IamA Economist Brad DeLong AMA!

Brad,

Hello from r/badeconomics. Let's talk about rhetoric for a minute. We get trapped in conversations about a strong dollar versus a week dollar, and of course that language manners because on its face to a non-economist you want to be strong!

What can economists be doing to better communicate our work and our findings outside our small research circles?

Lastly, given the high likelihood of a trade war with (a) China (b) Mexico, what's your updated bayesian probability of a recession now?

Never say "strong dollar policy": say "overly strong dollar policy" instead, for one thing...

Perhaps we can go on Reddit more often, and more frequently?

I do think we need to do something to clean our own house: we know an awful lot about both microeconomic and macroeconomic market failures, about government failures, and about when to try to treat them and when to leave them alone because the cure will probably be worse than the disease.

Something like the Chicago Business School's economic panel that it polls periodically can be very useful. But this requires economists who keep up with the literatures, and are willing to say "the literature says that..." rather than "I think..." That's very hard to get...

Hi Brad,

If you were the Treasury Secretary would you rather fight one Okun gap sized Harshberger triangle, or a hundred Harshberger triangle sized Okun gaps?

As Larry Summers says, all Harberger triangles are small. All Okun gaps are large. Thus I would rather fight the first...

It seems to me like policy-making is less evidence-based than ever. As a young student, is there any benefit in me doing technical work / advanced degrees in economics, if what happens in the 'real world' is simply driven by who shouts (or tweets!) the loudest?

Well, good knowledge of economics will certainly help you predict where asset prices are going! If you read the Financial Times, you see both Larry Summers and Barry Eichengreen making the argument--the very strong argument--that Trump's policies are highly likely to produce a more valuable dollar.

But you don't sound like you want to go into currency trading.

I think it's very important to figure out what's really going on in order to figure out what is worth fighting for. Fighting for worthwhile things is useful. Fighting for worthless things is not. But rational argument, I must confess, weighs only as heavily as a feather when in the balance with financial interest and with prejudice...

True, this election has been incredibly depressing for someone who before thought a PhD would be cool/impactful.

Yep. A Ph.D. is still cool. There is something to be said for knowing just why things are going to hell in a handbasket...

Thanks for doing this AMA. Why do you think that on issues like trade, where there's a fairly overwhelming consensus among economists, the message doesn't seem to get through to the public? What can economists do to better communicate the economic issues that affect how people vote? Do you think economists lack credibility as a result of the financial crisis and other perceived failures of prediction, and if so, how can they get that credibility back?

I do think economists lost a lot of credibility because of the financial crisis. Overwhelmingly, those of us who saw that the housing market was very overvalued did not believe that the end of the housing bubble would cause big problems--after all, the crash of the dot-com bubble in 2000 hadn't caused big problems for the economy as a whole. That was, in retrospect, a major analytical error on our part.

I think the profession--at least the part of the profession that analyzed business cycles--lost its way in the 1980s and 1990s and succumbed to intellectual fashions that caused economists to forget a great deal of what earlier economists like Charlie Kindlberger in the second half of the twentieth century, Hyman Minsky somewhat earlier, and Walter Bagehot in the 19th century had known about financial crises...

What was the best advice you received as a grad student?

Or, more generally, do you have any advice for current (Econ) grad students?

Focus on things that matter for the real world. And always work on exactly what seems to you to be the most interesting problem on your agenda. Getting started writing things is very difficult. And you will get over the hump only if you are thinking about and writing about something you find fascinating. Thus I think "you should write about this! It's a hot topic!" is ultimately likely to be bad advice...

Find friendly rather than famous advisors. Best is to find friendly advisors and peers who then become famous...

What's the ballpark impact of a 20% tariff on Mexican imports?

My ballpark estimate is that I should call Sherman Robinson at the PIIE and ask him for his ballpark estimate. It will be highly informed. Mine is not so highly informed. Call mine a guess rather than an estimate...

A $50 billion fall in annual imports from and a $50 billion fall in annual exports to Mexico. Disruption of $400 billion of value chains--figure 2% of the economy. 2.8 million workers would either have to find new jobs or get lucky with their employers finding new people to sell to. A 1%-point spike in the unemployment rate while the "adjustment" takes place--a striking contrast to the implementation of NAFTA, which was planned, expected, went smoothly, and saw a smoothly falling U.S. unemployment rate...

