Bradley Prize speech, video, and thanks

The videos and speeches of the Bradley prize winners are up. My video here (Grumpy in a tux!), also the speech which I reproduce below. All the videos and speeches here (Betsy DeVos and Nina Shea) My previous interview with Rick Graeber, head of the Bradley foundation. 

Bradley also made a nice introduction video with photos from my childhood and early career. (A link here to the introduction video and speech together.) And to avoid us spending all our talks on thanking people, they had us write out a separate thanks. That seems not to be up yet, but I include mine below. I am very thankful, humbled to be included in such august company, and not so boorish that I would not have spent my whole talk without mentioning that, absent the separate opportunity to say so. 

Bradley prize remarks (i.e. condense three decades of policy writing into 10 minutes): 

Creeping stagnation ought to be recognized as the central economic issue of our time. Economic growth since 2000 has fallen almost by half compared with the last half of the 20th Century. The average American’s income is already a quarter less than under the previous trend. If this trend continues, lost growth in fifty years will total three times today’s economy. No economic issue — inflation, recession, trade, climate, income diversity — comes close to such numbers.

Growth is not just more stuff, it’s vastly better goods and services; it’s health, environment, education, and culture; it’s defense, social programs, and repaying government debt.

Why are we stagnating? In my view, the answer is simple: America has the people, the ideas, and the investment capital to grow. We just can’t get the permits. We are a great Gulliver, tied down by miles of Lilliputian red tape.  

Health policy video/podcast

I did a podcast on health policy with  Daniel Belkin and Mitch Belkin at the External Medicine Podcast. video embedded above, audio at the link. They're a great team. Free market health care and insurance is a hard sell, having to climb mountains of the usual objections and anecdotes! 

Garicano's conversations with economists

Luis Garicano has just posted a very interesting free e-book, "Capitalism after covid: Conversations with 21 economists." I was honored to be one of his interviewees, video here. Luis has a VoxEU column summarizing conversations, and twitter thread if you like reading such things. Luis is a great interviewer. 

This is not an endorsement of all the ideas! Luis found a wide spectrum of ideas, and I think that is the strong thing about the project. You can see how really smart people, on top of the latest academic research, come to still widely different conclusions about the current state of affairs and directions we should go. Though Luis is a pretty free-market Chicago guy, he did not impose that view which I find admirable. 

In particular, referring to the VoxEU column, I would take issue with 

The bulk of the shock was absorbed by the public sector budget. 

That the world could produce such a massive, coherent, and rapid economic response to the pandemic had a lot to do with the consensus that quickly emerged among economists on how best to respond to the unprecedented shock...

Unlike during the Great Financial Crisis, when there was an often-acrimonious debate between economists arguing for austerity and those arguing for stimulus, the priorities were clear: 

Central banks should be concerned with maintaining financial stability and providing limitless liquidity to debt markets. 

Governments should prioritise the maintenance of household incomes through generous support for workers’ incomes, albeit with different approaches in the US and Europe: significant expansions of unemployment insurance in the US and the general deployment of ‘Kurzarbeit’ in Europe.  

Governments should provide ample liquidity facilities to firms, making it possible for them to emerge as undamaged as possible by the lockdowns. 

Finally, large, debt-financed public investments would be needed to support the recovery. 

I  disagree loudly with just about all of this, and thereby especially enshrining these expedients as "consensus" ready to be deployed at even larger scale in the next pandemic. 

If there is consensus on anything it is that our governments completely bungled the public health aspect of this crisis, with the exception of a few countries like South Korea and Taiwan. The FDA and CDC are particularly at fault for blocking testing and vaccines. 

Why did covid produce an unprecedented economic collapse, while the 1958 and 1918 flus produced nary a blip of GDP? Because of the completely overdone business lockdowns. The economic shock was caused by the government not by the virus. What good did it do to run up government debts by trillions in order to send checks to retirees and people who were happily working? I'm sure everyone likes more money, but that has nothing to do with covid. Apparently half of expanded unemployment was stolen (I even got notice someone trying to file in my name). " large, debt-financed public investments would be needed to support the recovery." Consensus on that please? Not from here. The recovery is doing fine on its own, and adding more to the abstract sculpture taking place in the Central Valley under the auspices of a high speed train from Bakersfield to Modesto is not going to help. And why is nobody even thinking moral hazard? We now have enshrined a system in which nobody may lose money in a recession, asset prices will be propped up by central banks. Why not lever to the hilt? Why keep some cash around, as there will be no more buying opportunities? 

But that Luis interviews such good and prominent economists and finds support for this sort of boondoggle policy is interesting. 

