How are folks doing in the metals industry since Donald Trump imposed his tariffs on steel and aluminum last year? The answer is: meh. Overall employment is up 1.76 percent since April 2018. Employment in the metals industry dropped last month and is up only 1.22 percent since tariffs started. That’s nothing to write home about.
The “zero lower bound” refers to the fact that interest rates can’t be less than zero. Since interest rates are the Fed’s primary tool for managing the macro economy, this implies that the Fed loses a lot of its leverage when it reduces interest rates to zero and can’t reduce them any further. This happened in 2008 when the Great Recession started:
But is the ZLB really that important? Here is Tyler Cowen:
This is an article of faith in “Twitter economics,” but Scott Sumner, myself, and many others have been insisting for years that the arguments simply are not there and that the zero lower bound is not such a big deal.
I’m not much of a fan of Twitter, but this is needlessly patronizing. I recall quite a few serious economists, including at least one Nobel Prize winner, who sure seemed to think the ZLB mattered a lot. It wasn’t the Twitterverse hoi polloi who invented this idea.
Anyway, Cowen points to a new paper which does indeed suggest that an empirical look at the evidence shows little support for the idea that the ZLB matters much. But is that what it really says? I can’t pretend to follow the math, so I’m going to stick to a few quotes from the English language section of the paper. There’s this:
Given the impossibility of further reductions in the short-term nominal rate—the instrument of monetary policy in normal times—central banks increasingly relied on unconventional monetary policies (UMPs) in their attempt to stimulate the economy. Two prominent examples of unconventional policies adopted by several central banks in recent years are (i) forward guidance (i.e. the attempt to manage ex-pectations on the future path of the policy rate) and (ii) quantitative easing (i.e. central banks’ large asset purchase programs).
Ah yes. When the Fed had already reduced its policy interest rate to zero, they adopted other measures. The most famous is quantitative easing, but they also ramped up forward guidance. I’d add to that the Fed’s decision to start paying interest on excess reserves, the bailouts of the financial system, and the massive fiscal stimulus enacted by Congress in 2009.
So what about all that? It turns out this is the meat of the paper, which examines whether, in fact, the ZLB is irrelevant:
Under the “irrelevance hypothesis” there should not be any significant change in the estimated responses over the binding ZLB period, relative to period before the ZLB was binding. This is indeed what we find….We interpret the previous results as suggesting that UMPs may have been highly effective in steering the long rate as desired during the ZLB period, despite the constant policy rate. We complete our analysis by showing how the previous findings can be reconciled with the predictions of our baseline New Keynesian model when we assume an interest rate rule based on a shadow interest rate. That rule can be interpreted as a simple way of capturing the role of forward guidance or other types of unconventional monetary policies in getting around the constraints imposed by the ZLB.
This is a strange definition of irrelevant. If I’m reading this correctly, the authors say that the economy recovered from the Great Recession about as fast as you’d expect from a shock of that magnitude. What’s more, various macro indicators look about the same in the pre and post-ZLB era. But that’s not because the ZLB is irrelevant. It’s because the Fed and Congress adopted a whole raft of alternative policies to make up for the fact that interest rates could no longer be lowered.
If I’m reading this wrong, I will stand corrected. But it sure looks to me as if the authors are saying the ZLB does matter. In fact, it matters so much that both the Fed and the government were forced to adopt a whole suite of emergency alternatives to make up for the Fed’s inability to lower interest rates another point or three. That sure doesn’t sound irrelevant to me.
And one other thing: if the ZLB is irrelevant, doesn’t that imply that interest rates are irrelevant? The ability of the Fed to set interest rates where it wants is either important or it’s not. If interest rates should be at -2 percent but the Fed has to stop at zero, that should matter as much as if they should be at 2 percent but the Fed keeps them at 4 percent. Why would the ability to lower rates be critically important at positive levels and then suddenly cease to matter when they reach zero? In that sense, the ZLB really is irrelevant. It’s just another number, and it matters as much as any other number. If you can’t lower rates to where you want them, you have to undertake a whole bunch of other alternatives to make up for it. That’s true no matter “where you want them” is.
I’m not going to write yet another long post about the blue slip rule and the way Republicans have abused it for the past couple of decades. I’ve already written “Republicans Eager to Ditch Blue-Slip Tradition.” And then “The Blue-Slip Rule Is On Its Last Legs.” And then “Blue Slips Are Finally Dead.” What more is there to say? We used to have a bipartisan tradition that home-state senators had to approve judicial nominees, but Republicans have chipped away at it for years and then finally broke it completely a few months ago.
