Saturday, December 3, 2016

Carrier Commentary

When Paul Krugman, Larry Summers,  Sarah Palin, and the Wall Street Journal all agree on something -- that presidential deal-making and strong-arming over plant location is a terrible idea -- it's worth paying attention to.

I think Tyler Cowen did the best job of describing what's wrong with the deal, interviewed on NPR. (Transcript, Highlights and audio link).

(This is an impressive radio interview. I long to be able to express something that quickly clearly and coherently on radio. Tyler must have really prepared hard for it.)
INSKEEP: Don Evans says this is a way for the president-elect to send a strong message to workers and to corporations about what his priorities are. What's wrong with that?

TYLER COWEN: We're supposed to live under a republic of the rule of law. Not the rule of man. This deal is completely non-transparent. And the notion that every major American company has to negotiate person-to-person with the president over Twitter is going to make all business decisions politicized.

Wednesday, November 30, 2016

A Better Choice

Roll up your shirtsleeves, financial economists. As reported by Elizabeth Dexheimer at Bloomberg, Rep. Jeb Hensarling is “interested in working on a 2.0 version,”  of his financial choice act, the blueprint for reforming Dodd-Frank. “Advice and counsel is welcome."

The core of the choice act is simple. Large banks must fund themselves with more capital and less debt. It strives for a very simple measure of capital adequacy in place of complex Basel rules, by using a simple leverage ratio. And it has a clever carrot in place of the stick. Banks with enough capital are exempt from a swath of Dodd-Frank regulation.

Market based alternatives to a leverage ratio

The most important question, I think, is how, and whether, to improve on the leverage ratio with simple, transparent  measure of capital adequacy. Keep in mind, the purpose is not to determine a minimum capital level at which a bank is resolved, closed down, bailed out, etc. The purpose is a minimal capital ratio at which a bank is so systemically safe that it can be exempt from a lot of regulation.

The "right" answer remains, in my view, the pure one: 100% equity plus long term debt to fund risky investments, and short term liabilities entirely backed by treasuries or reserves (various essays here). But, though I still think it's eminently practical, it's not on the current agenda, and our task is to come up with something better than a leverage ratio for the time being.

Here are my thoughts. This post is an invitation to critique and improve.

Market values. First, we should use the market value of equity and other assets, not the book value. Risk weights are complicated and open to games, and no asset-by-asset system captures correlations between assets. Value at risk does, but people trust the correlations in those models even less than they trust risk weights. Accounting values pretend assets are worth more than they really are, except when accounting values force marks to market that are illiquid or "temporarily impaired."

Market values solve these problems neatly. If the assets are unfairly marked to market, equity analysts know that and assign a higher value to the equity. If assets are negatively correlated so the sum is worth more than the parts, equity analysts now that and assign a higher value to the equity.

Tuesday, November 29, 2016

Central Bank Governance Meeting

I'll be part of "Central Bank Governance and Oversight Reform: A Panel Discussion" at the Hoover Institution Washington DC offices, Tuesday Dec 6, 2016 10:00-12:00. The panelists will be  Michael Bordo, John Cochrane, Charles Plosser, John Taylor, and Kevin Warsh.

The occasion will be in honor of the book (cover at left), though knowing this panel I doubt we will keep to the subject and instead enjoy a thorough debate on central bank and monetary policy issues. The format will be very short presentations, followed by lively Q&A and discussion.

If you're interested in attending, follow this link to rsvp.



Wednesday, November 23, 2016

Exceptionalism

For Thanksgiving, I offer a rumination.

Last month, the Hoover Institution's fall retreat was organized around the theme of American Exceptionalism. See here for podcasts of talks from the stars -- really good. I talked about the nexus between economics, rule of law, regulation, and exceptionalism.

This was before the election, but two themes strike me as especially important still.

First: America needs rule of law, regular order, a partisan truce, even more than it needs my particular free-market policy preferences.

