Baker on DeLong

Question for Brad DeLong and the Debt School of the Downturn: What Would Our Saving Rate Be If We Didn't Have Debt? by Dean Baker

Brad DeLong tells us that he is moving away from the cult of the financial crisis (the weakness of the economy in 2014 is somehow due to Lehman having collapsed in 2008 -- economists can believe lots of mystical claims about the world) and to the debt theory of the downturn. Being a big fan of simplicity and a foe of unnecessary complexity in economics, I have always thought that the story was the lost of housing wealth pure and simple. (And yes folks, this was foreseeable before the collapse. Your favorite economists just didn't want to look.)

Just to be clear on the distinction, the loss of wealth story says it really would not have mattered much if everyone's housing wealth went from $100k to zero, as opposed to going from plus $50k to minus $50k. The really story was that people lost $100k in housing wealth (roughly the average loss per house), not that they ended up in debt. Just to be clear, the wealth effect almost certainly differs across individuals. Bill Gates would never even know if his house rises or falls in value by $100k. On the other hand, for folks whose only asset is their home, a $100k loss of wealth is a really big deal.

The debt story never made much sense to me for two reasons. First, the housing wealth effect story fit the basic picture very well. Are we supposed to believe that the housing wealth effect that we all grew up to love stopped working in the bubble years? The data showed the predicted consumption boom during the bubble years, followed by a fallback to more normal levels when the bubble burst. 

The other reason is that the debt story would imply truly heroic levels of consumption by the indebted homeowners in the counter-factual. Currently just over 9 million families are seriously underwater (more than 25 percent negative equity), down from a peak of just under 13 million in 2012. Let's assume that if we include the marginally underwater homeowners we double these numbers to 18 million and 26 million.

How much more money do we think these people would be spending each year, if we just snapped our fingers and made their debt zero? (Each is emphasized, because the issue is not if some people buy a car in a given year, the point is they would have buy a car every year.) An increase of $5,000 a year would be quite large, given that the median income of homeowners is around $70,000. In this case, we would see an additional $90 billion in consumption this year and would have seen an additional $130 billion in consumption in 2012.

Would this have gotten us out of the downturn? It wouldn't where I do my arithmetic. For example, compare it to a $500 billion trade deficit than no one talks about. Furthermore, the finger snapping also would have a wealth effect. In 2012 we would have added roughly $1 trillion in wealth to these homeowners by eliminating their negative equity. Assuming a housing wealth effect of 5 to 7 cents on the dollar, that would imply additional consumption of between $50 billion to $70 billion a year, eliminating close to half of the debt story. So how is the downturn a debt story? (You're welcome to put in a higher average boost to consumption for formerly negative equity households, but you have to do it with a straight face.)

Finally, getting to the question in my headline, the current saving rate out of disposable income is 5 percent. This is lower than we ever saw until the stock wealth effect in the late 1990s pushed it down to 4.4 percent in 1999, it hit 4.2 percent in 2000. The saving rate rose again following the collapse of the stock bubble, but then fell to 3.0 percent in 2007. The question then for our debt fans is what they think the saving rate would be absent another bubble, if we eliminated all the negative equity.

Baker and Krugman on QE

Krugman on Quantitative Easing and Inequality by Dean Baker

Housing and Fed Fail

Baker would agree investment is as expected - pace Yglesias, but would disagree about housing.

Over at Equitable Growth: Is There Really a Profits-Investment Disconnect?: (Late) Friday Focus for October 24, 2014 by DeLong

As a result of the housing bubble, the mortgage frauds, the attempts at regulatory arbitrage on their balance sheets by the money-center universal banks, the financial crisis, et sequelae, U.S. real GDP today is now 12% below what we back in 2007 expected it to be now. Since the post financial-crisis trough U.S. real economic growth has proceeded at 2.24%/year, compared to the 3.00%/year growth rate we saw between 1990 and 2007.

So far there are no signs anywhere that the gap between today and the pre-2007 trend in levels will be made up. So far there are no signs anywhere that the gap between today and the pre-2007 trend in growth rates will be made up. 

That means that, come 2024 a decade hence, we can now expect a U.S. economy to be 19.5% smaller than the economy we confidently projected as of 2007 we would have. 

And, with a capital-output ratio of roughly 3, that means that between 2007 and 2024 cumulative net investment will be lower than projected back in 2007 by 58.5%-point years of GDP--and cumulative gross investment considerably lower.

Yellen, the Fed, K21 and inequality

Perspectives on Inequality and Opportunity from the Survey of Consumer Finances by Chair Janet L. Yellen

Chair Yellen Holds Forth on the Inequality of Opportunity by Jared Bernstein

What Janet Yellen Said, and Didn’t Say, About Inequality by Neil Irwin

World's Richest Man Tries to Defend Wealth Inequality by Dean Baker

The Fed

The Fed and Inequality by Dean Baker

Obama's biggest economic policy mistake by Yglesias

Blame Obama for bad monetary policy, not Republicans by Ygelsias

Federal Reserve resists hawkish signal, continues to view economy as needing their monetary support…and that’s as it should be. by Jared Bernstein

The Fed is out with their statement and the words “considerable time” live to see another day!

Baker on job openings

The Skills Gap is Most Evident in Retail Trade and Restaurants by Dean Baker

the economy

OVER AT EQUITABLE GROWTH: WHY IS EMPLOYMENT TODAY SO MUCH LOWER THAN WE EXPECTED SEVEN YEARS AGO?: (LATE) MONDAY FOCUS FOR AUGUST 5, 2014 by DeLong

What's Holding the Economy Back: Revised Version by Dean Baker

Another Reminder About the Stupidity of Austerity by Josh Bivens

inequality and Democrats; Strange Defeat

Inequality: Don't Blame the Market by Dean Baker

Goldfarb:

Jason Furman, the chairman of the Council of Economic Advisers, has estimated that overall, the health care programs and Obama's tax policies should undo years of growing inequality. 