Woah. I've read your blog for years. I have a degree in econ that I don't really use, but all things econ still fascinate me. Very cool that you're doing an AMA!

To what extent is automation the real story behind the decline of U.S. Manufacturing jobs? I saw a stat the other day that said that $ value of goods produced in U.S. is way up since 20 years ago but the sector employs fewer workers.

If I can squeeze in one more question, how much longer will the USD remain the worlds reserve currency?

20 years ago I would have said that the dollar still had 75 years to run as the world's reserve currency. Now I would say we have 25 years to run--20 if Trump gets reelected. The relative economic decline of the U.S. is taking place much faster than I would have imagined possible...

The way I see it, back in 1950 we had 30% of the nonfarm workforce in manufacturing. Now we have 8.6%. 18%-points of that decline, from 30% down to 12%, is due to "automation": us getting much more productive at making manufactured goods in a world in which most of us want only one and not two or three refrigerators. Another 3%-points, from 12% to 9%, is due to policy mistakes--inappropriate tax cuts for the rich that diminish the nation's saving through budget deficits at the wrong time and for the wrong reason, and an inappropriate overly-strong dollar policy pushed well past its proper sell-by date. From 9% to 8.7%? Because of our assisting the extraordinarily rapid industrialization of China through PNTR and its joining the WTO. From 8.7% to 8.6%? Because of NAFTA.

The problem right now is that all of that 21.4%-points are being blamed on the brown people from Mexico who are not "responsible" in any sense for 21.3%-points of it. That's not right...

Thanks so much for doing this!

1. With the rise of large passive investors, do you think noise trading is a bigger or smaller part of our financial markets today?
2. What's your favorite Dumas novel?

1. a smaller. Every person buying a Vanguard index fund is one fewer person to be misled by Jim Cramer or Ron Paul...

2. It has to be The Three Musketeers, doesn't it? Although the Count of Monte Cristo is quite fine as well... And then I have always been a fan of the BBC series "The First Churchills", which opens with the death of d'Artagnan....

How would you communicate that Trump's ideas don't work to the average auto worker in Alabama?

The average auto worker in Alabama is part of a global supply chain. Keeping the cars they make competitively priced with cars made by the Japanese- and by the European-based supply chains is much easier with Mexico there to produce a number of components that require the most relatively-unskilled labor to make. Cutting off imports from Mexico will raise the price of Alabama-assembled cars--and so Toyota, BMW, and GM will increase assembly in Japan and Europe and cut back assembly in the U.S. The world will do the job...

Recent events have shown just how much the economic profession has failed to transmit its findings to the general population. Do you think it is possible to educate the public? Or do you take the pessimistic view that they have no incentives for it and will largely remain rationally ignorant?

If you do think this is possible, as a teacher, what steps forward do you think would be most effective?

That is a very good and a very hard problem--how to create and maintain a functional public sphere to assist in making governance good. Plato and Aristotle thought it was impossible in a democracy: that you had to have a very narrow circle of people who counted who would then have both the leisure time to study the issues and incentives not to remain rationally ignorant. But the problem is that aristocracies turn into oligarchies--rule not by "the best" but by the greedy who seek to maintain their position.

James Madison and Alexander Hamilton thought that they had found a way to escape that trap. And it seemed to work very well for a while...

Voters who believe that there are such things as facts, who rank candidates by how open they are to evidence, and who are willing to choose and vote for competent candidates who share their values--that is I think a realistic goal. And we got there, with Obama and Clinton, for a while...

Brad,

I recall (but can not find) a blog post where you discussed why you worked in Democratic politics - that, at the margin you could do the most good by improving Democratic policies (specifically by teaching the lessons of Hayek and Friedman, moving (to some extent) towards free trade and (to some extent) away from regulations and price fixing.

I am concerned by the utter rout of any commitment to evidence based policy making in the Republican Party, and the weakening of existing commitments in the Democratic Party. Where do you think that economists can do the most good in the next decade?

Oh, we Democrats are still evidence-based. The bashing of Bernie last spring when we thought he was getting a little too eager to embrace Rosy Scenario seems to me to demonstrate that...

