SEPTEMBER 29 2016

Ben Bernanke, Brookings: Modifying the Fed’s policy framework: Does a higher inflation target beat negative interest rates? It would be extremely helpful if central banks could count on other policymakers, particularly fiscal policymakers, to take on some of the burden of stabilizing the economy during the next recession. Since that can’t be assured, and since the current low-interest-rate environment may persist, there are good reasons for the Fed and other central bankers to consider changes in their policy frameworks. The option of raising the inflation target should be part of that discussion. But, as I have argued in this post, it is premature to rule out alternative or potentially complementary approaches, including the possibility of using negative interest rates.

Larry Summers, FT: Building the case for greater infrastructure investment. The case for infrastructure investment has been strong for a long time, but it gets stronger with each passing year, as government borrowing costs decline and ongoing neglect raises the return on incremental spending increases. As it becomes clearer that growth will not return to pre-financial-crisis levels on its own, the urgency of policy action rises. Just as the infrastructure failure at Chernobyl was a sign of malaise in the Soviet Union’s last years, profound questions about America’s future are raised by collapsing bridges, children losing IQ points because of lead in water and an air traffic control system that does not use GPS technology.

 

John Lewis, BoE: Robot Macroeconomics: What can theory and several centuries of economic history teach us? On the plus side, if you are worried about secular stagnation then robots offer you a couple of reasons to be cheerful.   First up, if robotisation does constitute a major productivity gain that raises the marginal productivity of capital, then this should push up on long run-equilibrium real rates, and hence ease fears of secular stagnation.  Second, whilst economic theory usually assumes that technological growth means capital is just costlessly melted down and made into newer, more productive machines, in practice, some innovations might require scrapping of old capital, and hence a wave of new investment.

Robert Rich, Joseph Tracy, Ellen Fu; NY FED: U.S. Real Wage Growth: Slowing Down With Age. Life-cycle pattern of real wage growth is characterized by high growth early in a worker’s career, little to no growth in mid-career, and negative growth as workers near retirement. A growing fraction of the U.S. adult population is transitioning into the flat to negative real wage growth phases of their careers. Here, we turn our attention to estimating the effect of this demographic shift on the economy-wide average real wage growth rate. Our analysis shows that this economy-wide average real wage growth rate has declined by a third since the mid-1980s.

The National Academies of Science: The Economic and Fiscal Consequences of Immigration. The number of immigrants living in the United States increased by more than 70 percent—from 24.5 million (about 9 percent of the population) in 1995 to 42.3 million (about 13 percent of the population) in 2014. One set of headline questions concerns the economy, specifically jobs and wages. Other questions arise about taxes and public spending. The literature on employment impacts finds little evidence that immigration significantly affects the overall employment levels of native-born workers. However, recent research finds that immigration reduces the number of hours worked by native teens. There is some evidence that recent immigrants reduce the employment rate of prior immigrants. Cross-sectional data from 1994-2013 reveal that, at any given age, the net fiscal contribution of adults in the first generation (and not including costs or benefits generated by their dependents) was on average consistently less favorable than that of the second and third-plus generations. Viewed over a long time horizon (75 years in our estimates), the fiscal impacts of immigrants are generally positive at the federal level and negative at the state and local levels.

Robert J. Shiller, NYT: Today’s Inequality Could Easily Become Tomorrow’s Catastrophe.  Truly extreme gaps in income and wealth could arise from many causes. Consider just a few: Innovations in robotics and artificial intelligence, which are already making many jobs uncompetitive, could lead us into a world in which basic work with decent pay becomes impossible to find. An environmental disaster like global warming, pollution or disease could sharply reduce the ability of people of ordinary means to live in specific regions or entire countries.

The Economist: Post-truth politics. Art of the lie. That politicians sometimes peddle lies is not news. But post-truth politics is more than just an invention of whingeing elites who have been outflanked. The term picks out the heart of what is new: that truth is not falsified, or contested, but of secondary importance. Once, the purpose of political lying was to create a false view of the world. The lies of men like Mr Trump do not work like that. They are not intended to convince the elites, whom their target voters neither trust nor like, but to reinforce prejudices. Feelings, not facts, are what matter in this sort of campaigning.

Daily Mail: The police dog that can sniff out child porn. Dog named Ruger can detect a chemical found on flash drives or SD cards. This allows him to sniff out stashes of electronics to bust pedophiles. The dogs are trained by isolating the odor specific to these devices. Soon, he will join the K9 unit to sniff out pedophiles for the Internet Crimes Against Children Task Force.