"Just the tax changes we made in this administration undid about half a decade of the increase in inequality," he said in a press briefing last week on an unrelated topic. "If you add in the Affordable Care Act, it’s more than a decade of inequality that was undone. " 

He said future work must tackle the pre-tax inequality, by doing things like raising the minimum wage, which would immediately increase the income of the poor, and improving educational attainment, which could reduce inequality over the long run.

First off: defeat the Republicans. Secondly, purge the Democrats of the Rubinites. We need the Democrats to not bother talking about supply side policies to fix pre-tax inequality like improving education. They need to focus on full employment and rising real wages. They need to take to heart Kalecki's point that the economy should not depend upon the whims of investors and business managers. The base line should be set by the government and government spending. Then who cares when an asset bubble pops.

The "strange defeat" of the Democratic Party - to take the title of J.W. Mason's blog post - happened when Bill Clinton dropped his campaign pledge for a middle class spending bill in the face of Greenspan's threats to raise interest rates. As James Carville quipped "I want to be reincarnated as the bond market. Everyone's afraid of you." Greenspan did deliver 4 percent unemployment, but it was unsustainable and led to increasing inequality as the tech boom busted and morphed into the housing bubble. Clinton's deficit reduction was squandered by Bush's tax cuts for the rich which Greenspan endorsed.

Mason's post a response to his article where the conservative writer mentions India. They wish America, Japan and Europe were more like developing nations and were more vulnerable to bond vigiliantes. But they have their own printing presses.

Baker on housing wealth effect

The basic story is straightforward. The run-up in house prices created by the bubble created $8 trillion in housing bubble wealth. Standard estimates of the housing wealth effect suggest that this would increase annual consumption by 5-7 percent of this amount, or $400 billion to $560 billion a year. This would have been equal to 3-4 percent of GDP.

Loose macroprudential policy gave the economy about a $500 billion / year stimulus which filled the output gap left by inadequate demand from trade and government spending. It was unsustainable.

The Problem Is Not Debt: Consumption Is High Not Low by Dean Baker

Economists and economic reporters continually try to make the problem of the weak economy and prolonged downturn appear more complicated than it is. After all, if it is very simple then these people would look foolish for not having seen it coming and figuring out a way around this catastrophe. Fortunately for us, if unfortunate for them, it is simple. 

One of the efforts to make it more complex than necessary is to assign an outsized role to the debt associated with the collapse of house prices. This is the argument that we heard on Morning Edition this morning. The argument is that when house prices plunged after the housing bubble burst in 2007, homeowners were left with large amounts of debt, pushing many of them underwater. This debt supposed discouraged them from spending, leading to a sharp falloff in consumption. 

There is a big problem with this story. Consumption is not low, it is actually still quite high. The graph below shows consumption as a share of GDP. It is actually higher than during the bubble years and essentially at an all-time peak. That makes it a bit hard to explain the downturn by weak consumption. (Some folks may recall hand wringing about inadequate savings for retirement, as in this NYT column by Gene Sperling yesterday. Too little savings and too little consumption are 180 degree opposite problems, sort of like being too heavy and too thin.) 

There would be a modest decline in consumption from the peak bubble years if it was shown as a share of disposable income (tax collections are lower today than in 2004-2007), but it would stiill be unusually high by this measure. The basic story is straightforward. The run-up in house prices created by the bubble created $8 trillion in housing bubble wealth. Standard estimates of the housing wealth effect suggest that this would increase annual consumption by 5-7 percent of this amount, or $400 billion to $560 billion a year. This would have been equal to 3-4 percent of GDP.
...

trade deficit

Dean Baker: 

The $500 billion trade deficit, coupled with a standard multiplier of 1.5, translates into $750 billion of lost annual output (roughly 4.5 percent of GDP). This in turn would come to about 6 million jobs. That is close to enough to get us back to full employment. That would give workers enough bargaining power to secure real wages. So yes, trade is a big deal.

Investment in Equipment (and Software): What Are Neil Irwin and Tyler Cowen Thinking? Tuesday Focus: July 22, 2014 by DeLong

stats and forecast; interest rates and wage inflation

The importance of CBO’s new interest rate projections by Nick Bunker

In its 2013 long-term budget projections, CBO forecasted that the long-run average annual interest rate would be 3 percent. This year’s forecast has lowered that projection to 2.5 percent. This new projection is not only lower than previous forecasts but also lower than the average range of 3.1 over the period of 1990 to 2007. Thankfully, CBO goes through the different factors that influenced their lower projected interest rates. And these factors are interesting in their own right.

NYT Says 12.4 Percent Growth in China Is "Sputtering" by Dean Baker

"Some economists inside and outside the government say China has a choice: slow down lending and accept steady declines in economic growth each year, or continue heavy lending and risk a sharp drop in economic growth someday when the financial system begins to teeter. But nobody knows when that might happen." 

If that sounds very scary then it's worth reading through to the last paragraph: 

"Retail sales are growing strongly, up 12.4 percent in June from a year earlier, according to the government figures released Wednesday, nearly matching a pace of 12.5 percent in May." 

As the article explains, real wages for factory workers are rising at more than an 8.0 percent annual rate. If that pace of real wage growth continues, the country should not have to worry about a lack of demand in the years ahead.

It's always everywhere a dilemma. The possibility of other solutions is foreclosed.

positive outlook

Maybe Lucy won't snatch the ball away this time.

1) Yellen making the right sounds. Rhetorically swats John Taylor.

"Yellen conceded that policymakers “failed to anticipate” the ensuing global financial crisis but also argued that monetary policy would have been “insufficient” to address the problems that caused it. Higher rates would not have beefed up regulation or increased the transparency of the exotic new financial instruments at the heart of the crisis -- or the firms that helped generate them.

In fact, Yellen said that raising rates would likely have caused greater unemployment, which would likely have led to more people defaulting on their debts."

