut costs, the first thing to go is administrative support positions where women tend to work,” Anderson said.

Oh, and that whole idea that just by cutting government, you’ll create jobs jobs jobs? California has been cutting for three years and look where we are.

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The Value of R & D, Romer’s NYT Op-Ed, and Driverless Cars

I don’t usually get two days out of any given Op-Ed, which goes to show you how much is going on in Romer’s essay from the NYT.

Another point she raises here:

Government spending on things like basic scientific research, education and infrastructure, on the other hand, helps increase future productivity. This type of spending often produces high social returns, but the private sector is unlikely to step up if the government pulls back. Case studies described in a recent survey found that less than half of the returns from research-and-development spending were captured by the private investor, so corporations shy away from such endeavors. Cutting federal funds for R.& D. would leave a void and could have significant long-run effects on growth.

Now, there are a bunch of things we can question here. The first is whether the private sector wouldn’t do more research if it had to, without having government sponsored universities and its research programs bearing some of those costs.

But the basic point is a good one as we sit back and watch Google and Volkswagen roll out their automated cars. The news stories make me want to rip out my hair: Oh, how clever are these companies?! Look at how they came up with automated cars all by themselves!

Google and Volkswagen–and the rest of us–are benefiting from more than a century of academic research on computing. There’s no Google at all without Alan Turing. We are always standing on the shoulders of giants—even the giants among us.

It’s unlikely we’d be at the point of automating cars without the space program or the army. Sure, there are plenty of roads to the same destination, and I’ve never been one to think that any one contribution is the be-all hero’s journey story that storytellers like to make of them.

But we have to give government-sponsored R & D some due: the investments in research often look arsy varsy and wasteful at the time. Who could have seen where we are today when Turing was fiddling about with algorithms while he was supported by the British government? What else might have he produced if he had done less applied work on the governments’ immediate problems? All those combinatorial math guys, foodling about. Where would traffic signals be without them?

Between Law & Order and the recent critiques of higher ed found *everywhere* produced mostly by people within the academy who hate it and their colleagues, it’s tempting to think that all academics get paid to sit around and molest their grad students. But reality is, as usual, different from stereotypes—the selected bad behaviors among some that are strategically emphasized to misrepresent the whole.

So how much R & D is too much? It’s a worthy question when social programs are getting cut, and hard to answer when you don’t know when the right idea is going to come along or when its application will suddenly become clear.

I have long sat through arguments from welfare rights advocates about how wasteful the space program is. It’s hard to disagree: when families are in need, don’t they have a greater claim to the resources? My response is that a wealthy country like the US can afford both to support poor families and innovation, but I don’t know that I believe my own response, and I’m not sure, if I had chose, which way I’d go.

Why?

If anything is likely to curb the bloodbath and loss of human life that are car crashes, it’s automated cars, the direct descendent of robotics and guided systems that were improved via space and aviation research. Automated driving is the potentially revolutionary marriage of government and market–research and implementation–that Google’s cars now represent. If defense and space research helped us get there, then the benefits to both rich and poor would be staggering in the retention of human capital.

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Republicans, Democrats, and why, despite everything, I respect Larry Summers

The Financial Times Opinion page this morning is utterly brilliant.

If you want to know how I feel about both the Republicans and Democrats (and why wouldn’t you, as I am sooooooooooo important), Clive Crook nails it: America prefers fiscal idiocy to framing intelligent choices. Or, as my colleague Richard Green says, I don’t see anybody out there acting like a grown-up.

Nope.

Larry Summers also has an absolutely brilliant submission in their “A-List” series called “How we can avoid stumbling into our lost decade.” If there is a more lucid, patient, and clear discussion of the current macroeconomic condition of the US, I have yet to see it. His advice, BTW, is to extend the stimulus.

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An essay on books about monetary policy

So yesterday I was grumping that people don’t understand monetary policy, even though they sling around the term, and in fairness, it’s a complex field. Or, a dark art, depending on how you view macro in general. Macro simply isn’t amenable to the type of empirical study that micro is. You can study millions of trades in many fields of micro: housing markets, stock trades, transport mode choices, etc etc–you can model and validate over time and space, and while identification may be difficult to achieve, you usually have plenty of instances to observe.

With macro, you only have so many central banks, so many nation states, etc. etc. You generally don’t have random experiments in contexts that really capture the phenomena of interest; and you have precious few natural experiments. How many previous housing bubbles do you have to study? How many of the previous are even remotely like the one we just experienced? And conditions change, fast. You can look like the smartest person in the world one day, then in a flash, the dumbest.

This contrast is a bit of an overstatement, and there are things that bridge micro and macro in ways that you can test rigorously–like, say, labor (Diamond’s field), consumption, prices, etc. Still, those insights into macro phenomenon are viewed, even among specialists, through a glass darkly. That’s why you want very well-trained and disciplined people working at central banks rather than your unemployed son-in-law simply because he, like you, believes in small government and Jesus.

I don’t know that there’s a “Varian*” of monetary policy, but I don’t know of it if there is one, commonly beloved introductory text. I liked Carl Walsh’s book when I used it, but it would be nice if people could suggest a more recent text. There is a 2003 3rd edition, but still.