I don't know if you can identify as a Republican and be a real economist for the next decade or so. I wish I had better advice to offer them...

When you were in graduate school, what helped you smooth the transition from being a consumer of knowledge to a producer of knowledge?

"What helped you smooth the transition from being a consumer of knowledge to a producer of knowledge?"

Fear of Larry Summers. And the example of Larry Summers. The idea of having to go to my scheduled appointments with him and have him say, at the end "So we're still in nowheresville, right?" was a powerful motivator. And watching him formulate, look for evidence to assess the fruitfulness of, and then figure out a way to test an idea was extremely enlightening...

Back in the 80s when I was first introduced to the concept of economics I read Michael Porter's The Competitive Advantage of Nations. One of my takeaways from that was in a set of charts he used, particularly one labeled "Net National Investment (Gross fixed capital investment - Consumption of fixed capital as a percentage of GDP) with the footnote that in the US in the 1980s it is near zero to negative if housing stocks is not included. I also have a book by Benjamin M Friedman who makes the same point about the decline of business investment.

So my question, what has this looked like over the past decade, and what kind of policies do you think would be best to raise the national net new business investment rate?

investment in the late 1990s was quite healthy, no? And investment in the 2000s was healthy in terms of its total magnitude, it's just that the collapse of financial regulatory oversight meant that the market sent signals that the kind of investment that was really valuable was building 5-bedroom houses with swimming pools in the desert between Los Angeles and Albuquerque...

So I think investment is depressed now because the economy is weak, and is expected to remain weak for quite a while to come. Profits are high--the weak economy has really pushed down wages a lot. Thus stocks are high. But people think that because the economy will be weak the extra profits to be gained from ramping up investment are small...

Hence, IMHO, it's time for the government to ramp up its investment...

Hello Brad

Given the conclusions of Autor Dorn Hansen, what do you think we can do for these unemployed workers?

I personally worry relocation could have unexpected results. Namely, moving people out of manufacturing regions away from their family could have adverse consequences (more expensive child care etc.). I also worry that job training might not work?

Do you have any solutions? Are there any tweaks you'd like to see to TAA (trade adjustment assistance)?

Full employment is the best labor adjustment policy. I think that there are compelling reasons for the Federal Reserve to adopt a 4%/year inflation target and keep pushing until we get there. It's the way to get ready to fight the next depression when it comes. And if we were doing that our unemployment, underemployment, and out-of-the-labor-force problems would be so much smaller...

What would you say is the single biggest economic policy mistake made by each of the Clinton, Bush II, and Obama administrations? Have your views on that changed over time? (I.e. if I had asked you in 2006 what the biggest mistakes of Clinton and Bush were, would you give different answers, do you now think that some things you initially thought were bad are actually not so bad, or vice versa?)

Obama: Failing to make sufficient deficit spending to guarantee a strong and rapid recovery its highest priority.

Bush: Gee. There were so many. Deciding to cut the "red tape" involved in checking to see whether securitized mortgage products were fraudulent has to be the biggest, however.

Clinton: The mistakes were very small. The Clinton administration stacked its agenda this way: deficit reduction--NAFTA--health care reform--welfare reform. It would have been better to stack it: deficit reduction--NAFTA--welfare reform--health care reform. Then we could have gotten a welfare reform bill that was not punitive, did not increase deep poverty, and actually did some good...

On a scale of one to Ed Prescott, how bad is Trump's economic team?

Is there a Trump economic team?

What kind of changes do you think would be needed to remove the "stigma" associated with macroeconomics among professional economists? I know that my micro professors, and most of my fellow grad students (the ones who aren't doing macro, at least) take a highly skeptical view of pretty much the entire field - something I share, to be honest.

Why do you think this is, do you think it's a problem, and if so, what needs to change to solve it?

Fewer macro- and macro-finance economists saying stupid things would help. John Taylor and John Cochrane saying that Ben Bernanke's policies carried a strong risk of high inflation and currency debasement did not help. Robert Lucas saying that the short-run marginal propensity to consume out of wealth was not 4% but 100% did not help. Ed Prescott saying anything about the economy or about economic policy does not help. Chari, Christiano, and Kehoe saying in October 2008 that there was no disruption to financial markets really did not help.

Thanks for doing this AMA!

I have some questions, maybe unsurprisingly, on trade.

