There’s good PC and bad PC.  The good PC says you should not go around calling Mexicans “rapists and murders”.  The bad PC is harder to explain, but I tried in this Econlog post.  The real problem is not so much the idea of political correctness, but rather that it is used as a weapon in an ideological war.  More specifically, it’s used by the left to shame the right.  Viewed from this perspective, you could say that if the PC advocates are correct about the need for PC, then it’s actually used far to little. It also needs to be used against the left.  Here’s Pascal-Emmanuel Gobry in The Week:

If there are saints in the church of secular progressivism, the Hollywood Ten are surely among them. These are the individuals who worked in Hollywood and were cited for contempt of Congress for refusing to answer the question, “Are you now or have you ever been a member of the Communist Party?” — thus becoming political martyrs.

In its popular form, the story of the Hollywood blacklist has been distorted somewhat. While the fear of Communist agitators — a fear not wholly removed from fact — working in Hollywood was used by Sen. Joe McCarthy for opportunistic political motives, the movement was originally launched by private individuals genuinely interested in removing Communist influence from Hollywood, and they did this through peaceful, “non-coercive” means: naming and shaming, boycotts, and threats of boycotts.

Several members of the Hollywood Ten actually were members of the Communist Party and had remained members of the Communist Party even after the Stalinist Purges of the 1930s that removed that party’s credibility in America. That is to say, whatever their other beliefs or intentions, they endorsed the end of liberal democracy and the advent of a global totalitarian government ruled by Joseph Stalin or someone like him. And yet, the idea that such people should be blacklisted is regarded as anathema by the contemporary left. So they are seen as progressive saints.

The problem actually goes far beyond the Hollywood Ten. Much of the 20th century left is morally tainted by being soft on communism (just as much of the right was tainted by being soft on fascism).  Even today, many 20th century artists are revered on the left for being “politically conscious”, when in fact they knowingly supported genocidal communist regimes.  Sorry, but that’s not OK.

I point this out because you may have heard that the renowned Silicon Valley investor Peter Thiel, a man whom it is seemingly impossible to refer to without using the word “contrarian,” is a supporter of Donald Trump. After Thiel recently decided to donate $1.25 million to Trump’s campaign, the group Project Include, led by former venture capitalist Ellen Pao, has decided to sever ties, not even with Thiel himself, but with Y Combinator, a renowned Silicon Valley incubator that has named Thiel as a part-time partner.

It seems that on the progressive left, blacklists are only bad when they target a certain group of people.

This helps to explain part of the appeal of Donald Trump.  His supporters see how PCism is used as a cudgel against them, and how large groups of Americans (on the left) are completely exempt from criticism by the cultural elites.  Their resentment pushes them to unfortunate extremes, supporting someone who engages in both the morally justified and morally unacceptable types of political incorrectness.  But it’s entirely predictable that you’d get this sort of backlash.

If the left wants to be taken seriously on political correctness, they need to write an entirely new history of the 20th century.  In this new history, many of their most revered artists will become Leni Riefenstahls.  I don’t think there is anyone on the left that is willing to look history in the eye, in quite that way.  I hope I’m wrong.

PS.  Here’s an example, if you don’t know what I’m talking about.  The 1930 Soviet (Ukrainian) film “Earth” is a fine film on pure aesthetic grounds. (But then the same could be said of Riefenstahl’s films.)  It also has a very sinister subtext, as it portrays kulaks as villains.  Recall that Stalin demonized and murdered them by the millions, just as Hitler demonized and murdered the Jews.  Now let’s consider a typical film review of Earth, this one from “Senses of Cinema” (but you could find another dozen similar ones):

Seen today as the final work in a loose trilogy that also comprises Zvenigora (1928) and Arsenal (1929), Earth is Dovzhenko’s ultimate paean to nature, the land and those who toil on it and whose lives are inextricably bound up with it. The film is literally teeming with grandiose images of the natural world: such as the opening shots of a vast sky and rolling fields, of sunflowers and apples. The farmers collective relationship to this world and its order is immediately established through the juxtaposition of an old man dying (the end of life, of a cycle) and young children (the beginning); the fact that they are eating the apples that lie strewn on the grass further crystallises the sense of a constant, natural cycle of birth, growth and death (as does the justly famous shot of a woman and a sunflower, in which the composition makes them almost graphically contiguous across the frame).