2) John Williams predicts stronger growth in the 2nd half and over 3 percent the next 2 years. Could be good for the Democratic candidate in 2016.

3) Dean Baker:

Big Drop in Profit Share in First Quarter GDP
Tuesday, 01 July 2014 13:24

Quarterly GDP data are erratic and profit data in particular are subject to large revisions, but hey it's still worth noting a big drop in profit shares reported for the first quarter of 2014. The data released by the Commerce Department last week showed the profit share falling from just over 21 percent of net value added in the corporate sector in the last quarter of 2013 to less than 19 percent in the first quarter of 2014. Here's the picture.

It's too early to make much of this drop in profit shares. It is also a bit disconcerting that it is all attributable to a drop in the capital consumption adjustment, the difference between accounting depreciation and economic depreciation as measured by the Commerce Department. (In other words, the Commerce Department is showing a larger gap between what firms record for accounting purposes and the actual rate of depreciation of capital.) Anyhow, with all the appropriate caveats, this may be the first sign that the sharp rise in profit shares in this century is being reversed, or as Gerald Ford once said, our long national nightmare is over.

And he adds in comments:

can't attach much meaning to profit share drop
written by Dean, July 02, 2014 2:53

Ideally the drop in profit shares would mean that workers are getting a share of the gains from growth, meaning higher wages. But, the data for the first quarter show the economy shrinking, which means there were no gains to be shared. So we really can't draw much from this picture yet. However, if the profit share stays down and we get decent growth the rest of this year, that would mean that workers will finally be seeing some wage growth.

Supreme Court, unions, Great Clusterfuck

Supreme Court drastically curtails public sector unions by Yglesias

Robert Samuelson Wants People to Be Unemployed: The Economics of the Economics of the Great Recession by Dean Baker

K21 uber list by date (CHRONOLOGICALIZING A WORK IN PROGRESS)

Should markets clear? by Steve Randy Waldman (5.14.14)

Juncture interview: Thomas Piketty on capital, labour, growth and inequality (Juncture, 5.14.14)

The Top of the World: An ambitious study documents the long-term reign of the 1 percent by Doug Henwood (Bookforum, April/May 2014)

Tax as Policy: Capital in the Twenty-First Century by Heather Boushey (Challenge magazine, May/June 2014)

The Book Every Plutocrat Should Read:  Thomas Piketty’s new tome just might save the super-rich from themselves. by Chrystia Freeland (Politico, 4.20.14)

Why We’re in a New Gilded Age by Paul Krugman (New York Review of Books, May 8, 2014 issue)

The Piketty Panic by Krugman (New York Times, 4.24.14)

The Piketty Phenomenon by David Brooks (New York Times, 4.24.14)

Wealth Over Work by Krugman (New York Times, 3.23.14)

Class, Oligarchy, and the Limits of Cynicism  by Krugman (4.21.14 @ 8:29 a.m.)

Thomas Piketty Is Right: Everything you need to know about 'Capital in the Twenty-First Century' by Robert M. Solow (New Republic, 4.22.14)

THE HONEST BROKER: MR. PIKETTY AND THE “NEOCLASSICISTS”: A SUGGESTED INTERPRETATION: FOR THE WEEK OF MAY 17, 2014 by DeLong (5.22.14)

The Daily Piketty: Thursday Focus: April 24, 2014 by DeLong (4.24.14)

K21 translator Arthur Goldhammer tweets: "@delong plays Hicks to #Piketty: http://equitablegrowth.org/2014/05/07/slides-mr-piketty-neoclassicists-suggested-interpretation-wednesday-focus-may-7-2014/ … smart take, must read" (linked below as well)

OVER AT THE WCEG: SLIDES FOR: MR. PIKETTY AND THE "NEOCLASSICISTS": A SUGGESTED INTERPRETATION: WEDNESDAY FOCUS: MAY 7, 2014 by DeLong (5.7.14)

OVER AT THE WASHINGTON CENTER FOR EQUITABLE GROWTH: NOTES AND FINGER EXERCISES ON THOMAS PIKETTY'S "CAPITAL IN THE TWENTY-FIRST CENTURY": THE HONEST BROKER FOR THE WEEK OF APRIL 19, 2014 by DeLong (4.12.14)

Studying the Rich: Thomas Piketty and his Critics by Mike Konczal (Boston Review, 4.29.14)

Capital in the 21 Century: Still Mired in the 19th (See correction) by Dean Baker (3.9.14 @ 10:35 p.m.)

Forces of Divergence: Is surging inequality endemic to capitalism? by John Cassidy (The New Yorker, 3.31.14)

PIKETTY’S INEQUALITY STORY IN SIX CHARTS by John Cassidy (The New Yorker, 3.26.14)

THE “PIKETTY BUBBLE” IS MORE THAN HOT AIR by John Cassidy (New Yorker, 5.1.14)

The accidental controversialist: deeper reflections on Thomas Piketty’s “Capital”  by Thomas Palley (4.24.14 @ 1:57 p.m.)

Even Elizabeth Warren doesn't want Piketty's wealth tax by Matthew Yglesias (Vox, 4.28.14 @ 4:40 p.m.)

Lessons from a rock-star economist by Gillian Tett (Financial Times, 4.25.14 @ 11:40 a.m.)

Class warfare justified? by Robert J. Samuelson (Washington Post, 4.20.14)

How We Do Intellectual History at the New York Times by Corey Robin (Crooked Timber, 4.25.14)

dsquared's comment to Robin's Crooked Timber post:
"As far as I can tell, nothing really important in Piketty’s book depends on the capital controversy; it’s actually a book about wealth rather than capital in the technical sense. It’s just a bit irritating for people who happen to know that his use of “capital” and connected marginal concepts is wrong. Like if someone had written a really good book about climate change but kept on referring to “the temperature divided by zero” (4.26.14 @ 11:40 am) and this comment and this comment.