Tackling inequality. Over the last few decades, inequality in household income and wealth has increased dramatically in the West.  

This is simply not a fact. (See Grumpy coverage of Austen and Spinter here.) Inequality in pre-tax pre-transfer income has increased. Who cares about that? Inequality of mark-to-market wealth has increased as founders stock values have risen. Who cares about that? 

Several interviewees explain the progress economists are making in tackling these problems. Atif Mian argues that to reduce inequality, policies must focus on achieving more equitable growth through a significant increase in public investment, and second, on addressing some of the legacies of the imbalances, particularly through an increase in the progressivity of taxation. 

Well, if you are a grumpy follower you will find there a well articulated points to disagree with. The US already has the most progressive tax system in the world BTW. And back to more high speed trains to nowhere.. 

Stefanie Stantcheva discusses how to design better taxes and how to improve people´s understanding of those issues. Oriana Bandiera highlights a significant shift in our understanding of poverty that implies that social assistance programmes, that traditionally were designed to subsidise consumption, should shift to being geared towards investment. Esteban Rossi-Hansberg discusses the concentration of talent and economic activity in cities and the extent to which the ‘Zoom revolution’ will upend this concentration and wonders whether that would be desirable, given the potential loss of positive externalities of physical proximity.

But here are some good-sounding innovative ideas, to give you a sense that economists don't just line up on typical left-right spectrum. I need to read those. 

Containing the new leviathan.  It is quite likely that, after the unprecedented policy response to the pandemic, governments will grow permanently larger, leading to an increase in interventionism and, potentially, crony capitalism, as Daron Acemoglu argues. Different countries will sharply diverge in their response to this “critical juncture”. The ones who better succeed will introduce stronger democratic institutions to keep governments in check, as both Acemoglu and Lucrezia Reichlin argue. We also need to improve the way public organisations are managed, a focus of the interviews with Raffaela Sadun and Carol Propper.  Wendy Carlin explains how balancing this larger role for the state requires building a stronger and more resilient civil society – strengthening the ‘third pole’.

This all sounds really interesting. Economics and economists are most interesting when out of the political boxes! 

Tackling climate change. ... Reducing carbon emissions, as Michael Greenstone explains in his interview, must be the only priority – not to be confused with delivering the goodies to voters. 

Voters and interest groups. Mother Gaia does not care if the electric car charging stations and solar panels are made in the US by union members or made in China at a tenth of the cost. 

Yet, after the pandemic, as Nick Stern argues, investing in tackling climate change is the best way to invest for the post-pandemic recovery. 

I will not pre-judge, but if this is more broken windows fallacies and create more jobs by using spoons not shovels, I will be skeptical. 

In sum, this looks interesting throughout and a good view into the spectrum of analysis that economists are bringing to contemporary issues. 

The list of interviewees is 

Debt sustainability

Markus Brunnermeier: Let’s compare the central bank to a race car
John Cochrane: Throwing money down ratholes
Jesús Fernández-Villaverde: Economists and the pandemic
Agnès Bénassy-Quéré: How to design a recovery plan

Tackling inequality

Oriana Bandiera: Overcoming poverty barriers
Stefanie Stantcheva: Taxes and social economics
Esteban Rossi-Hansberg: Will working from home kill cities?
Atif Mian: The savings glut of the rich

A more balanced globalisation

Dani Rodrik: Globalisation after the Washington Consensus
Pol Antràs: Is globalisation slowing down?
Michael Pettis: Trade wars are class wars

Containing the new leviathan

Daron Acemoglu: The Great Divergence
Wendy Carlin: The Third Pole
Lucrezia Reichlin: Democratising economic policy
Carol Propper: Targets and terror
Raffaella Sadun: Management for the recovery

Promoting innovation and curbing the power of digital giants

Philippe Aghion: Is ‘cutthroat’ capitalism more innovative?
John Van Reenen: The Lost Einsteins
Fiona Scott Morton: What should we do about big tech?

Combatting global warming

Nicholas Stern: Zero-emissions growth
Michael Greenstone: The real enemy here is carbon

Heckman Haiku

Jim Heckman's interview with Gonazlo Schwartz at the Archbridge Institute is making the rounds of economists. I admire it for how much the interviewer and Heckman pack in so little space, so pithy, well expressed, and so happy to trounce on today's pieties. (As blog readers will have noticed, short does not come easily to me.) It's hard to summarize a Haiku -- go read the whole thing. But I'll try.

Gonzalo Schwarz: Many commentators have said that it is not possible to achieve the American Dream any more in the United States. Do you think the American Dream is alive and well?

Dr. James Heckman: Ask any immigrant. They are grateful for the chances that America has given them. Many came with nothing. They live in decent neighborhoods and their families have better lives than they could have before coming here. Their children go to college and integrate into American society. The progress of African Americans over the past century is staggering. Many have shaken off the legacies of poverty and discrimination....

Social mobility:

G: ...what do you think are the main barriers to income or social mobility?...

H: The main barriers to developing effective policies for income and social mobility is fear of honest engagement in the changes in the American family and the consequences it has wrought. It is politically incorrect to express the truth and go to the source of problems.... Powerful censorship is at play across the entire society....The family is the source of life and growth. Families build values, encourage (or discourage) their children in school and out. Families — far more than schools — create or inhibit life opportunities. A huge body of evidence shows the powerful role of families in shaping the lives of their children. Dysfunctional families produce dysfunctional children. Schools can only partially compensate for the damage done to the children by dysfunctional families.

He is right on the fact, how blissfully it is ignored by those wishing more "policies" to address inequality and other social programs, and censorship against those who say it.

On "current academic and policy discussion on income mobility and inequality, "

Financial reform video

Capital, more capital. I did a video interview for the Chicago Booth Review, summarizing a few talks I'm giving this fall. At some point I'll put the talks together in useful form for the blog. In the meantime, the Booth team did a nice job of cutting and splicing to make me sound coherent. 

Uncommon Knowledge Interview

A broad-ranging interview on economics and policy by Peter Robinson as part of the Hoover "Uncommmon Knowledge" series. Click above for youtube, or

· Hoover Institution: http://www.hoover.org/research/whats-wrong-american-economy

· Twitter: https://twitter.com/uncknowledge/status/823926553058775042

· Facebook: https://www.facebook.com/UncKnowledge/

· Instagram: https://www.instagram.com/p/BPF8TnJgsBz/?taken-by=uncommon_knowledge_show

· Youtube: https://www.youtube.com/watch?v=spe619WX-Q4

· Bitly Link: http://hvr.co/2jqxNkp

The full transcript is available on the episode page at http://www.hoover.org/research/whats-wrong-american-economy.

EconTalk

I did an EconTalk Podcast with Russ Roberts. The general subject is economic growth, the reasons it seems to be slipping away from us and policies (or non-policies) that might help.

As in other recent projects (growth essay, testimony) I'm trying to synthesize, and also to find policies and ways to talk about them that avoid the stale left-right debate, where people just shout base-pleasing spin ever louder. "You're a tax and spend socialist" "You just want tax cuts for your rich buddies" is getting about as far as "You always leave your socks on the floor" "Well, you spend the whole day on the phone to your mother."

We did this as an interview before a live audience, at a Chicago Booth alumni event held at Hoover, so it's a bit lighter than the usual EconTalk. This kind of thought helps the synthesis process a lot for me.  Russ' pointed questions make me think, as did the audience in follow up Q&A (not recorded). Plus, it was fun.

I always leave any interview full of regrets about things I could have said better or differently. The top of the regret pile here was leaving a short joke in response to Russ' question about what the government should spend more on. Russ was kindly teeing up the section of the growth essay "there is good spending" and perhaps "spend more to spend less" ideas in several other recent writings. It would have been a good idea to go there and spend a lot more time on the question.

Testimony 2

On the way back from Washington, I passed the time reformatting my little essay for the Budget committee to html for blog readers. See below. (Short oral remarks here in the last blog post, and pdf version of this post here.)

I learned a few things while in DC.

The Paul Ryan "A better way" plan is serious, detailed, and you will be hearing a lot about it. I read most of it in preparation for my trip, and it's impressive. Expect reviews here soon. I learned that Republicans seem to be uniting behind it and ready to make a major push to publicize it. It is, by design, a document that Senatorial and Congressional candidates will use to define a positive agenda for their campaigns, as well as describing a comprehensive legislative and policy agenda.

"Infrastructure" is bigger in the conversation than I thought. But since there is no case that potholes caused the halving of America's trend growth rate, do not be surprised if infrastructure fails to double the trend growth rate. It's also a bit sad that the most common growth idea in Washington is, acording to my commenters, about 2,500 years old -- employment on public works.

Washington conversation remains in thrall to the latest numbers. There was lots of buzz at my hearing about a recent census report that median family income was up 5%. Chicagoans used to get excited about the 40 degree February thaw.

The quality can be very very good. Congressman Price, the chair of my session, covered just about every topic in my testimony, and possibly better. Congressional staff are really good, and they are paying attention to the latest. If you write policy-related economics, take heart, they really are listening.

The questions at my hearing pushed me to clarify just how will debt problems affect the average American. What I had not said in the prepared remarks needs to be said. If we don't get an explosion of growth, the US will not be able to make good on its promises to social security, health care, government pensions, credit guarantees, taxpayers, and bondholders. Something's got to give. And the growing size of entitlements means they must give. Even a default on the debt, raising taxes to the long-run Laffer limit, will not pay for current pension and health promises. Those will be cut. The question is how. If we wait to a fiscal crisis, they will be cut unexpectedly and by large amounts, leaving people who counted on them in dire straits. Greece is a good example. If we make sensible sustainable promises now, they will be cut less, and people will have decades to adjust.


Ok, on to html testimony:

Growing Risks to the Budget and the Economy.

Testimony of John H. Cochrane before the House Committee on Budget.

September 14 2016

Chairman Price, Ranking Member Van Hollen, and members of the committee: It is an honor to speak to you today.

I am John H. Cochrane. I am a Senior Fellow of the Hoover Institution at Stanford University¹. I speak to you today on my own behalf on not that of any institution with which I am affiliated.

Sclerotic growth is our country's most fundamental economic problem.² From 1950 to 2000, our economy grew at 3.6% per year.³ Since 2000, it has grown at barely half that rate, 1.8% per year. Even starting at the bottom of the recession in 2009, usually a period of super-fast catch-up growth, it has grown at just over 2% per year. Growth per person fell from 2.3% to 0.9%, and since the recession has been 1.3%.

Equity financed banking video

Video of my talk at the Minneapolis Fed's "Ending Too Big to Fail" symposium. A link to the video (youtube) in case you don't see the above embedded version. The event webpage, with links to the other talks and the agenda.  Summary: AM: Dodd Frank is a big failure, we need a big fix. PM: We'll get it to work with little fixes here and there. I posted the text of my talk earlier.

Growth Interview

I did a short interview with the WSJ's Mary Kissel about my growth oped. If you can't see the embed above, try this direct link or this one. 

Macro Musing Podcast

I did a podcast with David Beckworth, in his "macro musings" series, on the Fiscal Theory of the Price Level, blogging, and a few other things.



(you should see the link above, if not click here to return to the original).

You can also get the podcast at Sound Cloud, along with all the other ones he has done so far, or on itunes here.  For more information, see David's post on the podcast.

Rule of Law in the Regulatory State

About a month ago, I participated in a conference at Hoover, inspired by the 800th anniversary of the Magna Carta. There were lots of interesting papers.

I participated in a panel on "The Future of Freedom, Democracy, and Prosperity" with Arnold Kling and Lee Ohanian, with Russ Roberts moderating, which Russ has posted as an econtalk podcast.

The podcast gained a bit of traction, most recently with nice coverage in a Holman Jenkins Editorial in the Wall Street Journal.

All of which has finally motivated me to a neglected project, which is to polish up the essay I wrote in preparation for the panel. It's longish for a blog post, and you might prefer the formatting of the pdf version here.

The Rule of Law in the Regulatory State

1. Introduction

The United States’ regulatory bureaucracy has vast power. Regulators can ruin your life, and your business, very quickly, and you have very little recourse. That this power is damaging the economy is a commonplace complaint. Less recognized, but perhaps even more important, the burgeoning regulatory state poses a new threat to our political freedom.

What banker dares to speak out against the Fed, or trader against the SEC? What hospital or health insurer dares to speak out against HHS or Obamacare? What business needing environmental approval for a project dares to speak out against the EPA? What drug company dares to challenge the FDA? Our problems are not just national. What real estate developer needing zoning approval dares to speak out against the local zoning board?

Greece again

I read this morning's news of a deal -- we'll see how long it lasts -- with interest. Here's a video exchange with Rick Santelli on the subject on CNBC (I can't seem to get the embed to work, so you have to click the link.)

My main thought: what about the banks? The minute Greece reopens its banks, it's a fair bet that every person in Greece will immediately head to the bank and get every cent out. The banks' assets are largely Greek loans, which many aren't paying -- why pay a mortgage to a bank that's already closed and will probably be out of business soon anyway -- and Greek government debt; mostly Treasury bills that only roll over because banks hold them. They can't sell either, so the banks will instantly be out of cash.

The deal reported in today's papers really barely mentions that problem. But that is the problem of the hour.

Anat Admati profile in the New York Times

Source: New York Times

When she talks, banks shudder. A very nice profile of Anat Admati by Binyamin Applebaum in the New York Times.

The article got most of the big points right. Banks don't "hold" capital, they issue it.

“The industry has benefited from, and sometimes encouraged, public confusion. Banks are often described as “holding” capital, and capital is often described as a cushion or a rainy-day fund. “Every dollar of capital is one less dollar working in the economy,” the Financial Services Roundtable, a trade association representing big banks and financial firms, said in 2011. But capital, like debt, is just a kind of funding. It does the same work as borrowed money. The special value of capital is that companies are under no obligation to repay their shareholders, whereas a company that cannot repay its creditors is out of business."

Look for the usage "banks hold capital" in the vast majority of financial press, including newspapers that should know better, for a sense of how pervasive this fallacy is.

The article mentioned the argument that equity costs more than debt, got right that much of that is due to debt subsidies and the difference between private and social cost:

EconTalk MOOC Podcast

Russ Roberts

A podcast interview with Russ Roberts on EconTalk about my experience teaching a MOOC and thoughts on the economics of MOOCs. (The interview was based a bit on my last post here.)

Russ is a very good interviewer, and the EconTalk series quite interesting.

Richmond Fed Interview

The Richmond Fed published a long interview with me in their Econ Focus, shorter pdf (print) version here and longer web version here. Some of the questions:

• Does the 2010 Dodd-Frank regulatory reform act meaningfully address runs on shadow banking?
• So what do you think is the most promising way to meaningfully end "too big to fail"?
• Do you think there's any reason to believe recessions following financial crises should necessarily be longer and more severe, as Carmen Reinhart and Kenneth Rogoff have famously suggested?
• Many people have asked whether the finance industry has gotten too big. How should we think about that?
• What are your thoughts on quantitative easing (QE) — the Fed's massive purchases of Treasuries and other assets to push down long-term interest rates — both on its effectiveness and on the fear that it's going to lead to hyperinflation?
• Both fiscal and monetary policies have been on extreme courses recently. What are your thoughts on how they might affect each other as they move back to normal levels?
• Switching gears to finance specifically, what do you think are some of the big unanswered questions for research?
• You wrote an op-ed on an "alternative maximum tax." What’s the idea there?
• Can transfers really help the bottom half of the income distribution?
• Which economists have influenced you the most?

You'll have to click to the interview for answers!

Thanks to Aaron Steelman, Lisa Kenney and especially  Renee Haltom, who helped a lot with the editing. I'm a lot less coherent in person!

What's holding back the US economy?

This is a video I did with Steve Davis and Amir Sufi, moderated by Hal Weitzman, part of the new Chicago Booth "The Big Question" series. Youtube link here. I'm actually a lot calmer through most of it than I appear in the cover shot.

Fiscal cliff video

I did a "Chicago tonight" segment on the fiscal cliff,


The other guest, Carl Tannenbaum, is a good friend as well as a thoughtful economist. We went to high school together. It was a pleasant surprise to run in to him in the foyer of WTTW's studios.

The intro segment is worth watching too. "Chicago tonight's" producers wisely got a real tax lawyer to explain what the "cliff" is all about.


How nice to start with a quick review of strategies that "the rich" will use to avoid the new taxes.

One year from now, the studies will start rolling in (I hope) documenting how much extra revenue the fiscal cliff tax hikes actually collected from their targets. My bet: less than half of the $60 billion advertised. I'll be surprised if it's positive, actually.

Who won the fiscal cliff negotiations? Democrats? Republicans? VP Joe Biden? No. Tax lawyers, accountants, and lobbyists.

In case you think any of this had to do with deficits, I sign off today with a lovely graph from a great piece by Yuval Levin:

And it will be less than that. Yuval uses the CBO forecasts, which assume rich people don't watch "Chicago tonight" and talk to their tax lawyers.

Bloomberg TV interview

A short interview with Bloomberg TV's Betty Liu on the fiscal cliff.  No big news for readers of this blog, but maybe fun anyway.



We were just getting going when it ended. I was ready to say, if you didn't buy stimulus from spending increases, you shouldn't fear lack of stimulus from spending reductions; all government (federal, state, local) and all taxes matter; you need to include taxes and benefits, and then see the huge marginal taxes faced by poor people, and how cutting subsidies that go to rich people counts in the distributional calculus;the growth of regulation and tax chaos matters more than tax rates, Europe just showed us what happens when you try to balance the budget with sharp hikes in marginal rates....Next time.

Bad Hair Day

A short interview by Betty Liu on Bloomberg TV: (if that doesn't work a link). The ECB's big bond buying program, how "sterilizing" won't solve everything, and discussion of the WSJ Oped on the future of the Fed