It goes on and on in these glowing terms, with no reference to the sinister implications.  (Imagine the critical response to a typical Nazi-era German film that mocked Jews.)  The humanities in most countries are heavily tainted by their ambiguous relationship with communism.  Lots of people assume that the problem has gone away, now that the Cold War is over.  Not so, it’s as bad as it ever was–indeed getting worse.  Support for communism among millennials is rising fast, with 37% having a favorable view of Che Guevara.  That’s more than for Trump!  You can find posters of Guevara on the walls of faculty offices in many colleges across the country.  Indeed 18% even have a favorable view of Mao.  And liberals can’t imagine how 40% of Americans plan to vote for Trump (some with an unfavorable view of him).

PPS.  My daughter’s high school has a picture of Mao on one of its wall murals.  No picture of Hitler, however.  Seems they don’t care about the feelings of those students whose parents fled communist China.  Maybe Newton, Massachusetts needs a bit more political correctness.

During the fourth quarter of 1980 and the first quarter of 1981, America’s NGDP soared at an annual rate of more than 19%.  And yet unemployment hardly budged, slipping from 7.5% in September 1980 to 7.4% in March 1981.  What went wrong?

I’d like to suggest that the past decade is basically the 1970s without the inflation, at least in one important respect.  Before explaining why, let’s first consider the differences.  The period from 1971 to 1981 saw roughly 11% NGDP growth, which included about 3% real growth and 8% inflation.  That’s a lot more real growth than today.  In addition, labor force participation was rising sharply, whereas in recent decades it has been falling.  On the unemployment front, however, we are doing better today.

Now let’s imagine a policy counterfactual where, beginning in 1965, the Fed keeps inflation close to 2%.  Here are my claims:

1.  Under that monetary policy, we would have had roughly 5% NGDP growth from 1971 to 1981.

2.  Real growth would have still been about 3%, with inflation about 2%.

3.  The unemployment rate in late 1980 and early 1981 would have still been about 7.5%.

All of these predictions are based on the assumption that money is roughly neutral in the long run, that the Natural Rate Hypothesis is roughly (not exactly) true when NGDP growth avoids deep declines.  And most importantly:

4.  In that counterfactual, I believe that economists would have misdiagnosed the unemployment problem, assuming it reflected a sort of secular stagnation, a lack of aggregate demand.

We now know that what actually happened is that the natural rate of unemployment rose by a couple points between the late 1960s and the early 1980s.  We don’t know exactly why (theories includes more women and minorities and young people in the labor force, oil shocks, deindustrialization, environmentalism, more generous benefits for not working, etc.), but clearly the natural rate was increasing.  If 19% NGDP growth isn’t enough to make a dent, it’s fair to say that the high unemployment is not due to a “demand shortfall”.

Today, America is not faced with a higher natural rate of unemployment—it’s probably back around 4.5% to 5%.  Instead, we are faced with a different structural problem—a decline in the labor force participation rate (LFPR). Among men, this rate has been trending lower for at least 5o years.  We don’t know all the causes, but it’s clearly not just the Great Recession.  And once again, people are assuming that a structural problem is due to a lack of demand.

I believe they will once again be disappointed.  Our problems are much deeper than a demand shortfall.  That’s not to say that monetary policy should not be more expansionary.  Perhaps the economy still has a bit of slack, and the inflation rate has recently undershot its 2% target.  I’m making a broader claim.  The broad outlines of the 2016 economy are not going to change substantially with monetary stimulus.  We might get unemployment down to 4.5%, and the LFPR might rise a bit more.  And those would be very good things.  But we are still going to be stuck with a trend rate of RGDP growth of barely over 1%, and a LFPR rate (for men) that is quite disappointing by historical standards.  And that’s not even factoring in the lousy supply-side policies of the next president.

In the 1970s, we discovered the structural nature of the problem more quickly than today, because we had such high NGDP growth.  Our current sub 2% inflation rate has indeed represented a modest demand shortfall, and that is a small part of the problem.  But it doesn’t really come close to explaining the extent to which growth has slowed.  Inflation also averaged about 1.5% during the first half of the 1960s, but growth was fine.  “Lowflation” is a problem because it means the Fed is not hitting its target.  But it explains at most only a small fraction of the very low RGDP growth rate since 2006, as well as the current very low LFPR.

PS.  I believe that the Great Inflation is best described in terms of NGDP growth, not price inflation.  That makes it easier to see that it was a 100% demand-side problem; RGDP growth was fine.  Today I was pleased to see the Financial Times also using that metric:

According to Bank of America Merrill Lynch, the current global recovery is the least inflationary of all time, with nominal GDP (growth plus inflation) growing just 11 per cent in the last seven years.