Hey, Big Thinker: Thomas Piketty, the Economist Behind ‘Capital in the Twenty-First Century’ Is the Latest Overnight Intellectual Sensation by Sam Tanenhaus (New York Times, 4.25.14)

How capitalism enriches the few rather than the many  by Harold Meyerson (Washington Post, 4.2.14)

To Have and Have Not by Jedediah Purdy (Los Angeles Review of Books. 4.24.14)

OVER AT THE WASHINGTON CENTER FOR EQUITABLE GROWTH: THE DAILY PIKETTY: SOME MORE REVIEWS OF PIKETTY by Brad DeLong (4.25.14)

Piketty for Dummies by Peter Dorman (4.26.14 @ 3:24 p.m.)

Two followups, in way too many words  by Steve Randy Waldman (2.11.11(!) via DeLong)

Poulos Gets Piketty—and Tocqueville—Wrong by Arthur Goldhammer (Daily Beast, 4.26.14)

Today’s Wonky Elite Is in Love With the Wrong French Intellectual  by James Poulos (Daily Beast, 4.23.14)

A Tocqueville for Today by Jacob S. Hacker and Paul Pierson (American Prospect, 3.10.13)

Against U.S. Economic Clichés by Heather Boushey (American Prospect, 3.10.13, scroll down)

Must We Return to “Pre-tamed” Capitalism? by Branko Milanovic (American Prospect, 3.10.13, scroll down)

Capital can’t be measured by Steve Randy Waldman (4.3.10)

Living with Inequality: Has Thomas Piketty really found "the central contradiction of capitalism"? by Garrett Jones (Reason, 4.26.14)

The Power of Piketty's Capital by Eric Alterman (The Nation, 5.12.14)

Thomas Piketty and Millennial Marxists on the Scourge of Inequality by Timothy Shenk (The Nation, 4.14.14)

Kapital for the Twenty-First Century? by James K. Galbraith (Dissent, Spring 2014)

The New Marxism Part I by James Pethokoukis (National Review Online, 3.24.14)

The New Marxism Part II by James Pethokoukis (National Review Online, 3.31.14)

The Most Important Book Ever Is All Wrong by Clive Crook (BloombergView, 4.20.14)

Piketty's Tax Hikes Won't Help the Middle Class  by Megan McArdle (BloombergView, 4.22.14)

Whither The Bottom 90 Percent, Thomas Piketty? by Scott Winship (Forbes, 4.17.14)

Thomas Piketty, Jedediah Purdy And The Leftist Ethic of Resentfulness by Repair Man Jack (Red State, 4.22.14 @ 8:47 pm)

Thomas Piketty Revives Marx for the 21st Century by Daniel Shuchman (Wall Street Journal, 4.21.14 @ 7:18 p.m.)

White House honors French neo-Marxist by Thomas Lifson (American Thinker, 4.20.14)

What’s Wrong with Piketty’s Answer To Inequality by Veronique de Rugy (National Review Online, 4.24.14 @6:57 p.m.)

Capital Punishment: Why a Global Tax on Wealth Won't End Inequality by Tyler Cowen (Foreign Affairs, May/June 2014 issue)

Why I am not persuaded by Thomas Piketty’s argument by Tyler Cowen (4.21.14 @ 2:20 p.m.)

Tyler Cowen is one of Nietzsche’s Marginal Children by Corey Robin (4.22.14)

The Hourly Piketty: Paul Krugman, “Gattopardo Economics”, and Economic Modelling by DeLong (4.24.14 @ 5:23 p.m.)

On Gattopardo Economics by Krugman (4.24.14 @ 9:29 a.m.)

Piketty and Pareto by Krugman (4.25.14 @ 8:20 a.m.)

Frustrations of the Heterodox by Krugman (4.25.14 @ 10:09 a.m.)

The Daily Piketty: Thursday Focus: April 24, 2014 by DeLong (4.24.14 @ 2:47 p.m.)

Notes from Capital in the 21st Century Panel by Suresh Naidu (The Slack Wire, 4.20.14)

What Marx Really Meant by Suresh Naidu (Jacobin, 4.28.14)

‘Capital in the Twenty-First Century’, by Thomas Piketty by Martin Wolf (Financial Times, 4.15.14 @ 5:38 p.m.)

The Doom Loop of Oligarchy by Ezra Klein (Vox, 4.11.14 @ 7:36 a.m.)

Dialogue: Eleven (so Far) Worthwhile Reviews of and Reflections on Thomas Piketty’s “Capital in the Twenty-First Century”: Wednesday Focus: March 26, 2014 by DeLong (4.25.14 @ 5:48 p.m.)

The short guide to Capital in the 21st Century by Matthew Yglesias (Vox, 4.8.14 @ 10:30 a.m.)

Thomas Piketty doesn’t hate capitalism: He just wants to fix it by Matthew Yglesias (Vox, 4.24.14)

Interview with Piketty by Matthew Yglesias (Vox, 4.24.14)

The return of "patrimonial capitalism": review of Thomas Piketty's Capital in the 21st century by Branko Milanovic (October 2013)

Inequality: Capital in the long run by Ryan Avent (Economist, 1.9.14 @ 13:11)

The Capital Creators, Piketty and Growth Theory by Joshua Gans (Digitopoly, 4.23.14)

OVER AT THE WASHINGTON CENTER FOR EQUITABLE GROWTH: PIKETTY DAY HERE AT BERKELEY: THE HONEST BROKER FOR THE WEEK OF APRIL 26, 2014 by DeLong (4.23.14)

WEEKEND READING: PIKETTY’S TRIUMPH by DeLong (3.16.14)

A Good Question Re the Piketty Book by Jared Bernstein (4.26.14 @ 10:26 a.m.)

Piketty’s “Capital,” in a Lot Less than 696 Pages by Justin Fox (Harvard Business Review, 4.24.14 @ 8:00 a.m.)

New French Book Will Become Important When It's In English by Kevin Drum (Mother Jones, 12.16.13 @ 1:15 p.m.)