I understand the general logic of comparative advantage and am aware of the general consensus that free trade is good and tariffs are bad. That being said, I feel like a lot of the "new" trade deals, e.g. TTP TTIP and CETA, are less about tariffs and more about harmonization of regulations.

Do you feel that basic economic logic still applies, or does opposition to these deals might have a point, albeit one not based on economic considerations alone? For instance, a lot of the opposition towards TTIP in Germany seems to be the resistance towards the American style of consumer protection. As I understand it (and very very simplified), the burden of proof lies with the consumer in the US and with the firm in the EU. It seems entirely reasonable that harmonization of these two things might not be desirable to people and this can be reasonably put above welfare gains by way of liberalization. Do you think these arguments have merit, and if not, why not?

Harmonization is good. I think that the U.S. tends toward harmonizations that are a little too much "race to the bottom" and tend toward underregulation. Therefore requiring the U.S. to harmonize with Europe--where the bias, if there is a bias, is definitely not in that direction--is surely good.

Setting particular rules in the stone of treaties that are then nearly unamendable, however, strikes me as a mistake.

I think that WTO should be in charge of getting the regulatory harmonization balance right...

Hey Brad,

Long time reader of your blog, and really appreciate the effort that you and other academic economists put forward communicating economics to the general public. It is what inspired me to get an economics degree in the first place. Due to recent political developments and the rhetoric on regulation, I have been wondering if there has been good work done on the aggregate effects of regulation on American businesses. I know many are industry specific, but are regulations in general as detrimental to business as many on the right claim? I have heard many complaints recently about OSHA and the ADA more specifically. Keep up the good work!

the parts of regulation that seem, to me at least, to have big negative effects are:

• land-use NIMBYism
• excessive occupational licensing

I think a campaign against those would probably do a lot of good. I've never seen the case for cutting back further on OSHA enforcement. And it's unclear to me why people object to the ADA...

With hindsight, what do you think the optimal macroeconomic policy should have been over the past 40 years, as opposed to the strong dollar policy you cite? What industrial policy, if any, would have been appropriate? You mention the budget deficit and managing the dollar, but don't go into much prescriptive detail.

Germany is a good guide: run budget surpluses to boost national savings, keep your currency at an appropriate value so that an overly-strong dollar does not send market signals to highly productive factories that they should shut down, invest heavily in training, more of a focus on engineering education, don't imagine that finance--or private health insurance companies--are the industries of the future that should grow rapidly. Germany has done a good job in keeping its working class from getting the shaft in an age in which that is depressingly common...

What do you think are the prospects for China's "socialist market economy" over the next few decades? Do you expect China's economic growth to recover substantially? Increased market liberalisation?

My problem is that I have--since 1975--been confident that China's growth model has at most ten years more to run. The fact that property rights are insecure, and that their protection depends on the owners' having allies in the party and in the right fraction of the party, has made me confident that Chinese growth can be sustained for years but not generations.

But it has now lasted not for less than ten years but for more than forty.

Clearly my Visualization of the Cosmic All is seriously in error. I must have been corrupted by Eddorians. I must return to Arisia for thorough treatment and readjustment. I will answer your question when I return...

What were you most wrong about, in your opinion? What should you have done differently to avoid having been wrong?

My belief in 2007 that the situation was unpleasant but not serious, because central banks had the tools, the skill, and the political will to stabilize economies at high levels of employment and low levels of inflation no matter what shocks the financial system threw at them. I did not understand how little central banks had internalized their Bagehot, Minsky, Kindleberger, and how easily they could be buffaloed by yahoos crying "moral hazard!" Hence Lehman...

What do you like most about what you do?

That every day I learn something interesting or teach somebody something important--usually both. That and living the outdoor life in California...

You mentioned in an earlier answer your thoughts regarding the loss of credibility among economists.

To press on that, what do you think of the criticism that, real or perceived, that on some level academic economics has been corrupted in ways similar to what happened with scientists and the tobacco industry? I.e. high paying consulting jobs, speaking fees for private institutions, commissioned studies, positions within BoD's has had a corrupting effect on academic economics and, on the flip side, effects their roles within politics when academic economists take on policymaking positions.