Well, how about “Republicans Have Really, Truly, Demolished the Blue Slip Rule”? That’s the shape of things now:
If confirmed this week, Lee will be the fifth judicial nominee ever confirmed over objections from BOTH home-state senators.
This has never happened before 2019: It’s @senatemajldr’s newest way of cramming our courts with biased judges who’ll serve for life. And it’s outrageous. https://t.co/QqzdhELGeE
— Vanita Gupta (@vanitaguptaCR) May 14, 2019
Republicans know they’re likely to lose in 2020. The only chance for conservativism to hold onto any power at all after that is through the judiciary. It’s all they care about right now, and if they have to mow down everything in their path to pack every open judgeship in the country with a hardcore right-winger, then that’s what they’ll do.
And then in 2021 Mitch McConnell will start moaning about how mean and uncooperative Democrats are if they follow his lead and do the exact same thing. Maybe this time, though, nobody will pay him any mind.
Jonathan Chait (at New York) and Michelle Goldberg (at the New York Times) have both come to the same conclusion: don’t trust Twitter. But not quite in the way you think. Here is Chait on the common belief among reporters that the Democratic Party had turned so far left that Joe Biden was hopelessly out of touch with the party’s voters:
The most important ingredient in the delusion was Twitter. It is hard to exaggerate the degree to which the platform shapes the minds of professional political observers. Part of Twitter’s allure to insiders is that it creates a simulacrum of the real world, complete with candidates, activists, and pundits all responding to events in real time….But the ersatz polity of Twitter doesn’t represent the real world. Democrats on Twitter skew young and college educated. A study last month found that the Twitter-using portion of the Democratic electorate harbors far more progressive views on everything than the party’s voting base.
It’s not just that Twitter traffic doesn’t appear to reflect the priorities of the Democratic electorate. Spending too much time on the platform can be actively misleading about the state of the party, as you can see in the polling surge of Joe Biden, a man despised by the online left. Biden has fewer Twitter followers than the first-term congresswoman Alexandria Ocasio-Cortez, and less than half as many as Senator Bernie Sanders….But among Democratic voters, he is leading the field by double digits.
This is the flip side of my rule about Twitter mobs: they don’t reflect the real world unless they’re truly enormous. The effort it takes to write a tweet is minuscule, and the emotional energy bound up in a single tweet is equally minuscule. That’s why I believe that a thousand tweets are worth about one letter to the editor—maybe. In the olden days, no one would think anything serious was going on unless, say, the New York Times received at least a few hundred letters about a topic, and by the same token nobody should believe that a Twitter backlash means anything serious until it gets to the neighborhood of a million tweets.
Likewise, Twitter support for a presidential candidate doesn’t really mean anything until it gets to the level of several million tweets. That’s partly because tweets are so meaningless and partly because, as Chait and Goldberg point out, the Twitterverse doesn’t represent the real world in any meaningful way.
The same thing is true for Facebook and Pinterest and Instagram and other sorts of social media. It takes about a second to like a Facebook post or to retweet something on Twitter. Even a million of them represent only a few hundred hours of collective effort. That’s nothing. It’s less than a single GOTV operation in a small town over the course of a week.
Social media is useful as a way of keeping in touch with certain segments of the population. It’s useful for finding leads. It’s useful for becoming aware of things before they break into the mainstream. But that’s about it. It’s a starting point. Reporters should limit their social media exposure to about ten minutes a day and spend the rest of the time in the real world. That would keep them more firmly rooted to reality, and help the rest of us stay rooted to reality too.
At lunch today I was musing about why Republicans have been so quiet about Donald Trump’s tariffs. After all, tariffs are just taxes, and nearly the entire burden of tariffs is paid by consumers in the form of higher prices. So why aren’t Republicans yelling about this? Why isn’t Grover Norquist threatening to primary anyone who supports higher tariffs? Why are Republicans so amenable to this particular tax increase?
Then I came home and was looking around at some related material and happened to come across this:
Of course! A tariff on yachts or private jets would be progressive, but Trump’s tariffs are on food, steel, aluminum, consumer electronics, and so forth. That means they’re regressive: they hurt the poor more than the rich.
Those are the only taxes Republicans like, which explains why they’re OK with Trump’s trade war. It’s not just a war on China, it’s also a war on America’s poor, and Republicans sure know what side of that war they’re on.