Drum (above) links to Assorted links by Tyler Cowen (12.16.13 @ 12:46 p.m.)

All men are created unequal: Revisiting an old argument about the impact of capitalism (The Economist, 1.4.14)

The Problem of Distribution by Chris Dillow (4.27.14)

American Economists Are Not Equipped To Digest What Piketty Has Served Them by Rob Wiley (Business Insider, 4.28.14 @5:54)
DeLong expanded his answers:
Over at Business Insider: Five Questions and Answers About Thomas Piketty’s “Capital in the Twenty-First Century”: Monday Focus; April 28, 2014 by DeLong (4.28.14 @ 11:42 a.m.)

Capital in partial equilibrium by Ryan Decker (3.25.14 @ 7:54 p.m.)

"From the right" by Ryan Decker (4.28.14 @ 6:14 p.m.)

Discussing 'Capital' in the Nation’s Capital – Piketty to Visit DC in April by Jeffrey Gianattasio (3.25.14 @ 15:57)

What Piketty’s Conservative Critics Get Wrong by Kathleen Geier (The Baffler, 4.28.14)

Taking on the Heiristocracy: History shows that growth alone won’t stop vast economic inequality by Kathleen Geier (Washington Monthly, March/ April/ May 2014)

Physics and the 'marginalist revolution' by Philip Mirowski (via JW Mason)

JW Mason comment on different ways to formalize the Piketty argument (04.29.14)

The Conservative Case For Thomas Piketty by Pascal-Emmanuel Gobry (Forbes, 4.24.14 @ 9:14)

Minnesota Mafia Challenges Piketty by Barkley Rosser (4.28.14 @ 10:02 p.m.)

What Piketty Leaves Out by Robert Kuttner (4.29.14)

Thomas Piketty's Capital: everything you need to know about the surprise bestseller by Paul Mason (The Guardian, 4.28.14 @14:23)

Len McCluskey on Capital in the Twenty-first Century: 'manna from heaven' (The Guardian, 4.28.14 @14.18)

VC for the people by Steve Randy Waldman (4.16.14)

Piketty on Capital: A Footnote by Henry Farrell (Crooked Timber, 4.5.14)

Philip Pilkington: Misdirection – Galbraith on Thomas Piketty’s New Book on Capital by Yves Smith (Naked Capitalism, 4.3.14)

Trickle-Up Economics by David Cay Johnston (Al Jazeera America, 3.23.14 @ 8:45 a.m.)

The Dead Are Wealthier Than the Living: Capital in the 21st Century by Timothy Noah (Pacific Standard, 3.20.14 @ 11:41 a.m.)

Capitalism vs. Democracy by Thomas Edsall (New York Times, 1.28.14)

Notes on Piketty (Wonkish) by Krugman (3.14.14 @ 7:47 a.m.)

American Patrimony by Krugman (3.24.14 @ 4:23 p.m.)

Tomas Piketty: Capital in the Twenty-First Century/Inequality and Capitalism in the Long Run: The Honest Broker for the Week of December 28, 2013 by DeLong (12.22.13 @ 1:46 p.m.)

Piketty previews Piketty by Cardiff Garcia (Financial Times, 12.17.13 @ 8:21)

Thomas Piketty Has a Grim View of Our Plutocratic Future by Kevin Drum (Mother Jones, 1.29.14 @ 11:51 a.m.)

Q&A: Thomas Piketty on the Wealth Divide by Eduardo Porter (3.11.14 @ 6:21 p.m.)

Adam Smith is not the antidote to Thomas Piketty by Deborah Boucoyannis (Washington Post-The Monkey Cage, 4.22.14 @ 10:14 a.m.)

Why Piketty's Book Is a Bigger Deal in America Than in France by Tyler Cowen and Veronique de Rugy (The Upshot, 4.29.14)

The Most Important Book of the Twenty-First Century by Stephen Marche (Esquire, 4.24.14)

A revue of reviews - everything you could ever want to read about Piketty's Capital by Michael Bird (City A.M., 4.29.14 @ 12:29 p.m.)

Unequal to the Task by Joshua Hendrickson (National Review, 4.22.14 @ 4:00 a.m., May 5 issue)

Piketty and the case for land capital by Karl Smith (FT Alphaville, 2.3.14 @ 15:00)

Why Liberals Have Fallen for Thomas Piketty by Jordan Weissmann (Slate, 4.22.14 @ 6:09 p.m.)

Heather Boushey (and Me) on Thomas Piketty: Tuesday Focus by DeLong (3.11.14 8:15 a.m.)

THOMAS PIKETTY UNSUCCESSFUL ATTEMPTED SMACKDOWN WATCH: I FIND MYSELF DISAPPOINTED BY THE USUALLY-RELIABLE JAMES GALBRAITH AND PETHOKOUKIS by DeLong (4.6.14 @ 10:23 p.m.)

Thinking About Piketty’s “Capital” by Steve Roth (Angry Bear, 4.6.14 @ 12:50)

America risks becoming a Downton Abbey economy by Lawrence Summers (2.16.14 @ 5:28 p.m.)

Against the Meritocratic Theory of Inequality by Ed Kilgore (Washington Monthly @ 3.24.14)

Krugman starts talking about labor share… Have hope middle class by Edward Lambert (Angry Bear 3.14.14 @ 2:17 p.m.)

Dude, Where’s Your Piketty Review??!! by Jared Bernstein (4.19.14 @ 10:01 a.m.)

Economist Receives Rock Star Treatment by Jennifer Schuessler (New York Times, 4.18.14)

JW Mason comment (Crooked Timber, 4.30.14 at 12:46 a.m.)
"Right. Or think about Milton Friedman, whose Monetary History of the United States is about as far from the ahistorical, mathematical abstraction of contemporary economics as you can get. Bob Pollin once told me that that book is the model we radical economists should be trying to emulate. I think he was right."