If Republicans overturn Obamacare in their first 100 days, with no Democratic votes; if President Trump picks up his phone and pen, undoes 8 years of Obama in the first day, and starts writing his own; and sends the agencies after his critics and enemies, we are headed for disaster.  Future president Elizabeth Warren, or President Malia Obama with Vice President Chelsea Clinton, will just do the same. There is an anectdotal story of early 20th century Chicago mayors, who alternated between German and Irish. Each one's first act in office would be to overturn the ban on whiskey (beer), and impose a ban on beer (whiskey). (Too good a story to check the facts!) Let's not do that.

Second, we must not become a country where you can't afford to lose an election. The criminalization of politics has already gone too far. If you can't afford to lose an election -- if losing or supporting the losing party or speaking out on policy issues that lose gains you the tender attentions of the FBI, the IRS, the DOJ, the NLRB, and the EPA, if you lose your job and your business -- then people in power will fight to the end not to lose that power. Though I'm no fan of the Clinton foundation shenanigans, the noises coming out of the Trump transition not to push that issue are hopeful. Losing an election, a 95% reduction in speaking fees, and the public attention that investigative journalists can bring are enough. Putin can't retire and stay out of jail -- or alive.

A last thought for Thanksgiving. The Pilgrims were all illegal immigrants -- violating their charter from the English King, and the natives' longstanding ban on white settlement. Thank the Wampanoag's tolerant attitude for your turkey.


Economics, Rule of Law, and American Exceptionalism
(Talk given at Hoover retreat October 2016) 

To be a conservative — or, in my case an empirical, pax-americana, rule-of-law, constitutionalist conservative libertarian — is pretty much by definition to believe that America is “exceptional” — and that she is perpetually in danger of losing that precious characteristic. Exceptionalism is not natural or inborn, but must be understood, cherished, maintained, and renewed each generation — and her garden is always perilously unattended.

Friday, November 18, 2016

How to raise house prices and inequality

From Chris Kirkham in today's Wall Street Journal, department of you can't make this stuff up:
Nearly two-thirds of Los Angeles voters last week approved a citywide affordable-housing requirement.... 
The rule requires that up to 25% of units in rental properties and up to 40% in for-sale projects meet affordability guidelines. Alternatively, developers can pay a fee to the city.
New York City and Seattle passed similar requirements earlier this year. 
The Los Angeles initiative goes a step further, however. It also sets wage standards for the projects. 
Developers must pay construction wages on par with those required for public-works projects, hire 30% of the workforce from within city limits, set aside 10% of jobs for certain disadvantaged workers living within 5 miles of the project and ensure 60% of workers have experience on par with graduates of a union apprenticeship program. 
The mandates could double the hourly wage for some construction trades compared with state median wages. The pay for a carpenter, for example, could rise to $55.77 an hour from $26.16, according to an economic analysis sponsored by opponents of the initiative.
I wonder what that will do to the cost of housing? Notice also that by restricting who can do construction jobs and forcing up wages, there will be lots of new unemployment among lower-skilled or new entrants to construction, often a first step up the ladder for less educated people.
... some developers will be less affected by the change. Those who build primarily affordable housing, using government subsidies, already must pay higher wages. Developers of large high-rise projects, meantime, often use union work crews.
The measure was backed in part by the Los Angeles County Federation of Labor, a union group,
A union group delighted to eliminate low-wage competition. Let them eat tacos?
“There’s a huge shortage of housing in L.A., and a huge shortage of low-income housing,” he [Shawn Evenhaim, chief executive of Los Angeles developer California Home Builders] said. “They took that problem and made it worse.”
Left out of the article, and a big question I have if anyone knows the answer: who gets "affordable" or "below market rate" housing. Rather obviously more people want subsidized housing than can get it. So who wins the lottery?

"Affordable" housing is parceled out by income limits. So what happens if you get a better job? Are you kicked out of your house? That sounds like a great recipe for perpetuating income inequality. What happens if you get a job offer somewhere far away? Can you trade one "affordable" house for another? I bet not. One more nail in the coffin of advancement.