Last week you got pictures of the MLK Memorial, a butterfly, and a flame azalea. But no pictures of the Blue Ridge Parkway itself. What’s going on?
Just this: flowers and butterflies are easy. A little cropping, a little exposure correction, and you’re good to go. Views of the Blue Ridge Mountains are another thing entirely. First, you have to sort through dozens of views to pick out the one or two that truly show off the mountains best. Then you need to composite two frames together. With grand vistas, it’s all but impossible to get a well-exposed picture of both the sky and the foreground at once, so instead you have to take two pictures with different exposures and then merge them together later. It’s not that hard, but it’s better done at home where I’ve got a fast computer with a big screen and plenty of time to muck around.
So I waited until I got home. And now I am. Home, that is. Which means that finally you get a picture of the lovely Blue Ridge Mountains themselves.
We have a new study on whether there’s an association between crime and undocumented immigrants. Today the New York Times reports on the change in crime vs. the change in undocumented immigrants in about a hundred metro areas across the country over the period 2007-2016. In general, of course, crime rates have fallen during that time. But have they fallen more or less in areas with big growth in undocumented immigrants? Here are the results:
The headline here is correct: you certainly can’t say that crime goes up when undocumented immigration increases, but you can’t really say it goes down either. The trendline is basically flat given the quality of the data we have.
This has always made sense. The vast majority of undocumented immigrants come to America to work. The last thing they want is a run-in with the law, even for the most trivial offense. They have far more incentive to avoid criminal behavior than native Americans do.
This study is just a correlation between populations, so it’s inherently not foolproof and it certainly won’t stop the argument about illegal immigration and crime. That said, there are lots of other studies out there that have come to much the same conclusion. None of them are perfect, but put them all together and it’s pretty clear that there’s really nothing here. Undocumented immigrants don’t commit crimes any more than us native Americans do.
The Trump administration has resurrected an oldie but a goodie: changing the way inflation is calculated to determine if someone lives under the poverty level. Instead of using the normal measure, they want to use something called chained CPI, which is—well, the details are tedious and uninteresting. Here’s the meat:
Chained CPI grows about a quarter of a percentage point less than the traditional inflation measure, on average, according to the Congressional Budget Office. The impact would be relatively small initially, but would likely affect millions of low-income Americans over time, said Arloc Sherman, senior director at the Center on Budget and Policy Priorities. Had chained CPI been used over the past five years, the federal poverty level in 2018 would have been $12,113 for a single person, rather than the actual threshold of $12,140, according to Douglas Holtz-Eakin, president of the American Action Forum and former official in both Bush administrations.
So is this a good idea? That’s a surprisingly tricky question. Here are the pros and cons:
Maybe. But then again, Trump is only proposing to change it for poverty thresholds. He’s not proposing to change it for everything. If he did, it might be a change worth considering. Like I said, it’s a bit of a tricky question, mostly because measuring inflation is inherently tricky. For example, Dean Baker highlights a column in the Wall Street Journal today from Andy Kessler, who says that switching to chained CPI is a drop in the bucket:
I’m convinced that all of the common measures overshoot by at least 2 percentage points, and maybe even 5 or more. That’s because of the flaw in the Bureau of Labor Statistics’ hedonic adjustment, which totally misses the way the cost of technology declines over time. As we noted a year ago, “by the time the BLS puts something new in the CPI basket, it’s already cheap, so it misses the massive human-replacement price decline.” Google Lens on a $35 phone, for example, can now translate and read aloud signs in 14 languages. Does the BLS capture the costs that technology saves compared with the services of human translators?
This is fairly ridiculous because this “hedonic adjustment” problem has already been addressed, as Baker points out:
Because its own research has identified this problem, the Bureau of Labor Statistics (BLS) began to accelerate the rate at which new products are introduced into the index. It reconstructs its basket annually and important new products are likely to enter the index after just a few months….Due to changes in methods, there will not be another product like the cell phone that can achieve mass adoption before getting in the CPI.
Still, hedonic adjustment is both real and—yes—tricky. Take cars. Here is the BLS’s measure of inflation in new vehicles:
Can that really be true? Is the price of new vehicles basically half of what it was in 1980 when you account for inflation? Yes and no.