Why everyone is talking about Thomas Piketty's Capital in the Twenty-First Century by Ryan Cooper (The Week, 3.25.14)

Capital in the 21st Century is the bestselling book on Amazon by Matthew Yglesias (Vox, 4.20.14 @ 10:00 a.m.)

Video of Piketty with Joseph Stiglitz, Paul Krugman, and Steven Durlauf participated in a panel moderated by Branko Milanovic.

Here’s an unlikely bestseller: A 700-page book on 21st century economics by Jia Lynn Yang (Wonkblog, 4.22.14 @ 12:35 p.m.)

‘Capital in the Twenty-first Century’ by Thomas Piketty by Steven Pearlstein (Washington Post, 3.28.14)

OVER AT PROJECT SYNDICATE: THE POVERTY OF RIGHT-WING PIKETTY CRITICISM by Delong (4.30.14)

Six Ways Thomas Piketty's 'Capital' Isn't Holding Up to Scrutiny by Kyle Smith (Forbes, 5.1.14 @ 8.12 a.m.)

Thomas Piketty’s Improbable Data by Hunter Lewis (The Ludwig Von Mises Institute, 5.2.14)

Inequality 101: The Picket Fence and the Staircase by John Cassidy (New Yorker, 4.12.12)

Piketty Review Roundup: “Capital in the 21st Century” by Jeff Madrick (Century Foundation, 5.2.14)

An Indictment of the Invisible Hand by Jeffrey Madrick (Moyers.com, 4.18.14)

Inequality Is Not the Problem by Jeff Madrick (New York Review of Books, 4.24.14 @ 5:57 p.m.)

Thomas Piketty Undermines the Hallowed Tenets of the Capitalist Catechism by Jeff Faux (The Nation, 4.18.14)

The Right Needs a New Message on Income Inequality by Benjamin Domenech (Wall Street Journal, 4.28.14 @ 7:31 p.m.)

Tyler Cowen's anti-Piketty crusade by Noah Smith (5.2.14)

Piketty, Doom Loops and Haymarket by Ross Douthat (New York Times, 4.22.14 @ 3:53 p.m.)

Robert Solow on Piketty by Arnold Kling (4.23.14)

For Larry Summers, Inequality A Subject Worthy of Yawns by Ellen Killoran (International Business Times, 5.2.14 @ 12:28 p.m.)

Book review: Capital in the 21st Century by Thomas Piketty by Robert Skidelsky (Prospect Magazine, 3.27.14)

How to Write a Marxist Critique of Thomas Piketty Without Actually Reading the Book by Zachary Levenson (Jacobin, 5.2.14)

Hangups of the Heterodox (Vaguely Wonkish) by Krugman (5.1.14 @ 3:41 p.m.)

In What Sense Does Economics Need a “New Paradigm”?: Thursday Focus: May 1, 2014 by Brad DeLong (5.1.14 @ 11:56 p.m.)

Thomas Piketty and the Ghost of Joan Robinson by Dean Baker (5.1.14 @ 20:16)

Wealth Taxes: A Future Battleground by Tyler Cowen (New York Times, 7.20.13)

The Four Biggest Right-Wing Lies About Inequality by Robert Reich (5.5.14)

Why Economists Are Finally Taking Inequality Seriously by Mark Thoma (Fiscal Times, 5.6.14)

The coming boom in inherited wealth by John Quiggin (Crooked Timber, 4.16.12)

Piketty, Oligarchy, and Conservative Evasion by Jonathan Chait (New York Magazine, 4.25.14 @ 3:51 p.m.)

More Matt Rognlie on Piketty by Tyler Cowen (4.10.14)

A Prologomena to Any Future Reading of Piketty by Steven Pressman (Dollars and Sense, 5.5.14)

THE MAGICAL MATHEMATICS OF MR PIKETTY by George Cooper (4.29.14)

THE MAGICAL MATHEMATICS OF MR PIKETTY – PART II by George Cooper (5.5.14)

The Critique of Capital in the Twenty-First Century: In Search of Macroeconomic Foundations of Inequatlity by Guillaume Allègre and Xavier Timbeau

Where do profits come from? by Matthew Yglesias (Vox, 5.8.14)

Obama’s Top Economist Has Some Problems With Piketty’s Book by Neil Irwin (The Upshot, 5.7.14)

Global Lessons for Inclusive Growth by Jason Furman (5.7.14)

Piketty’s Arguments Still Hold Up, After Taxes by Jared Bernstein (The Upshot, 5.9.14)

Jason Furman, POTUS’s Chief Economist, on Inequality, Piketty, and Growth by Jared Bernstein (5.10.14 @ 10:04 a.m.)

Doug Henwood tweets "I am now officially part of the Piketty bubble. pic.twitter.com/pgd9Yat5s9"

The problem with Thomas Piketty: “Capital” destroys right-wing lies, but there’s one solution it forgets by Thomas Frank (Salon, 5.11.14)

Selling Thomas Piketty (Harvard University Press Blog, 5.12.14)

Piketty's Wealth Tax Isn't a Joke by Clive Crook (BloombergView, 5.11.14)

Microfoundations of Inequality and Sabotage by Sandwichman (5.12.14)

Thomas Piketty and His Critics by Thomas Edsall (New York Times, 5.14.14)

The Inequality Puzzle by Lawrence H. Summers (Democracy, Spring 2014)

Summers reviews Piketty by Jared Bernstein (5.14.14)

What Larry Summers Gets Wrong On Piketty's 'Capital' by Matt Bruenig (Demos, 5.15.14)

Demos on Piketty's Capital

The Politics of Income Inequality by Eduardo Porter (New York Times, 5.13.14)

What Piketty's Neoliberal Critics Get Wrong by Kathleen Geier (Baffler, 5.15.14)

The Two Inequalities by Peter Dorman (Econospeak, 5.16.14 @ 1:15 a.m.)