More deeply, if these things work the way I suspect, there is a long waiting list and a lottery. Once in, you're in so long as you don't get more income. Thus, they entrench and benefit people who have been in one place a long time. And the people really hurt by "affordable" housing -- which restricts supply and raises costs of all other housing -- are newcomers, especially low-income newcomers who would like to come for better jobs. And new businesses who would like to hire ambitious low-income newcomers and give them better incomes.

So the effects are not just to raise house prices -- they are to increase inequality, reduce opportunity, especially for low skill and low income people, and reduce the economic vitality of the region.

Thursday, November 17, 2016

Yglesias discovers rule of law

Matt Yglesias (HT Marginal Revolution) writes well of the danger facing America in the era of the regulatory state.
Those who support the regime will receive favorable treatment from regulators, and those who oppose it will not. Because businesses do business with each other, the network becomes self-reinforcing. Regime-friendly banks receive a light regulatory touch while their rivals are crushed. In exchange, they offer friendly lending terms to regime-friendly businesses while choking capital to rivals. Such a system, once in place, is extremely difficult to dislodge precisely because, unlike a fascist or communist regime, it is glued together by no ideology beyond basic human greed, insecurity, and love of family.
He's talking about the Trump administration.  Matt, where have you been these last 8 years? Well, better late then ever, but wow those partisan glasses make the mirror hard to see. (I might add that this is exactly how fascist and communist regimes work in reality. Ideology is easy to find.)

Update for Fire Man (I try not to endlessly push my previous work.) The Rule of Law in the Regulatory State

Update 2. A little less snarky. Still, the danger is real. Will Republicans, now in power, say thank you very much, pick up the phone and pen, and do unto D like D did unto R? Or will they be the ones to undo tit-for-tat, shove-it-down-their-throats policy, and reestablish executive restraint at least by custom if not by statute? That will take losing or delaying some policy fights, and foregoing the delicious irony of revenge. President elect Trump did threaten to use the IRS against political enemies. Let us hope that like much else was campaign rhetoric. Will the repeal and replace Obamacare happen strictly along party lines in 100 days -- and then be overturned itself by President Warren or Chelsea Clinton? Or will they take the time and effort to get a significant Democratic buy in? Time will tell.

I did not mean to say that the worry is unfounded, only that it goes back a ways in US politics,  and the  fight would now be oh so easier if people like Yglesias had kept true to principle while their policy priorities were being shoved down people's throats, and their political antagonists were the victims of the politicized regulatory state.

Good commentary from Glenn Greenwald on the Inspector-Renault quality of this outrage.

Monday, November 14, 2016

No 100 days. Please

Dear President-Elect Trump:

The media and punditocracy are full of speculation about your "100 day" program. It sounds like you and your team might actually be preparing for one. Don't do it. Please.

I know, every new president wants to repeat Franklin Roosevelt’s hundred days: a flurry of new legislation, executive orders and agencies, dramatically changing the country (for better or worse) and cementing his (or her, someday) place in history.

It's not the time, and you're not that president. You can only achieve a similar place in history with the opposite course.

It’s not 1932. We’re not in a national political and economic emergency. Our country does not need a massive dose of new laws, new regulations, new policies, and new agencies. It has lots of laws, regulations, and agencies that aren’t working.  

The task for our time is to fix the dysfunction, soothe the polarization, get the sensible compromises passed, and clean up the administration of government. Tax reform.  Regulatory reform. Entitlement reform. Immigration reform. Criminal-justice reform.  Fix health insurance. Fix Dodd-Frank. There are straightforward, bipartisan workable if not perfect answers to most of these long-standing messes that have been torpedoed by absolutists on one side or another.  Read the Paul Ryan "better way" plan, detailed and prepackaged. If you really think you can do better, work from that basis. You don't have to write a word of new proposals yourself. The more something is someone else's idea, the easier it is to get it passed.

Find a deal. Get it done. Quietly, behind the scenes. Let your opponents in both parties have a face-saving way to help you. Don't try to shove things down people's throats, either legislators or voters. That’s what great politicians do.

Sunday, November 6, 2016

Don't Believe the Economic Pessimists

Source: Wall Street Journal
No matter who wins Tuesday’s presidential election, now ought to be the time that policy makers in Washington come together to tackle America’s greatest economic problem: sclerotic growth. The recession ended more than seven years ago. Unemployment has returned to normal levels. Yet gross domestic product is rising at half its postwar average rate. Achieving better growth is possible, but it will require deep structural reforms.

The policy worthies have said for eight years: stimulus today, structural reform tomorrow. Now it’s tomorrow, but novel excuses for stimulus keep coming...

Keep reading here, the Wall Street Journal Oped. I'll post the whole thing in 30 days as usual.

Somehow the WSJ thinks anyone is interested in growth and serious policy on the eve of the election. Or maybe they were just tired of Trump vs. Clinton and needed to fill space.  At any rate, it might give you a little reprieve from the election coverage.

Tuesday, November 1, 2016

Yellen Questions

Fed chair Janet Yellen gave a remarkable speech at a Fed conference in Boston. I have long wanted to ask her, "what are the questions most on your mind that you would like academics to answer?" That's pretty much the speech.

Some commenters characterized this speech as searching for reasons to keep interest rates low forever. One can see the logic of this charge. However, the arguments are thoughtful and honest. If she's right, she's right.

The last, and I think most important and revealing point, first:

1. Inflation
"My fourth question goes to the heart of monetary policy: What determines inflation?"
"Inflation is characterized by an underlying trend that has been essentially constant since the mid-1990s; .... Theory and evidence suggest that this trend is strongly influenced by inflation expectations that, in turn, depend on monetary policy....The anchoring of inflation expectations...does not, however, prevent actual inflation from fluctuating from year to year in response to the temporary influence of movements in energy prices and other disturbances. In addition, inflation will tend to run above or below its underlying trend to the extent that resource utilization--which may serve as an indicator of firms' marginal costs--is persistently high or low."
I think this paragraph nicely and clearly summarizes the current Fed view of inflation. Inflation comes from expectations of inflation. Those expectations are "anchored" somehow, so small bursts of or disinflation will melt away. On top of that the Phillips cure -- the correlation between inflation and unemployment or output -- is causal, from output to inflation, and pushes inflation up or down, but again only temporarily.

What a remarkable view this is. There is no nominal anchor. Compare it, say, to Milton Friedman's MV=PY, the fiscal theory's view that inflation depends on the balance of government debt to taxes that soak up the debt, the gold standard, or John Taylor's rule. In the Yellen-Fed view, "expectations" are the only nominal anchor.

Monday, October 24, 2016

A Behavioral new-Keynesian Model

Here are comments on Xavier Gabaix' "A Behavioral new-Keynesian model." Xavier presented at the October 21 NBER Economic Fluctuations and growth meeting, and I was the discussant. Slides here

Short summary: It's a really important paper. I think it's too important to be true.

Gabaix' irrationality fixes the pathologies of the standard model by making a stable model unstable, and hence locally determinate. Gabaix' irrationality parameter M in [0,1] can thus substitute for the usual Taylor principle that interest rates move more than one for one with inflation.

Monday, October 17, 2016

Levinson on growth

I disagree rather profoundly with crucial parts of Marc Levison's essay "Why the Economy Doesn't Roar Anymore" in the Saturday Wall Street Journal.

Yes, growth is slow. Yes, the ultimate source of growth is productivity. But no, sclerotic productivity is not "just being ordinary." No, our economy is not generating as much productivity growth as is possible, so just get used to it. No, productivity does not fall randomly from the sky no matter what politicians do.

Mark starts well, with a nice and vivid review of the post WWII growth "miracles."