I’ve not gotten all the way through this more recent book:

Mishkin, F. S. (2007). Monetary policy strategy (illustrated ed.). Cambridge, Mass.: MIT Press.

But I got far enough to note that it’s pretty approachable as far as monetary policy books go. He uses a lot of case studies, which will probably be more helpful and more interesting to nonspecialist readers.

I really wish Milton Friedman were alive now to respond to the conditions of the bubble and recovery strategies. It would have given him a chance to respond to critics and to either clarify or refine his theories vis-a-vis a new context, and to argue with people like Paul Krugman. I feel like I would get smarter reading that argument.

As annoyed as I am at Republicans right at the moment for being idiots about Peter Diamond, I also get annoyed at liberals who judge Milton Friedman’s contributions to economics by responding to his political philosophy. These two things are hard to separate–indeed, Friedman himself put them together. Nonetheless, his contributions to monetary policy were important to the field. My favorite is

Friedman, M., & Schwartz, A. J. (1971). A monetary history of the united states, 1867-1960 (illustrated, reprint ed.). Princeton, N.J: Princeton University Press.

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Read this in contrast:

Krugman, P. R. (2000). The return of depression economics (reprint ed.). New York: W. W. Norton & Company.

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And read these two, with a caveat:

Friedman, M. (1969). The optimum quantity of money (reprint, illustrated ed.). New Brunswick, N.J.: Transaction Publishers.

and

Keynes, J. M. (20011). The general theory of employment, interest and money. Martino Fine Books.

Here’s the caveat: I don’t really like the 2011 edition of this book. Keynes originally published this material in 1936; I have a first edition of the book. It’s turgid, as a lot of writing was then, but glancing through this 2011 edition, I didn’t like what has been cut. Find an older edition and be patient. It’s not like slogging through Friedman on the gold standard is any picnic.

I’m currently reading the 2009 year’s Pulitzer Prize winner, and it’s a very good book on monetary policy, from a finance guy:

Ahamed, L. (2009). Lords of finance : The bankers who broke the world (illustrated ed.). New York: Penguin.

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I am enjoying it very much so far, but I’m only up to German reparations for the First World War, so I have a ways to go before we get to the crash.

One last comment: be wary of reviews from people who say “Keynes has been proved wrong/right; Friedman has been proved wrong/right” yada. These are multi-dimensioned theories, and it’s very likely that they are both wrong and right about different aspects of the universe they are attempting to explain.

The point for an educated person is to try to think about what is “baby” and what is “bathwater” about the the theories they are reading. To abuse yet another metaphor: blind men, elephants, yada. Children expect the world to give them “right” and “wrong” answers. Educated adults read and think–and keep doing so recursively, and humbly, their whole lives.

*Hal Varian wrote the seminal intro to micro textbook, and so it’s easy to recommend it to people wanting to go beyond their intro to micro class.

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Peter Diamond, making us regret Republicans. Again.

Peter Diamond, for those of you who are not economists, is an brilliant economist by any measure. His nomination to the Fed was an excellent choice. But to my surprise, he was controversial.

Why? I don’t understand. At some point, somebody said to some Republican senators that Diamond has studied poverty and income constraints. Or somebody remarked that Diamond isn’t a jackbooted free market Chicago School guy, and so he must be unqualified. Yeah, because MIT gives out full professor positions to just any crank.

Whatever it was, Diamond says his goodbye in the New York Times and explains very well how the idiots running this country (elected by other people who see no value in education and, thus, have no idea what the Fed does or what qualifications would be helpful at the Fed) feel free to mouth the words “monetary policy” without actually understanding what “monetary policy” is.

Did Peter get a minor or a certificate in monetary policy? No? Well that must mean he KNOWS NOTHING.

I wonder if the Dems would strike at a Gary Becker nomination. I doubt it.

It brings to mind Jonathon Chait’s essay this week over at the New Republic, about how a loud, bullying, unreasonable subsection of the American right has taken over largely because their attitude is “screw negotiation, screw facts, screw reasonableness; what I want is the way God intended it and I will stop at nothing get my way”:

Remember when Democrats swept the 2006 elections, then stormed into Washington demanding national health care reform and the repeal of President Bush’s upper-bracket tax cuts as a condition for keeping the government open? Right, me neither. Yet somehow the Republicans, controlling just one house of Congress—unlike the two held by Democrats in 2007—have completely seized control of the political agenda.

As somebody who falls much farther to the free market side than most in my profession, the dogmatic right certainly doesn’t reflect my values in any real way. These are people who are willing to shoot down the nomination of an imminently qualified, brilliant man because he fails to fit their ideology, and I’m tired of it.

I honestly was thinking yesterday during my walk that it might actually better to get rid of the Fed entirely rather than let it become even more politicized. I don’t actually recommend that, but it was a worthy thought experiment for several blocks.

Consider, as well, the embarrassing state of our Supreme Court. Oh, we wouldn’t want those activist judges, now, would we? Giving out civil rights and what all.

I saw a tweet that made me laugh yesterday, from Rick Flora: “The Kardashians’ have now been on the air twice as long as ‘Arrested Development.’ THIS IS WHY YOU CAN’T HAVE NICE THINGS, AMERICA.”

Bingo.

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