Piketty's Old News by Eric Schnurer (U.S. News & World Report, 5.16.14)

Piketty crossing the Delaware by John Quiggin (Crooked Timber, 5.18.14)

Thomas Piketty: I Don't Care for Marx by Isaac Chotiner (New Republic, 5.5.14)

Middle Class Earnings Are Stagnant! (Because Retirees Have No Earnings) by Scott Winship (Forbes, 5.20.14)

Inequality and the Fate of Capitalism by Scott Winship (National Review, 5.13.14)

Arguing Taxes, Transfers, and Market Outcomes by Jared Bernstein (5.22.14)

Ross Douthat Makes Some Good Points (and one bad one) by Jared Bernstein (5.19.14)

Is Piketty All Wrong? by Krugman (5.24.15)

Piketty response to FT data concerns (Financial Times, 5.23.14)

Piketty’s Mistakes, What They Mean for the Message of Cap21, and Other Data Thoughts by Jared Bernstein (5.24.14)

A Piketty problem? by Ryan Avent (The Economist, 5.24.14)

Piketty and U.S. Wealth Inequality by Atif Mian and Amir Sufi (5.24.14)

Mistakes by Simon Wren-Lewis (5.24.14)

Whiskey Tango Foxtrot Bang Query by Brad DeLong (5.23.14)

OVER AT WCEG EQUITABLOG: REVIEWING LAWRENCE H. SUMMERS'S REVIEW OF PIKETTY II: THE POST-1980 RISE OF EXTREME INEQUALITY IN AMERICA: FRIDAY FOCUS: MAY 23, 2014 by DeLong

The FT Gets Piketty's Capital Argument Wrong by Mike Konczal (5.24.14)

HOUSING VS FINANCIAL WEALTH by Chris Dillow (5.24.14)

FT: Piketty data "undercut by a series of problems and errors" by Matt Ygelsias (Vox, 5.23.14 @ 2:54 p.m.)

Piketty Debunked? Not So Fast by Jonathan Hopkin (5.24.14)

My view on Piketty's critique by the FT by Branko Milanovic

That Big Financial Times Story on Errors in Piketty's Data is Overrated by Danny Vick (5.23.14)

Criticisms of Piketty by James Hamilton (5.25.14)

More on Piketty by James Hamilton (5.28.14)

Nit-Piketty by Debraj Ray (5.25.14)

Should We Count Out Piketty Due to Sum Math Errors? by Steve Pressman (Dollars and Sense, 5.25.14)

Thomas Piketty's real challenge was to the FT's Rolex types by Paul Mason (Guardian, 5.26.14)

Political Economy is Political by Henry Farrell (Crooked Timber, 5.27.14)

Policy, not capitalism, is to blame for the income divide by James Galbraith (Financial Times, 5.26.14)

The Piketty data controversy by Jérémie Cohen-Setton (Bruegel, 5.26.14)

Piketty’s data deserve better analysis by Carter Price (5.27.14)

Reviewing Lawrence H. Summers’s Review of Piketty IV: Combatting Inequality on Many Fronts: Tuesday Focus: May 27, 2014 by Brad DeLong (28 May 2014)

PARSING PIKETTY: IS WEALTH INEQUALITY RISING IN THE U.S.? by John Cassidy (New Yorker, 5.27.14)

Thomas Piketty and Joseph Schumpeter (and Gerard Debreu) by David Glasner (5.28.14)

Technical appendix of the book « Capital in the twenty-first century»: Appendix to chapter 10. Inequality of Capital Ownership: Addendum: Response to FT by Thomas Piketty, May 28 2014

Thomas Piketty Responds to Criticism of His Data by Neil Irwin (The Upshot, 5.29.14)

Bloomberg video

Piketty versus Hassett: a primer on after-tax income and inequality by Marshall Steinbaum (29 May 2014)

Thomas Doubting Refuted by Krugman (5.30.14)

Morning Must-Read: Daniel Kuehn Reads Howard Reed on Piketty vs. Giles: “It’s All About the Discontinuities” by Brad DeLong (30 May 2014)

The Daily Piketty: May 30, 2014 by Brad DeLong

Capital Eats the World by Suresh Naidu (Jacobin, 5.30.14)

Where I disagree and agree with Debraj Ray’s critique of Piketty’s Capital in the 21s Century. by Branko Milanovic (6.2.14)

This Year's Model by Scott Sumner (6.2.14)

Department of “Huh?!”–I Don’t Understand More and More of Piketty’s Critics: Per Krusell and Tony Smith by Brad DeLong (2 June 2014)

Thomas Piketty’s big book: What do you really need to know? by Heather Boushey (5.14.14)

A Reflection on Piketty’s “Rentiers Always Win” or r > g by Yves Smith (6.3.14)

Reviewing Lawrence H. Summers’s Review of Piketty V: Secular Stagnation and the High-Pressure Economy: Tuesday Focus: June 32014 by DeLong (6.3.14)

Wealth and Capital are Different Things by Dietz Vollrath (6.2.14)

The Daily Piketty: June 2, 2014 By Brad DeLong

Nit-Piketting continued by Branko Milanovic (6.3.14)

Plots and Subplots in Piketty's Capital by Rajiv Sethi (6.3.14)

Educating Brad DeLong by James Hamilton (6.4.14)

OVER AT EQUITABLE GROWTH: TRYING, YET AGAIN, TO COMMUNICATE THE ARITHMETIC SCAFFOLDING OF PIKETTY'S "CAPITAL IN THE TWENTY-FIRST CENTURY": THURSDAY FOCUS: JUNE 5, 2014 by DeLong

Don’t believe brokers, the government, or Piketty: Your property values won’t grow faster than your paycheck by Amar Bhide (Quartz, May 31, 2014)

Piketty on Class Structure by masaccio (Firedoglake, 5.11.14)

When Piketty Came to America by Andrea Levere and Ezra Levin (Politco, 4.28.14)

Economist says U.S. inequality reaching "spectacular" heights by Alain Sherter (CBS News Moneywatch, 6.5.14)