For starters, there’s been less inflation than you probably think. The best comparison isn’t between a single model of car in 1980 and 2018, since car models can change considerably. Instead, you want to look at, say, the cheapest car available in those two years. For example, a base model Datsun B210 cost about $5,000 in 1980, which equates to $15,000 today. That compares to the Nissan Versa, today’s cheapest car, which costs a little over $13,000. So the price of cars really has gone down a bit.
But not by 50 percent. Where is that coming from? Simple: it’s hedonic adjustment. That is, your car today has a ton of stuff that the car of 1980 didn’t. For example:
The BLS is basically making the judgment that if it had been possible to buy a Nissan Versa in 1980, it would have cost about $26,000. Today it’s half that. So you may not be literally paying half of what you did in 1980 for a new car, but you’re getting way more for the same money. However, it’s worth noting that although quality improvements get all the attention, sometimes things get worse. Here’s Baker again:
BLS does make major efforts to measure quality improvements, but it undoubtedly misses some. But it also misses deterioration in quality. Most people would probably say the quality of air travel has deteriorated over the last three decades with smaller seats, more crowded planes, and having long waits in security lines. This deterioration has been largely overlooked in the CPI.
Tricky, isn’t it? Measuring inflation is hard, and there’s no single “right” way to do it. Technically, for example, we might want separate measures for the poor, the elderly, the rich, and maybe even for men vs. women. You’d use the first one for poverty programs, the second for Social Security, the third for tax brackets, etc. It’s likely, however, that the complexity of this would outweigh the small improvements in fairness. It’s probably best to pick one and use it for everything. But which one?
Via Alex Tabarrok, here’s a fascinating little study about whether people are comfortable with experimentation. First, a team of seven (!) researchers made up an experiment where hospital patients are randomly assigned to different groups. In one group, some safety procedures are written on a poster in their hospital room. In the other group, the safety procedures are printed on the back of their doctor’s badge. This experiment was then explained to people. About 15 percent thought the poster was a bad idea, while 10 percent thought the badge was a bad idea. But a whopping 50 percent thought that randomly treating the two groups differently was bad.
Fine. Maybe that had to do with opinions about badge vs. poster. But how about two drugs labeled “Drug A” and “Drug B”? This time, small percentages disapproved of using one drug over the other. But once again, more than half disapproved of randomly giving the drugs to different patients to find out which one worked better.
The researchers say that they replicated this result multiple times, and so have other studies:
We find evidence across 16 studies of 5,873 participants from three populations spanning nine domains—from healthcare to autonomous vehicle design to policies to address global poverty—that people frequently rate field experiments designed to establish comparative effectiveness of two policies as inappropriate even when the policies those experiments compare are widely seen as appropriate. This A/B effect remains robust after a variety of procedures to correct for multiple comparisons, including p curve, Bonferroni correction, and hierarchical linear modeling.
Bonferroni correction! I’m sold.
There are various other parts to the paper designed to test whether people were upset about lack of informed consent, didn’t understand the reason for the experiment, and so forth. But the basic result stands regardless: people just don’t like the idea of being experimented on. Someday all these people are going to find out that the drug industry routinely experiments on them not by handing out two different drugs, but by withholding a promising drug entirely from a study group. Boy are they going to be pissed then. Maybe Donald Trump should tweet about this. Can he make the entire Republican Party the party of opposition to scientific testing of new drugs? I wouldn’t put money against it, unfortunately.
From the Washington Post:
This story has all the usual markers of internet reporting idiocy. It’s got the overwrought headline. It’s got the faux outrage from a tiny number of tweeters. It’s got the ending quote from an academic:
Alicia Jessop, a sports law professor at Pepperdine University, said IHOP’s Mother’s Day tweet, and the blowback it received, should serve as a lesson for companies on what not to do the next time they want to pay respect to mothers on their big day. “This Mother’s Day is a case study in social media strategy,” Jessop said.
Yesterday the Post ran a similar story about two (2) Republican members of Congress criticizing Rep. Rashida Tlaib for completely made-up reasons—which the article acknowledges. Then why write it? Why even give it the publicity? Is invented outrage from two (2) idiots in Congress really enough to justify the headline “House Republicans criticize Rep. Tlaib over remarks on Holocaust, Israel”? Or to justify writing anything at all?
Stop it. Just stop it. We don’t have to give endless publicity to cranks and idiots—or PR stunts—just because it’s a slow news day and social media stories are easy to write. These aren’t real controversies and the Post knows it.
Award-winning photojournalism.
Stunning video. Fearless conversations.