That’s total!  (Not the annual average.)

That was from an article discussing the new Chinese growth data.  At the same time, there are a few “green shoots” for the global nominal economy.  Chinese NGDP growth is up to 7.8%, from a low of (I think) about 5.8% at the end of last year.  Chinese PPI inflation turned positive for the first time since early 2012, and CPI inflation is up to 1.9%.  The overvaluation of the yuan seems to be ending. Eurozone inflation also has been rising, albeit from a very low level.  I’m most pessimistic about Japan; they need to sharply depreciate the yen if they are serious about their 2% inflation target.  Will they?

Chinese growth is expected to slow to 6% in 2017, as the housing boom cools.  That’s still an excellent figure for a middle-income country with near-zero population growth.  Consumption will lead the way next year, as housing construction slows.  But China is by no means out of the woods. They still face a very tricky transition from a housing construction economy to a services economy.  Lots could still go wrong–just not yet.

Tyler Cowen linked to a Binyamin Appelbaum interview of Boston Fed President Eric Rosengren:

Q. A number of the academics at this conference said they don’t think you should be trying to raise rates. What do you make of their hesitations?

A. We haven’t hit 2 percent inflation for a while. Some of them have argued that we should in effect be price-level targeting, which is to say that the misses that we’ve had in the past ought to be made up in the future. So they have a different model than we actually are using for monetary policy. We have an inflation target right now. If we wanted to move to price-level targeting, as was advocated by a number of the academics at the conference, we should have that discussion. We should announce it publicly. I don’t think we should do it without telling the public.

I think also the inability of so many central banks to hit their 2 percent inflation target has caused some people to say, “I want to actually see evidence that you can hit 2 percent, and since we’ve just seen the consequences of hitting the zero lower bound, I want to take out some insurance against hitting the zero lower bound more quickly.” I think both concerns are credible. My concern with those arguments would be that the very scenario that causes the next recession might be that we overshoot.

Rosengren currently favors an increase in the Fed’s target rate, whereas I’m a bit more skeptical.  But I do applaud the way he analyzes these issues.  Level targeting makes a lot of sense, but only if you’ve announced that you are going to do level targeting.  Otherwise it may end up destabilizing the economy.  Monetary policy would react in ways that the markets did not anticipate.

The next recession is likely to have the same cause as the previous one—Fed tightening triggered by inflationary concerns.  If you run 3% inflation for a while because you are doing level targeting of prices, that’s fine.  But if you run 3% inflation, and then tighten because inflation is over your 2% target, then the high inflation could trigger another recession.

That’s why I keep insisting that the Fed needs a completely new strategy (NGDPLT), and that we focus far too much on minor tactical issues, such as the question of whether the Fed will raise rates in December.

In contrast, when the economics profession should have been screaming tight money from the rooftops (say in 2008) they were almost completely silent (except a few MMs, and people like Bob Hetzel.)

PS.  Here’s another quote I like:

So you don’t see instances where we go from 4.2 percent to 4.7 or 5 percent and level off. What you actually see is when we start tightening we end up with a recession.

I’ve done a number of posts pointing to the fact that the US does not have any mini-recessions, whereas our macro models predict that mini-recessions should be more plentiful than actual recessions.  That is, when unemployment start rising, you don’t see it rise 1.0% or 1.5%, and then stop.  It either rises by only a tiny bit, or by a lot.  The Fed needs to prevent those cases where it rises by a lot. (Oddly, other countries do have mini-recessions.)  If we switched to any sort of level targeting (P or NGDP), then I predict the US would start having mini-recessions instead of normal recessions.

If the British keep shooting themselves in the foot, before long they are going to run out of toes.  Here’s the latest outrage:

“THEY are not, and never have been, immigrants.” So declared Enoch Powell of international students in an infamous speech against migration in 1968. Ending up to the right of Powell, who was as fierce a critic of immigration as they come, is an uncomfortable position. But that is where Theresa May’s government finds itself with respect to overseas students. As part of a plan to reduce the number of migrants, on October 4th Amber Rudd, the home secretary, announced new restrictions on foreign students, including tougher entry requirements for those going to lower-quality institutions. The proposal is merely the most recent attempt to deter foreigners from paying tens of thousands of pounds to study in Britain.

Since the turn of the century the number of foreign students in Britain has more than doubled (see chart). In contrast to Britain’s overall immigration trend, growth has come not from Europe but from the rest of the world. Chinese students are by far the biggest group, numbering 89,540 last year, up from 47,740 in 2004. The steep fees paid by non-EU citizens have made higher education an important British export. By one estimate foreign students contribute £7 billion ($8.6 billion) a year to the economy in fees and living expenses.

.  .  .

Other countries spy an opportunity. Australia and Canada, popular alternatives for Asian students seeking an English-language education, offer (limited) chances to stay and work, making them attractive destinations. Australia has simplified its student visa system to boost its appeal. Germany is offering more courses in English. And since 2014 public universities there have largely abolished tuition fees, including those for foreigners. This month the Irish government revealed plans to encourage more foreign students. “Everybody is doing the exact opposite to us,” laments Ms Owen Lewis. While the number of foreign students in Britain has stalled, in other countries it is zipping up. In Australia it increased by 11% last year.

Nor does the crackdown look politically necessary. A YouGov poll last year found that students were the most popular group of migrants among voters, three-quarters of whom thought their numbers were about right or should be higher. Even supporters of the right-populist UK Independence Party were keen on them. Reducing immigration in general will hurt Britain’s economy; barring fee-paying students is a particularly damaging way to do it.

Wow, Theresa May has ended up to the right of both Enoch Powell and the UK Independence Party.  I opposed Brexit out of fear that it would open the door to right-wing nationalism, but even I never dreamed that it would end up being this bad.

Statism and nationalism, a poisonous combination.

Trump has raised a lot of new issues in this campaign, including political correctness, trade, and most importantly, immigration.  So will these issues become increasingly important in the future, even if Trump loses?  Don’t count on it.

1.  Trump is doing absolutely horribly among the younger voters, including generation X and Y. Every day, lots of older Trump voters die off, and lots of teenagers who went to diverse high schools and are comfortable with people from many different cultures turn 18, eligible to vote.

2.  Trump does well among blue color whites.  Every day, lots of those voters retire, and some die off.  Younger white people in places like Iowa who used to work in meat packing plants now get service sector jobs.  The plants hire Mexicans instead.  The remaining factory jobs that do hire whites often employ skilled technicians.  Again, the Trump “base” is shrinking rapidly.

3.  The white, non-Hispanic share of the population will continue to shrink.  There is some evidence that the GOP might be able to make gains with groups like Chinese-Americans, but even there the appeal is limited to certain issues like political correctness (which the Chinese see through the lens of China’s Cultural Revolution) and affirmative action in college admissions. Issues like trade and anxiety about legal immigration will not attract Chinese immigrants.

Many stereotypes have a grain of truth, but also cover up a lot of important nuance.  This article says the Trump issue is all about the cities versus the countryside.  OK, but it’s also worth noting that:

1.   American farmers are doing well.

2.  American farmers benefits more from trade than almost any other group.

3.  American farmers benefit from cheap illegals helping to harvest their crops.

Trumponomics would be horrible for America’s farmers.  Yes, I know that most rural people are not farmers, and that many farmers support Trump.  It’s just that these stereotypes cover up a lot of complexity.  Trump will lose Michigan badly and win the south central states.  Of course the auto industry has fled Michigan, and expanded rapidly in the  . . .  yes, south central states.  So it’s all about economics?  You might say, “Yes, he’ll lose Michigan badly but win in depressed Detroit”. Except he won’t, he’ll get slaughtered in Detroit, and Cleveland, and Pittsburgh, and St Louis, and Buffalo, and Baltimore. . . .

And yet in those cities Trump will get lots of votes from white cops and fireman (service jobs!) who get nice salaries and need not fear foreign competition.  Cops who enjoy patrolling immigrant Asian neighborhoods because there is so little crime.  This is a really complicated country—all generalizations are false, (except this one).

In a two-party system, each party wins the presidency about 1/2 of the time each century.  There is a natural equilibrating mechanism, as one party fulfills its various promises, the “issues” seem to become more and more favorable to the “out” party.  In addition, the out party usually begins to adjust its policy views to become more “marketable.”  That’s why I expect the GOP Congress to cave in to Clinton on both the minimum wage and amnesty.  The GOP wants those issues off the table in 2020—they want to run against Clinton’s stagnating economy, high taxes and over-regulation, without being seen as racist and anti-low wage worker.

Pundits that think we can never go back to the old Mitt Romney “country club” Republican Party may be in for an unpleasant surprise.  Or perhaps I should say “pleasant surprise” if the Alt-Right is the alternative.