(Apologies for the choppy post. I'm posting from my phone)

There's always the problem that money talks, and that people will chase money. We try to make fun of economists who chase it too far and sacrifice their intellectual integrity.

I think we Democratic economists do a good job: we gain points within our community when we bash our own politicians...

I think Republican economists have a much harder time and face a much more difficult dilemma...

You spent time at UMKC. Is their brand MMT compatible with your understanding of economics? How so or how not?

MMT is Abba Lerner's "functional finance", updated. It believes in the efficient market hypothesis a little more than I do--that the bond market cannot get itself wedged in an unsustainable position that will produce a crash without inflation showing up first. But it's a creditable position, and it may well be correct. Certainly it was much closer to being correct than the doctrines of Chicago-school macro over the past decade...

Wow, thanks. What do you think stops them from taking your position?

I've never been able to convince them that their argument rests heavily on the truth of the EMH in the bond market. But I really think it does...

What is your opinion on getting companies like Apple or Facebook to be accountable for paying what they rightfully owe in taxes to the U.S. government?

We need to fix our corporate tax system so that it is not so easily gamed. That means that we need to make it a lot simpler--and a lot more dependent on things that can be directly observed. But that means that voters need to be willing to penalize representatives who create loopholes by not voting for them in the future. And we are doing very badly at that...

Electronics manufacturing seems to have mostly moved away from Silicon Valley to parts of Asia. Was it inevitable that SV would lose that production, or could it have been prevented (at some cost)?

My daughter says "hi!"

Are you on the far side of the Pacific yet?

I am fascinated by the fact that only the U.S., then Japan, then South Korea and Taiwan, then south China and Malaysia have been able to do state-of-the-art high-quality competitive-cost electronics production on a global scale. Arguments that the move out of high cost areas were inevitable have to deal with the fact that production went to a few and only a few places--and answer the question of what was the local community of engineering practice that allowed this to happen...

I have another question!

Milton Friedman spoke about negative income taxes, do you think it could work in the existing system in the US and should it be done overall? Thanks!

Yes--but now it's called UBI, Universal Basic Income, not NIT...

Do you believe that Bitcoin (and the underlying blockchain technology) has the ability to shift global economic policy? If so, in which area(s) would you foresee the most significant changes occurring?

Blockchain is a wonderful technology. BitCoin is a really lousy asset. BitCoin could become a great asset if some very large player would take it over and start using it, however. Follow Izabella Kaminska for a reality-based take on BitCoin...

The stock market? Larry Summers says "sugar high". I think confidence that wages won't bounce back--with Obama out, no chance of nationwide minimum wage increases or moves to significantly strengthen worker bargaining power. But we don't really know what Ms. Market is thinking...

Why is it that economists don't understand that non-white collar jobs is what keeps this country afloat? The better non-white collar jobs pay, the more disposable income gets spread around, which means more money to buy things and also more money in taxes.

By all accounts the Eisenhower years where the most prosperous for the vast majority of Americans, why aren't we going back to that system of taxation?

I think that the reason that we do not have Eisenhower-style taxes is because the Republicans believe that they are counterproductive and destructive. We had Eisenhower-style taxes up until 1980, and then Reagan and his team made an argument that the economy would grow much faster with a less progressive tax system--a system that made the not-rich pay more and allowed the rich to pay less. They convinced the voters and passed their tax bills. Yet the faster growth that was promised has never appeared...

Clinton shifted the tax system about 1/3 of the way from Reagan back toward Eisenhower. Bush 43 undid that. Obama shifted the tax system about 1/4 of the way from Reagan back toward Eisenhower. And now Trump is about to undo that...

With respect to "the better non-white collar jobs pay, the more disposable income gets spread around, which means more money to buy things and also more money in taxes", a good many economists do understand that. Last January 7, for example, I found myself summarizing a line of work and argument that suggests that that lack of income for non-white collar workers was the most important cause of our long-run "secular stagnation" problem. See http://equitablegrowth.org/equitablog/three-four-many-secular-stagnations/

Hello Brad, I don't know much about economics but I'd like to l earn. There's talk that China's debt levels are too high relative to their GDP growth. China's shown that they're willing to inject cash into the system should it shows signs of failure, couldn't they just continue to do so? Is it realistic that China's economy could collapse from high debt levels given that their central bank is willing to provide continual bail outs? Thanks!