He stumbles a bit at the 1973 Yom Kippur war and oil embargo
"Politicians everywhere responded by putting energy high on their agendas. In the U.S., the crusade for “energy independence” led to energy efficiency standards, the creation of the Strategic Petroleum Reserve, large government investments in solar power and nuclear fusion, and price deregulation. [JC: ?? The 1970s had price controls, not deregulation!] But it wasn’t the price of gasoline that brought the long run of global prosperity to an end. It just diverted attention from a more fundamental problem: Productivity growth had slowed sharply."
"The consequences of the productivity bust were severe.."
More good descriptions of eurosclerosis follow. But you see him veer off course, as  he sees little connection between the litany of ham-handed responses to the oil shock and the decline in productivity.

Thursday, October 13, 2016

Five Books to Change Liberals' Minds

"Five Books to Change Liberals' Minds" is the title of a remarkable post by Cass Sunstein.
It can be easy and tempting, especially during a presidential campaign, to listen only to opinions that mirror and fortify one's own. That’s not ideal, because it eliminates learning and makes it impossible for people to understand what they dismiss as “the other side.”

If you think that Barack Obama has been a terrific president (as I do) and that Hillary Clinton would be an excellent successor (as I also do), then you might want to consider the following books, to help you to understand why so many of your fellow citizens disagree with you:

“Seeing Like A State: How Certain Schemes to Improve the Human Conditions Have Failed,” by James Scott.....
and  closes
Having read these books, you might continue to believe that progressives are more often right than wrong, and that in general, the U.S. would be better off in the hands of Democrats than Republicans. But you’ll have a much better understanding of the counterarguments -- and on an issue or two, and maybe more, you’ll probably end up joining those on what you once saw as “the other side.”
Most public intellectual commentary these days takes a tone of parochial demonization -- the hilarious "how Paul Krugman made Donald Trump possible" is good to ponder. When such people even consider views the other side, it's  bulveristic speculation -- did bad childhoods make them evil, or are they bought? The next sentence usually bemoans polarization. This piece by Sunstein is a breath of fresh air.

Those who listen buy themselves an ear.  I usually find I disagree with Sunstein about most things (though his attempt to rein in regulation from inside the Administration is both praiseworthy and instructive in its failure). But knowing that his opinions come from such consideration, they carry more weight. It's more effective than upping low Krugmanian insult to high Bergeracian disdain.

I'm sure many of my blog readers could suggest additional books for Mr. Sunstein -- Friedman, Sowell, Murray, and so on. That's not the point. When grandma sends you books about how to clean your room, you never read them. If you want to send suggestions, send good liberal and progressive books that lovers of freedom should read.

Sunday, October 9, 2016

Volume and Information

This is a little essay on the puzzle of volume, disguised as comments on a paper by Fernando Alvarez and Andy Atkeson, presented at the Becker-Friedman Institute Conference in Honor of Robert E. Lucas Jr. (The rest of the conference is really interesting too, but I likely will not have time to blog a summary.) 

Like many others, I have been very influenced by Bob, and I owe him a lot personally as well. Bob pretty much handed me the basic idea for a "Random walk in GNP" on a silver platter. Bob's review of a report to the OECD, which he might rather forget, inspired the Grumpy Economist many years later. Bob is a straight-arrow icon for how academics should conduct themselves. 

On Volume:  (also pdf here

Volume and Information. Comments on “Random Risk Aversion and Liquidity: a Model of Asset Pricing and Trade Volumes” by Fernando Alvarez and Andy Atkeson 

John H. Cochrane
October 7 2016 

This is a great economics paper in the Bob Lucas tradition: Preferences, technology, equilibrium, predictions, facts, welfare calculations, full stop.

However, it’s not yet a great finance paper. It’s missing the motivation, vision, methodological speculation, calls for future research — in short, all the BS — that Bob tells you to leave out. I’ll follow my comparative advantage, then, to help to fill this yawning gap.

Volume is The Great Unsolved Problem of Financial Economics. In our canonical models — such as Bob’s classic consumption-based model — trading volume is essentially zero.