Summers’s Review of Piketty: Underestimating the Argument for the Forces Driving Inequality by Dan Kervick (5.14.14)

Inequality: Making the Point by Gary Burtless (6.5.14)

Not Another Piketty Symposium by Mike Beggs (Jacobin)

Piketty fever: Bigger than Marx (Economist, 5.3.14)

Why Is r > g So Significant for Piketty? by Dan Kervick (6.4.14)

Piketty, Marx and the roots of inequality by Benjamin Selwyn (Le Monde Diplomatique, 6.6.14)

Piketty’s Fair-Weather Friends by Seth Ackerman (Jacobin, 5.29.14)

Three Ways of Looking at alpha = r k by JW Mason (6.4.14)

Capital Man: Thomas Piketty is economics’ biggest sensation. He’s also the field’s fiercest critic. By Emily Eakin (Chronicle of Higher Education, 4.17.14)

OVER AT EQUITABLE GROWTH: DEPRECIATION RATES ON WEALTH IN THOMAS PIKETTY'S DATABASE: MONDAY FOCUS: JUNE 9, 2014 by DeLong

OVER AT EQUITABLE GROWTH: DAILY PIKETTY: MATT ROGNLIE HAS A FIRST-RATE CRITIQUE: THURSDAY FOCUS FOR JUNE 12, 2014 by DeLong

Housing in the twenty-first century by Ryan Avent (Economist, 6.17.14)

Inequality in the long run by Thomas Piketty and Emanuel Saez (Science, May 2014)

How Inherited Wealth Helps the Economy by Greg Mankiw (The Upshot, 6.21.14)

THE FOUR BIG VALID ISSUES PEOPLE HAVE WITH THOMAS PIKETTY'S GRAND ARGUMENT: OVER AT EQUITABLE GROWTH: FRIDAY FOCUS FOR JUNE 27, 2014 by DeLong

CAPITAL IN PIKETTY'S 'CAPITAL' by Unlearning Economics (Jun 18th 2014)

Piketty’s laws with investment replacement and depreciation by Ton van Schaik, (6 July 2014, Vox)

Explaining Piketty: inequality and the financial crisis by Frances Coppola (7.8.14)

Sumner on Piketty by Frances Coppola (7.7.14)

When The Rate Of Return And The Rate Of Growth Do Not Matter Much For Piketty by Barkley Rosser (Econospeak, 7.7.14)

Piketty vs. Marx (8.11.14, Bookforum)

Yes, Acemoglu and Robinson's review of Piketty is very strange by Daniel Kuehn (8.26.14)

Understanding Piketty, part 3 by Kenneth Thomas (Angry Bear, 8.21.14)

A White Paper on Piketty’s Theory of Inequality and its Critics by Marshall Steinbaum (9.2.14)

full employment

The Full Employment Route to Poverty Reduction by Dean Baker

Baker on Geithner

Stress Test: The Indictment of Timothy Geithner by Dean Baker

trade deficit

The Trade Deficit: The Biggest Obstacle to Full Employment by Dean Baker

trade and currency policy

DeLong:

Ryan Avent: Secular Stagnation: Glut Busters: “A particular view about the macroeconomics of the pre-crisis period seems to be coalescing…. Since we haven’t solved the underlying savings glut, the American economy now has three options, according to this view: 1. Suffer through the same low growth (“secular stagnation”) that was characteristic of the early 2000s. 2. Use monetary policy to raise demand through higher asset prices and credit growth, restoring decent growth but creating a risk of new bubbles. 3. Use deficit-financed fiscal policy to absorb excess savings and boost demand, without relying on rapid growth in private credit. Certainly, parts of this story are correct. But is this really the best way to describe what was taking place?… One might… argue that the problem in the 2000s was not that the Fed haplessly created a bubble in order get the economy going again…. The problem was that it… ought to have done… was intervene aggressively in foreign-exchange markets to dampen the dollar’s rapid appreciation…. Doug Campbell… [and] Ju Hyun Pyun…. Now obviously, direct intervention in foreign-exchange markets is not the sort of thing America is supposed to do…. But this is a taboo that needs rethinking. Depreciations have historically been the most effective way to lift expectations for growth and inflation…. The Fed will not do any of the above autonomously. The decision to change the global monetary system will be political, just as it was in 1933 and in 1971, when American presidents made the necessary policy shift. Such decisions only tend to be made when the status quo is clearly untenable or when large political majorities demand a different course. Unfortunately, America’s secular stagnation mess does not seem likely to test either limit for some time to come.”

secstags and trade

Three Charts on Secular Stagnation by Krugman

Back in the Old Days, Rich Countries Were Supposed to Run Trade Surpluses by Dean Baker

Paul Krugman outlines his story of secular stagnation in a blogpost this morning. The odd part of the story is that the trade deficit is nowhere in sight. The punchline is that a slower rate of labor force growth should lead to a reduction in demand. The simple arithmetic is that if the rate of labor force growth slows by 1.0 percentage point, then this would be expected to reduce investment by 3.0 percentage points of GDP. 

This is a story of a demand gap that could be hard to fill, but how does that compare to a trade deficit that peaked at just shy of 6.0 percent of GDP in 2005 and is still close to 3.0 percent of GDP today? Why are we not supposed to be worried about this cause of a shortfall in demand? 

Back in the days before the United States began running persistent trade deficits, the standard theory held that rich countries like the United States should be running trade surpluses. The argument was that capital was plentiful in rich countries, therefore they should be exporting it to poor countries where capital is scarce. This would lead to both a better return on capital and also allow developing countries to grow more rapidly. 

We have seen the opposite story in the United States, especially after the run-up in the dollar following the East Asian financial crisis. This has contributed in a big way to the "secular stagnation" problem, but for some reason there continues to be a reluctance to talk about it. (No, being the reserve currency does not mean we have to run a trade deficit.)

housing bubble

Nope, Robert Samuelson Is Wrong Again, the Housing Bubble Did Cause the Recession by Dean Baker