The risk is that the bailouts would produce very high inflation. I cannot evaluate how great that risk is--the Chinese economy is one of the places where I find myself least knowledgeable and most at sea.

If you want me to tell you why the self-strengthening movement of the late Qing failed, I can take a stab at it. Forecasting Chinese macro today, no...

How do you feel about non-researching instructors getting tenure in the UC system?

definitely positive...

but "non-researching" is the wrong word. Everybody should teach. Everybody should discover things and communicate them. We need a diversified portfolio, both in terms of topics researched and in terms of effort spent on teaching as opposed to research...

How much do you attribute increasing income disparities to the decline of unions? The republican party has been attacking unions for 50 years, so it is hard to disentangle, and changes occur pretty much simultaneously with international trade, but do you think that increasing union membership/bargaining power could reverse some of the decline in the wealth share of the working/lower class in the US?

(This is cheating. I asked you this a few years ago in person. I now get to see if you answer in a similar way...)

Is the decline of unions a reflection of the fact that workers have lost bargaining power, and so even if we had many more workers in unions they would act like "company unions"? Or was the breaking of unions a major step in the reduction of workers' bargaining power? I would say that we don't know whether things like, say, card check for unionization or much steeper fines for anti-union actions would do much to affect the wage distribution. We are, however, highly confident that raising the minimum wage from its current level would do a lot of good, with little harm*

*As long as you could make exceptions for the most depressed parts of the country...

You often refer to Communities of Engineering Practice (and Excellence), but I feel I've never gotten a history or formal definition (feel free to say it's in your book). Where does this idea of being technically competent and innovative come from, and what policy ideas should it make me think of? More university spending? Thank you for the addictive blog! Nathan Lazarus

May I direct you to:

• My friends Steve Cohen and John Zysman's book "Manufacturing Matters"
• The World Bank Report "The East Asian miracle : economic growth and public policy"
• The MIT Commission on Industrial Productivity's Report: "Made in America: Regaining the Productive Edge"

?

But I think it is an area that requires much more thought. As I said elsewhere, the consensus seems to be that Germany has done a good job at this...

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Hello sir,

Do you think the Fed will go for a more expansionary monetary policy or simply waiting the storm out?

They seem to think that they win the game if they delay the next recession as long as possible. And they think that a more expansionary monetary policy might hasten the coming of the next recession. So they are not going to do it.

They are, I think, missing the fact that they would be much better placed to deal with the next recession when it comes in the future if they adopted a more expansionary monetary policy now...

Thanks for doing this AMA!

Are there any plans to overhaul the blog interface?

at the moment I have a retro blog interface because in this day and age a blog is a retro thing. What do you think it should be changed to look like?

Hey Brad! Just started reading your blog. I'll have to add it to my list! Curious about how you feel on Mulvaney becoming director of OMB.

I suppose we can expect deep budget cuts (more than I'm comfortable to be honest) and a deep routing of entitlements. Do you feel that's the right way to go about addressing the deficit?

Unclear: Trump has said that there will be no cuts to Social Security or to Medicare. Blue state senators have said there will be no cuts to Medicaid. It's a circus...

Which are the best empirical analysis of gravitational trade models you would recommend? (I'm from the UK, where the whole concept is completely missing from the political discourse)

ps. I'm a huge fan and really enjoyed you're recent Vox article (and the extended version you made available too).

email me at [email protected] and I will dig out the reading list when I manage to grab one of the trade economists in the suite next door...

What is it about the German-speaking peoples that allowed them to develop so many communities of engineering practice?

They have long had a huge focus on practical and technical education. Centuries long. Centuries old. But I would not claim I understand it...

While I'm a bit put off by your "bash Trump" comment, I would like to ask two questions.

1. Do you think the private market will solve the excessive executive pay problem?

2. If they don't, what do you see that needs to be done?

The private market ought to have solved the excessive executive pay problem long ago. It is, after all, shareholders' money that they are taking home. The fact that the private market has not solved it is remarkable.

Emmanuel Saez down the hall points out that in the non-English speaking parts of Europe the problem is much smaller and has grown much more slowly, and thinks that higher tax rates on the highest incomes would do a lot of good to cure it. I think he has thought about it more deeply than I have and is smarter, and so is probably right here...