The reason is beautifully set out in Nancy Stokey and Paul Milgrom’s no-trade theorem, which I call the Groucho Marx theorem: don’t belong to any club that will have you as a member. If someone offers to sell you something, he knows something you don’t.

More deeply, all trading — any deviation of portfolios from the value-weighted market index — is zero sum. Informed traders do not make money from us passive investors, they make money from other traders.

It is not a puzzle that informed traders trade and make money. The deep puzzle is why the uninformed trade, when they could do better by indexing.

Wednesday, October 5, 2016

A first step to progressive consumption taxes

What's an easy way to get going on progressive income taxes? Simply remove all limits on contributions to and withdrawals from IRAs. (I thank my Hoover colleague Michael Bernstam for this clever idea, and the Hoover coffee room for bumping us into each other.)

Background: Once people see that a consumption tax, in place of income tax, corporate tax, estate tax, etc. is much simpler and more economically efficient, the natural question is "what about progressivity?" The answer is that there are lots of ways to make a consumption tax progressive.

Monday, October 3, 2016

Trump Taxes

As I see it, important points about the Trump tax affair are not yet reflected in media coverage. 1) This affair reflects the intrinsic difficulties of an income tax. A consumption tax can be more progressive -- Mr. Trump would have likely have paid a lot more. 2) Raising personal income tax rates and especially capital gains and estate tax rates will do little to raise tax payments from the likes of Mr. Trump. No taxable income = no tax at any rate. It will likely have the opposite effect, making more lawyer, accountant, and lobbyist time worthwhile.

The main issue, really, is not what taxes Mr. Trump did or did not pay after the big loss. The big issue is what taxes he did or did not pay beforehand.

Tuesday, September 27, 2016

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 essaytestimony) 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.

Monday, September 26, 2016

Furman on zoning

On this day (Clinton vs. Trump debate) of likely partisan political bloviation, I am delighted to highlight a very nice editorial by Jason Furman, President Obama's CEA chair, on the effects of housing restrictions. A longer speech here. The editorial is in the San Francisco Chronicle, ground zero for housing restriction induced astronomical prices. Furman:
 When certain government policies — like minimum lot sizes, off-street parking requirements, height limits, prohibitions on multifamily housing, or unnecessarily lengthy permitting processes — restrict the supply of housing, fewer units are available and the price rises. On the other hand, more efficient policies can promote availability and affordability of housing, regional economic development, transportation options and socioeconomic diversity...
...barriers to housing development can allow a small number of individuals to enjoy the benefits of living in a community while excluding many others, limiting diversity and economic mobility. 
This upward pressure on house prices may also undermine the market forces that typically determine patterns of housing construction, leading to mismatches between household needs and available housing. 
What's even more praiseworthy is what Furman does not say: "Affordable" housing constructed by taxpayers, or by forcing developers to provide it; rent controls; housing subsidies; bans on the construction of market-rate housing (yes, SF does that); bans on new businesses (yes, Palo Alto does that), and the rest of the standard bay-area responses to our housing problems.  The first few may allow a few lucky low-income people to stay where they are, as long as they remain low-income, but does not allow new people to come chase opportunities. Subsidies that raise demand without raising supply just raise prices more. As in child care or medicine.

Wednesday, September 21, 2016

Negative rates and inflation

Have negative interest rates boosted inflation? Here is a nice graph (source macro-man blog, HT FT alphaville)

Source: Macro-man blog
Not really. Explanations? Choose the chicken or the egg:

1) But for negative rates, inflation would have been even lower

2) We're living in a Fisher effect world. Lower rates lower inflation. (Which is arguably a good, if unintended, thing)

Tuesday, September 20, 2016

Immigration, trade, and child care

Both Mr. Trump and Mrs. Clinton want to lower the cost and, presumably, increase the amount of child care. A quick economics quiz: What is the policy change that would have the greatest such effect?

Thursday, September 15, 2016

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%.