Law #1: People will get jobs doing things that computers can’t do.
...while standard economic models assume that pay reflects productivity, ...top earners might be able to partly set their own pay by bargaining harder or influencing compensation committees. Naturally, the incentives for such ‘rent-seeking’ are much stronger when top tax rates are low.... increases in top 1% incomes now come at the expense of the remaining 99%.Of course, raising income taxes on the rich might lead to more income being diverted into stock options and capital gains, but would that be a bad thing? Wouldn't that increase total investment and strengthen incentives for managers?
...there is no correlation between cuts in top tax rates and average annual real GDP-per-capita growth since the 1970s.
did not succeed by changing people’s expectations of inflation. It succeeded by crushing demand. As unemployment moved up the Phillips Curve, inflation plummeted. Only then did inflation expectations stabilize at a lower level.... The lesson of the Volcker disinflation is that changing expectations depends crucially on delivering on the target. Naming an inflation or money supply target is helpful, but insufficient unless the central bank demonstrates it is willing and able to achieve it.That statement reminded me of this post from Worthwhile Canadian Initiative:
Thesis. We teach the monetary policy transmission mechanism like this: the central bank pulls a lever, and that lever pulls other levers, which eventually move the target variable in the direction the central bank wants to move.Basically, in order for Chuck Norris to impact behavior, people have to think he'll kick their ass. The central bank (Fed) has to convince people that it's going to do what it says it intends to do when circumstances dictate. In other words, every now and then, Ben has to kick some ass. If you want higher NGDP, you can't make it happen by standing in the room looking tough. You have to actually break a few skulls.
Antithesis. That's wrong. A credible central bank is exactly like Chuck Norris. It looks at the thing it wants to move, and the thing moves, and all the other levers fall into place where they should be. Causation runs backwards from the target variable. Credible central banks don't actually do anything. They just threaten to do things. But a credible central bank never needs to carry out its threats.
Synthesis. That's not quite right either.
1. Even Chuck Norris can't make the impossible happen. A credible central bank can move the economy just by saying that it wants the economy to move. But it must be a new equilibrium that it moves to. And maybe that new equilibrium won't be an equilibrium unless the central bank moves its lever. Chuck Norris can't clear the room if he is standing in the only doorway. He has to step aside to let people exit, even if he doesn't need to throw anyone out.
2. Chuck Norris wasn't always Chuck Norris. He had to earn his reputation. In the early days, or in unfamiliar territory, he actually had to carry out his threats. Till people learned the new regime.
Do Workers' Remittances Promote Economic Growth? (Barajas, et al., 2009)
Eight Questions about Brian Drain (Gibson & McKenzie, 2011)
A Gravity Model of Workers' Remittances (Lueth and Ruiz-Arranz, 2006)
Business Cycles and Workers' Remittances (Sayan, 2006)
Seminar on Remittance Statistics (International Monetary Fund, 2007)
Determinants and Consequences of Workers' Remittances (Vargas-Silva, 2006)
Early efforts to reform the financial system were limited to the First and Second Banks of the UnitedSo, you might say, we should just put central banking under direct control of the government. How wonderful and democratic that would be! Do that, and I can almost guarantee higher rates of inflation as Congress has the incentive to use the money supply to "monetize" its deficits and debt.
States (1791-1811 and 1816-36, respectively). Both institutions were short-lived because of public misgivings
about concentrated economic power. A period of laissez-faire (or free-market) banking followed, rife with
flawed banking practices and instability. In 1863 and 1865, Congress enacted the National Banking Acts
to stabilize the financial system. Without a central bank, however, problems remained—financial crises and
banks failures continued to be frequent and severe. Two characteristics of the National Banking System (NBS),
created by the 1863 Act, exacerbated this volatility: (i) immobile bank reserves in a system lacking a lender
of last resort and (ii) an inflexible supply of currency. [Emphasis added.]
[In response to the Lucas Critique] Sargent’s (1973, 1976) early work showed how models incorporating rational expectations could be tested empirically. In many of these early models, Sargent showed that including rational expectations in a model could lead to invariance results, nominal shocks caused by changes in the money supply, for example, wouldn’t matter.I was never comfortable with the simple RE approach (and hated being forced to study it in grad school), which is why I'm glad AT mentions some of Sargents more recent work:
What will people do when they don’t know the true model of the economy? How will they update their model of the economy based on observations? In these learning models the goal is to look for a self-confirming equilibrium. The interesting thing about a self-confirming equilibrium is that people’s expectations and learning can converge on a false model of the economy!On Sims:
In response [to the Lucas Critique], he developed vector auto regressions. In its simplest form a VAR is just a regression of a variable on its past values and the past values of other related variables. It’s easy to run a VAR on unemployment, inflation and output, for example.... Sims, however, took the models a step further by showing that you could identify fundamental shocks in these models by making assumptions about the dynamics or ordering of the shocks. ... With identification in hand one can then use these models to plot impulse response functions. How does a shock to oil prices work its way through the economy? When does GDP begin to fall and by how much? How long does it take the economy to recover? What about a shock to monetary policy? Sims (1992), for example, looks at monetary shocks in five modern economies.
...recent data show diaper sales are slowing and sales of diaper-rash ointment are rising.Does Republican tax profligacy in the short run signal support for higher taxes in the long run (or worse - that they care more about their own electability than about the public)? The conservative Tyler Cowen says yes.
candidates are more worried about having to publicly endorse tax increases than they are about the tax increases themselves. If that’s true, it is all the more reason to watch out for our pocketbooks; it means that the candidates are protecting themselves rather than the taxpayersCowen dislikes the Keynesian IS-LM model; DeLong does. Big surprise. My two cents: It's easy to toss peanuts and point out flaws in economic models because every model has flaws - flaws that are well-known even to the people who come up with them. They have flaws precisely because they are models: they are abstractions from the real world. Like George E. P. Box said, "All models are false, but some are useful."
Does regime type affect development or does development affect regime type? I'm more in the latter camp. Democratizations that preceded the development of economic institutions and economic development in Eastern Europe since 1990 have been fragile.
Today, it costs just $16,000; in a few years, it will cost less than $1,000–a 100,000-factor decrease in costs in less than two decades!The FDA and Personalized Medicine
From Modeled Behavior:
In some cases people suspect that the Central Bank will vacuum up
every single dollar it dropped. In those cases, the dropping doesn’t
make anyone happier because they are just going to get hurt again by the
exact same amount.This is a liquidity trap.
Hence, monetary policy won't work much, but fiscal policy has been limited by politics (in fact there has been no net fiscal policy - see here), so what can Ben do but try crazy things like the twist?
