Mike Konczal:
A Note on the Federal Reserve Dissenters’ Supply-Side Logic: [T]he dissenting arguments aren’t in the demand side but instead in the supply side. Instead of thinking we have a demand problem but that monetary policy is ineffectual in this environment – an opinion held by many people – the arguments they use to tell the public about why they are against future monetary policy uses the language of the supply-side....
Fisher....
Mr. Fisher discussed the fragility of the U.S. economy but felt that it was chiefly nonmonetary factors, such as uncertainty about fiscal and regulatory initiatives, that were restraining domestic capital expenditures, job creation, and economic growth....
Those with the capacity to hire American workers―small businesses as well as large, publicly traded or private―are immobilized. Not because they lack entrepreneurial zeal or do not wish to grow; not because they can’t access cheap and available credit. Rather, they simply cannot budget or manage for the uncertainty of fiscal and regulatory policy...
Kocherlakota....
There are good reasons to believe that expected after-tax productivity p fell.... [F]irms know that hiring a worker is a multiyear commitment, and so what matters for that decision is productivity, net of taxes, over the medium term of the next several years. If firms expect to face higher taxes in this time frame, then their measure of p has fallen. What about the utility that a person derives from not working? In response to the recession, the federal government extended the duration of unemployment insurance benefits.... [I]f (p−z) has fallen by 0.15, then the implied u* is 8.7 percent. This is indeed a wide range of possibilities....
Plosser....
Mr. Plosser’s answer is unequivocal: This mess was caused by over-investment in housing, and bringing down unemployment will be a gradual process. “You can’t change the carpenter into a nurse easily, and you can’t change the mortgage broker into a computer expert in a manufacturing plant very easily. Eventually that stuff will sort itself out. People will be retrained and they’ll find jobs in other industries. But monetary policy can’t retrain people. Monetary policy can’t fix those problems...
Scott Sumner has devastated the argument that this is about unemployed carpenters with a passing glance at the data, and as far as I can see Plosser has offered little additional data.... [W]hen we look at the three dissenters they don’t have a demand story where monetary policy can’t work. They have a story where things would be fine if the government just got out of the way and stopped trying to regulate the financial sector, focused on balancing the budget immediately and also stopped preventing people from moving to new careers by giving them unemployment insurance and hope that unemployment will come down anytime soon.
How did these people ever end up being some of the most important people in the country went it comes to whether or not our country will leave the Great Recession and get back to Full Employment?
Indeed. The shareholders and directors of the Federal Reserve Banks of Minneapolis, Dallas, and Philadelphia need to look themselves in the mirror, and make some changes...
It is, I must say, remarkable that Plosser has managed to avoid learning that the housing bust since 2007 has been much larger than the mid-2000s housing boom, and that there is no overhang of overbuilt houses, rather the reverse:
And it is remarkable that Narayana Kocherlakota has failed to learn that the real cost of financing today's (large) government debt is less than the cost of financing the debt back in 2007:
And it is remarkable that Narayana Kocherlakota has been unable to look at a supply-demand graph and notice that the fall in hires has not been accompanied by a rise in wage pressure:
And it is perhaps most remarkable of all that Richard Fisher does not seem to be aware of the course of the unemployment rate in Texas:
