The first part of the talk makes some unoriginal claims about the role of Bayesian thinking.
Despite being unoriginal, and obvious to me and to a minority of econometricians, they are unfamiliar, thought-provoking, or outrageous to quite a few econometricians....
The latter part of the talk discusses some areas of econometric application where frequentist asymptotics seems particularly persistent and suggests how Bayesian approaches might become more practical and prevalent.
[Sarcasm]Yes, I know: "small businesses and families are tightening their belts. Their government should, too".
Deficit spending leads to national default. More debt means rising expectations of inflation, and so the Federal Reserve has to tighten and raise unemployment above the natural rate in order to hit its inflation target once inflation expectations have become de-anchored due to high debt.
Back in the fall of 1979 in his last lecture for Econ 2010c Martin Feldstein said that one of the Keynesian arguments was that economies could get wedged in a situation of high unemployment and slack demand because of "badly behaved functions". Normally, he said, market adjustment processes should work so that slack demand was an excess of ex ante savings over investment, which would lower real interest rates, which would lower the value of the currency, and these would boost the interest rate- and exchange-rate sensitive components of investment like exports and construction and that would push the economy back into full-employment balance. But, he said, badly-behaved functions could make it so that real interest rates did not fall far enough in any reasonable time, or interest- and currency value-sensitive components of spending did not rise far enough fast enough.
I did not understand what he was saying then. I certainly do understand it now.
“I’m from a district that pretty much ignores Washington. If you say government is going to shut down, they say, ‘OK, which part can we shut down?’”
--Rep. Tim Huelskamp, R-Fowler, to Associated Press
Farm subsidies! Shut down farm subsidies! Move farm subsidies from the "mandatory entitlements" to the "discretionary appropriations" side of the budget, and Congressman Huelskamp would switch his attachment to government shutdowns with the force of twenty mules!
In an average year, Congressman Huelskamp's First District collects roughly $1.5 billion in farm commodity and crop instance subsidies. There are about 20,000 farmers in the First District.
You do the math: That's $75,000/year per farmer in the district. That's $9,000/year for every family of four living in the district--a district where mean household income is $50,000/year.
I tell you, the Californias and the New Yorks and the Massachusettses... the Bostons and the San Franciscos and the Los Angeleses and the New York Cities... Those Americans who live in such places know that we work hard, and are smart. But we also know that we have been very lucky. And we know that we are Americans. And so we don't really mind having our net tax dollars flow out of our communities to pay for a Medicaid beneficiary in Salinas, KS, or a Social Security recipient in Emporia, KS. We even don't mind that much paying to keep the farms going--we can envision futures in which global warming disrupts crop production in other places and the world is very glad to have Kansas agriculture on-line and tuned-up.
But we do mind Congressman Huelskamp's and his constituents pretending that it does not happen: that the First is a self-reliant rugged-individualist district, rather than one that feeds much more greedily than most via redistribution of what the rest of us produce.
As the Duke of Wellington said of the generals of the British army, I say of the Kansas congressional delegation: they may or may not scare our adversaries, but they certainly frighten me...
Rather than apologizing for these cancelations, [the administration] should be bragging about them.... Imagine a new law enacted to promote food purity. As it is being debated, you are told ‘if you like what you eat, you can keep on eating it.’ The new law takes effect, and one day you find that the market no longer carries certain foods you have been buying... [which] included elements found to be bad for your health. The pure food act barred their use.
During the next few hours a hard and bitter firefight develops, but we are able to hold the enemy back. Our ATG destroys five T-34s. Later, another seven are captured, having run out of fuel and been abandoned by their crews.
The enemy infantry, pushed back, have dug in only a few hundred metres from our positions, but most of them can avoid our fire by staying hidden in a hollow just 100 metres away. We selected this hillock at the edge of the village for our HMGs because of the excellent view it commands, but there is this shallow depression, with tall grass growing in it, offering concealment.
Brock Mendel and Andrei Shleifer: Chasing Noise:
> We present a simple model in which rational but uninformed traders occasionally chase noise as if it were information, thereby amplifying sentiment shocks and moving prices away from fundamental values. In the model, noise traders can have an impact on market equilibrium disproportionate to their size in the market. The model offers a partial explanation for the surprisingly low market price of financial risk in the spring of 2007.
Paul Krugman: Award-winning Paragraphs:
John Taylor has accomplished something sort of amazing: he has managed to write the two worst paragraphs I’ve read this week. Here they are:
ROME, Ga.--Tom Hackett’s life in the meat business was nearly gone.... Hackett stood behind the case and lamented that in a few hours he would be closing the store he has run for five years. The weak local economy... the new chain grocery... the bank that said it couldn’t lend to him anymore. But the biggest culprit, he said, was a man in Washington whose name Hackett could not bring himself to speak.
Let me start by saying that I have enormous respect for Ezra Klein, whose work in creating and maintaining WonkBlog has, I would argue, made him the brightest spot and the greatest hero twenty-first century American journalism has seen.
And let me start by saying that I also have enormous respect for Jim Tankersley: a smart, honorable, and hard-working reporter who knows immense amounts about the American economy and about public policy, and who tries his best to inform his readers on both print and screen within the limits of the institutional role allotted him.
And let me say that his 1700 word piece on the economy and politics of Tea-Party hub Rome, Georgia can be and has been read with enormous profit by me and people like me.
Joshua Bloom: Wealth and Labor in the Cognitive Automation Era:
Disruptive technologies have always been greeted with a concern—and many times a back reaction—by the institutions that they are, or are meant to, disrupt. In the startup world, we think about disruption as replacing established technologies and ways of doing things with compelling (and better) alternatives, challenging incumbent market dominants. But disruption also means changing how people work, and therefore also means upheaval in labor markets. [October 25], in the Uncharted Forum here in Berkeley, I discussed artificial intelligence on stage with former Deputy Assistant Secretary of the Treasury Brad DeLong (also a professor with me at Berkeley). Uncharted is a new ideas-exchange event modeled in part after SXSW, Ted and Davos.
Daniel Little: Understanding Society: Why a war on poor people?:
American conservatives for the past several decades have shown a remarkable hostility to poor people in our country. The recent effort to slash the SNAP food stamp program in the House (link); the astounding refusal of 26 Republican governors to expand Medicaid coverage in their states--depriving millions of poor people from access to Medicaid health coverage (link); and the general legislative indifference to a rising poverty rate in the United States--all this suggests something beyond ideology or neglect.... How is it possible to explain this part of contemporary politics on the right? What can account for this persistent and unblinking hostility towards poor people?
One piece of the puzzle seems to come down to ideology and a passionate and unquestioning faith in "the market". If you are poor in a market system, this ideology implies you've done something wrong.... Another element here seems to have something to do with social distance.... A crucial thread here seems to be a familiar American narrative around race...
Brad DeLong : James Scott and Friedrich Hayek: October 24, 2007:
JAMES SCOTT AND FRIEDRICH HAYEK
My review of James Scott (1998), Seeing Like a State: How Certain Schemes to Improve the Human Condition Have Failed (New Haven: Yale University Press: 0300070160):
There is a lot that is excellent in James Scott's Seeing Like a State:
On one level, it is an extraordinary well-written and well-argued tour through the various forms of damage that have been done in the twentieth century by centrally-planned social-engineering projects--by what James Scott calls "high modernism" and the attempt to use high modernist principles and practices to build utopia. As such, every economist who reads it will see it as marking the final stage in the intellectual struggle that the Austrian tradition has long waged against apostles of central planning. Heaven knows that I am no Austrian--I am a monetarist-Keynesian, a liberal, and a social democrat--but within economics even monetarist-Keynesian liberal social democrats acknowledge that the Austrians won total and decisive victory in their intellectual war with the central planners long, long ago. This book marks the final stage because it shows the spread of what every economist would see as "Austrian ideas" into political science, sociology, and anthropology as well. No one can finish reading Scott without believing--as Austrians have argued for three-quarters of a century--that centrally-planned social-engineering is not an appropriate mechanism for building a better society.
Nobel prize winner Eugene Fama was on CNBC earlier today to discuss the Federal Reserve and its extraordinary monetary policy. Pragmatic Capitalism's Cullen Roche flagged this heated exchanged between Fama and CNBC's Rick Santelli. Santelli asked specifically about the effects of the Fed's quantitative easing program and the risks associated with it. [Fama answered:]
What they are doing... the effects are being greatly inflated by the accounts. What they've doing is issuing a lot of short-term debt--$85 billion a month--and using it to buyback long-term debt with the goal of lowering the interest on long-term debt. Now they take credit for lowering interest on short-term debt. But in fact what they've been doing should've raised rates on short-term debt.
The profound cluelessness as to what is going on in financial markets today is mind-numbing. I mean, we could understand a finance economist not understanding labor market institutions or events, or an industrial organization specialist not understanding monetary economics. But this is cluelessness about finance on the part of a finance economist.
It goes on.
David Weigel: The Odd, Painful, and Bizarre Final Days of Ken Cuccinelli:
Cuccinelli’s Fairfax rally was meant for the other voters, the ones being outnumbered. Shortly before 3 p.m., they streamed in, signed up for get-out-the-vote operations, and picked up Cuccinelli or “I Am the NRA” signs being passed out by volunteers. When Cuccinelli arrived, it was side by side with [Rand] Paul, the two of them hoisting 64-ounce Double Big Gulps. “I heard Mike Bloomberg wanted to buy the governor’s office down here,” [Rand] Paul explained, “and I figured after he took my Big Gulp, he’d come after my guns.” Earlier in the day, in Lynchburg, Va., Paul had warned conservatives that genetic testing could lead to a dystopian eugenic future...
A Question for Olli Rehn:
Back in 1944 at Bretton Woods, John Maynard Keynes made an eloquent argument that economic adjustment should not be the duty of deficit countries but should be shared symmetrically.
How much easier would your tasks have been and be if hos point of view had carried the day, and become a settled part of international institutional practice?
After reading Suzanne Somers on ObamaCare in the Wall Street Journal, Anil Dash writes:
Next the WSJ will run a denial of income inequality penned by the General Lee from Dukes of Hazzard. (The car will get its math wrong.)
I am afraid all I can offer him today is John Taylor, whose thesis really is: Blame Barack Obama for the shutdown and debt-ceiling debacles of October:
It is a common view that the shutdown, the debt-limit debacle and the repeated failure to enact entitlement and pro-growth tax reform reflect increased political polarization. I believe this gets the causality backward..... [It's the Obama] economic policy changes... growing out of the 2008 financial crisis...
These debacles were, in John Taylor's mind, really not the fault of the Tea Party, the House Republican "grownups" who decided to bless the Tea Party, or the Senate Republican "grownups" who decided not to tell their fellow party members to sit down and behave like grownups.
Besides, John Taylor says, noticing that the Tea Party exists is rude:
Claiming that one political party has been hijacked by extremists... prevents a serious discussion of the fundamental changes in economic policies in recent years, and their effects...
John Podesta and Neera Tanden: Proponents of austerity are out of ideas. We have the alternative:
We can have strong economic growth without shredding the social safety net... by investing in the true engine of economic growth: the middle class. These are the policies real people believe in.... Conservative politicians are out of ideas. We've tried their solutions. Their trickle-down ideology of austerity for the poor and tax cuts for the rich has dominated policymaking for the better part of three decades. And what has it gotten us? Increasing inequality. Stagnating wages. One in four American children living in poverty.... The worst economic crisis since the Great Depression. And yet today's conservatives call for more of the same....
David Warsh: Economic Principals » Blog Archive » Beckoning Frontiers:
TMyself, I spent my free time reading a book published in 1951, Beckoning Frontiers: Public and Personal Recollections, by Marriner Eccles... one of the most remarkable public servants of the twentieth century, on a par with George Catlett Marshall and Paul Volcker. Yet he would be all but unknown, except to students of banking history, but for the 50-page chapter on him in The Vital Few: The Entrepreneur and American Economic Progress, by the economic historian Jonathan Hughes.... When the Crash came, in 1929, Eccles began a search for remedies that led, among other places, to the underconsumptionist views of William Foster and Waddill Catchings, a middlebrow anticipation of Keynesian economics described in Road to Plenty in 1928, which Eccles supplemented with “naked eye” observations of his own.
At present, 24 States (and DC) have decided to move ahead with the Medicaid expansion provided for in Obamacare... 21 have rejected expansion... 6 are still considering their options. If the current decisions hold, it will result in a self-imposed redistribution of money from poorer (and typically Red states), to richer (and typically Blue ones). According to an analysis I [and Callie Gable] have done... in 2016... the 24 expanding states will receive $30.3 Billion... those not expanding will forego... $35.0 Billion... the fence sitters have... $15.2 Billion at stake....
The rejectors have 1/3 of the wealth of the nation--call it $5 trillion/year. They are throwing 0.7% of that away to make a political point. If this federal money was, say, to host an Air Force wing they would be begging for it. But since it is simply to help their poor afford to go to the doctor and make the lives of their medical professionals easier by not forcing them to play a shell game to raise the resources to treat the uninsured...
I am increasingly convinced that the Republicans of the Prairies and the South just do not understand how to play the game of economic growth or, indeed, of capitalism in the 21st century. Betting your economic growth strategy on low wages, a lack of infrastructure, low taxes, union-busting, natural resources, and the direction of farm subsidies, defense spending, and NASA to your districts carries you only so far, after all.
In the short-run of our currently-depressed economy we want to apply the within-monetary-union Keynesian multiplier to these flows: Medicaid-rejcting red states are thus making themselves 2% poorer in the short-run. For medical-care hubs like Dallas, Omaha, Atlanta, and Kansas City, the effects are likely to be larger: 3% less in terms of economic activity relative to the baseline, while the Bostons, the Denvers, and the Albuquerques will be on baseline. In the long-run--should they continue this insane and self-destructive policy--we want to apply Enrico Moretti's long-run regional economic distribution multipliers--which means that we are talking a fall relative to baseline growth of 6% of regional GDP as far as medical-hub cities are concerned.
Doctors of Overland Park, Kansas, and businessmen and -women of Kansas City, Dallas, Omaha, and Atlanta to the red courtesy phone, please...
James Hamilton: Econbrowser: Why isn't inflation lower?:
Coibion and Gorodnichenko (2013)... suggest that the best explanation is a divergence of different measures of the "expected inflation" that serves as a shift factor for the Phillips Curve. Using either the last-year's average adjustment used in the above figures, or looking at expectations of inflation implied by the yields on Treasury Inflation Protected Securities, or expectations from the Survey of Professional Forecasters, one always finds recent inflation to have been higher than predicted by the historical Phillips Curve. But Coibion and Gorodnichenko note that these measures of expected inflation have recently diverged from the answers given by those households who are sampled in the University of Michigan's survey of consumers. Those respondents have been consistently saying that they expect a higher inflation rate than the value implied by TIPS or professional inflation forecasters.... If one uses the Michigan survey expected inflation numbers, the recent observations seem to track the historical expectations-adjusted Phillips Curve pretty well.
[QE2] did work. I think QE2 had two elements. One element was of moderate importance, one element was of minor importance. The moderate one is that QE2 convinced markets that the Federal Reserve would not allow deflation or a double dip recession to happen. This is good because it inspired confidence and kept inflation expectations from falling any further. That was the most important step, because it convinced financial markets that the United States wouldn’t turn into Japan, which they were worried about. The element of minor importance was that it lowered long-term bond rates a little bit. It takes a lot of purchases to move these interest rates even a little bit, and QE2 wasn’t big enough to move them dramatically. It’s not nothing, but it is small in the scheme of things
Robert Farley: Repudiate! Refudiate!:
What’s missing [from Friedersdorf's mine] here seems to be an understanding of how the 2008 Republican primary actually played out. To my recollection, the only candidate that ran on an explicit repudiation of Bush administration security and economic policies maxed out at 24.57% of the vote in the meaningless Montana caucus, and averaged well below 10% for the bulk of the campaign despite his aforementioned monopolization of the anti-Bush position. And in 2012, that same candidate rocked all the way to an average of 11% of the GOP primary vote, despite again monopolizing the “repudiate Bush” position. And so, if Democrats in 2016 repudiate Obama to exactly the same extent that Republicans in 2008 repudiated Bush, they’ll likely select… wait for it… a candidate who supports policies that are virtually indistinguishable from the incumbent President.
Perhaps more importantly, the Tea Party reaction, such that it has been, was only incidentally about Bush, and entirely about Barack Obama. I know it bothers Conor to think about his political allies as neo-confederate fanatics largely animated by racial animus, but you go to war with the friends you choose, not the friends you… uh, choose, I guess. And of course, you can tell how much Republicans hate George W. Bush based on the 84-15 majority that thinks he was a good President.
I’ve said it before and (sadly) I suspect I’ll have to say it again: I can appreciate why Conor Friedersdorf takes himself very seriously, but I can’t understand why any progressives take him seriously at all.
George Wright-Nooth, was subsequently able to put together an account of [the Hong Kong internees'] last hours. He established that a Sandhurst educated Indian officer, Captain Ansari, had been able to address the group before they were led off for execution, which they knew would be by beheading:
Everybody has to die sometime. Many die daily from disease, some suffer painful, lingering deaths. We will die strong and healthy for an ideal; not as traitors, but nobly in our country’s cause. We cannot now escape the enemy’s sword, but no one should give in to tears or regrets, but instead face the enemy with a smile and die bravely
Aaron Carroll: Beating a dead horse, WSJ edition | The Incidental Economist:
I’m like the millionth person to pile on this Suzanne Sommers editorial (seriously, what was the WSJ thinking?), but I have to get my two cents in. Jonathan Chait has done his usual masterwork, and Josh Barro crushed it as well. I want to focus on some of her claims about Canada:
It went on to say that young Canadian medical students have no incentive to become doctors to humans because they can’t make any money. Instead, there is a great surge of Canadian students becoming veterinarians....
Yeah, cause doctors are homeless in Canada....
Says it was out of context. Read his explanation yourself and see what you think.
Here’s the reporter’s reaction:
Mike SacksVerified account@MikeSacksHP: Aw Judge, no @huffpostlive #Legalese It link? Richard Posner: I Did Not Recant My Opinion on Voter ID @tnr http://feedly.com/k/1dfgdHG
Mike SacksVerified account@MikeSacksHP: Let’s go to the tape. Cut to 9:04: http://huff.lv/GJHJS0 via @HuffPostLive #LegaleseIt!
Mike Sacks: Do you think you and the court got this one wrong?
Richard Posner: Yes, absolutely...
Start from the balance of payments accounting identity:
Capital account + Current account = 0
A loss of foreign confidence produces a sudden stop – a sharp decline in the capital account. This must necessarily be matched by an equally sharp rise in the current account. But the mechanism of that rise is crucially dependent on the currency regime. Under fixed rates, interest rates must rise enough to achieve the current account change through import compression. Under floating rates, the adjustment takes place through depreciation and export growth. As a result, a shock that is contractionary under fixed rates or a common currency is actually expansionary under floating rates. A Greek-style crisis is not something that can happen to the United States or the UK.
J. Bradford DeLong: Project Syndicate: Greenspan Has Left the Building:
When I first went to Washington as a grownup in 1993 to work for the Clinton Treasury Department, we saw America as having three problems that urgently needed action that year: (1) rebalancing the federal budget so that the debt-to-GDP ratio was no longer on an upward, explosive trajectory; (2) beginning to deal with global warming via the slow ramp-up of a carbon tax; and (3) beginning the reform of our extraordinarily inefficient and extraordinary expensive national health financing system. Behind those three were three more important long-run policy challenges for America: (4) updating our pension system to deal with the aging of America and the decline of defined-benefit pensions; (5) improving our education system so that more of the people who should be going to college would feel that they could risk doing so; and (6) reversing the erosion of America as a middle-class society.
None of these--well, except maybe for (6)--were partisan Democratic issues.
Paul Krugman: Currency Regimes, Capital Flows, and Crises:
In the immediate aftermath of the 2008 financial crisis and the global recession that followed, most economic policy debate focused on the downturn and how to stop it. In late 2009 and early 2010, however, a sea-change came.... I like to say that the discourse was “Hellenized”--suddenly, the paramount concern of many policymakers was no longer mass unemployment, but fear of triggering a Greek-style crisis of confidence in government solvency. In the euro area aggregate fiscal policy turned sharply contractionary, as debtor countries turned to harsh austerity and even creditor countries began cutting back as a precautionary measure. In the UK a new government turned to austerity policies justified explicitly by the alleged need to reassure markets about solvency. In the United States, while there was no comparable explicit shift in policy, warnings of a possible Greek-type crisis became a staple of political rhetoric, and may have played a role in a de facto turn to austerity not too far short of what was happening in Europe. There was, as one might have expected, substantial pushback....
One debate involved the notion of “expansionary austerity,” the idea that cutting government spending could actually have positive effects on growth, even in the short term, by raising confidence. Another debate concerned possible negative effects of high sovereign debt levels on growth that did not involve a Greek-style crisis of soaring interest rates, with many policymakers seizing on preliminary results that seemed to suggest a “cliff” in which growth drops sharply if debt exceeds 90 percent of GDP. At this point I think it’s safe to say that both the expansionary austerity hypothesis and the proposition that there is a debt cliff have been strongly rejected by the data....
[The third and] what I want to talk about instead is a question that some of us have been asking with growing frequency over the last couple of years: Are Greek-type crises likely or even possible for countries that, unlike Greece and other European debtors, retain their own currencies, borrow in those currencies, and let their exchange rates float? What I will argue is that the answer is “no”.... First, countries that retain their own currencies are less vulnerable to sudden losses of confidence than members of a monetary union--a point effectively made by Paul De Grauwe (2011). Beyond that... even if a sudden loss of confidence does take place, countries that have their own currencies and borrow in those currencies are simply not vulnerable to the kind of crisis so widely envisaged.... Mobody seems to have laid out exactly how a Greek-style crisis is supposed to happen in a country like Britain, the United States, or Japan--and I don’t believe that there is any plausible mechanism for such a crisis.
Speaker: Edward Nelson, Board of Governors of the Federal Reserve System
Edward Nelson, assistant director of the board of governors of the Federal Reserve System, will discuss the interactions between influential economist Milton Friedman and the three Federal Reserve Chairmen from 1951 to 1979. Topics of exploration will include interest-rate stabilization, cyclical fluctuations, and monetary policy.
Event Contact: firstname.lastname@example.org
At Nuremberg after the war:
Q. Please tell us, witness, in which village you lived before the war?
A. In the village of Kusnezovo, Porkhov Region, district of Pskov.
Q. In which village were you overtaken by the outbreak of war ?
A. In the village of Kusnezovo.
Q. Does this village exist to-day?
A. It does not.
Health care communism comes to Mississippi!!
Republican Governor Bryant forces Blue Cross-Blue Shield to keep Hospital Management Associates' rural hospitals in its network. The governor's position seems to be: Since I won't accept the ObamaCare Medicaid expansion, Mississippi's rural hospitals will have to close unless I force Blue Cross-Blue Shield to keep paying for its patients at them at the old contract rates. I cannot allow BCBS use it bargaining power to renegotiate the rates it pays downward. So I have to step in.
If only Chief Justice John Roberts hadn't issued his lawless decision in Sibelius vs. NFIB, then the extra dollars from the Medicaid expansion would be flowing to Mississippi's rural hospitals starting January 1, 2014--and Governor Bryant would not feel he has to be a health-insurance communist.
If only Governor Bryant were willing to follow Governor Brewer or Governor Kasich, say "hey! this Medicaid expansion is a good deal for Mississippi", and cross the Tea Party nihilists, the extra dollars from the Medicaid expansion would be flowing to Mississippi's rural hospitals starting January 1, 2014--and Governor Bryant would not feel he has to be a health-insurance communist.
"Possibly", OK. "Plausibly", no way.
There was the mother of all policy shifts when Volcker replaced Miller (and no way to doubt V's determination by 1982 or so).
But expected inflation remained high for years. There were years and years when surveys expected increases in inflation which never came. Expected inflation was higher than lagged inflation, while in actuality inflation was decreasing due to ruthless monetary policy.
There have been times and places where the hypothesis of forward-looking inflation expectations has been plausible.
But the USA has never been one of those places.
Paul Krugman: Macrofoundations:
[Keynsian] macro is the only reason anyone listens to all those microeconomists who think they’re being rigorous.... If you go back to the state of American economics in the 1930s and even into the 1940s, it was not at all the model-oriented, mathematical field it later became. Institutional economics was still a powerful force....So why did model-oriented, math-heavy economics triumph? It wasn’t because general-equilibrium models of perfect competition had overwhelming empirical success.... [It] was Keynesian macroeconomics.... In the 1930s you had a catastrophe.... Institutionalists... [provided] long, elliptical explanations that it all had deep historical roots and clearly there was no quick fix.... Keynesians, who were model-oriented... said “Push this button”.... And the experience of the wartime boom seemed to demonstrate that demand-side expansion did indeed work the way the Keynesians said it did....
Paul Krugman: PPP and Japanese Inflation Expectations:
I’m doing a bit of work on Abenomics.... One thing I discovered along the way is that nobody much likes any of the existing measures of inflation expectations....
Ashok Rao: Feed the Beast:
Since 1988 education (purple) has increased almost seven fold. Healthcare (red) five fold. Food and beverage prices have only doubled, apparel costs have flatlined, while technology and entertainment prices have plummeted. Basically prices for everything the government is good for have a positive slope and everything it’s bad for have a negative slope. I don’t think any other graph could more clearly explode hopes for a smaller, or even flatlined, government.
I found myself procrastinating this morning by trying to work through why I found myself in so much disagreement with the able, intelligent, hard-working, and honest Antonio Fatas in his Dealing with a Sudden Stop:
A country with a current account deficit must have a matching capital inflow to finance the excess of spending above its income (this is an accounting identity). During the financial crisis many European countries faced a sudden stop.... This is something that any textbook discusses although normally in the context of emerging markets [by the way, it is not easy to use the IS-LM model to deal with sudden stops given that the IS-LM model is not the best model to analyze current account imbalances and situations where there is no price at which capital will fund a current account deficit]....
Antonio Fatas: Dealing with a sudden stop:
A country with a current account deficit must have a matching capital inflow to finance the excess of spending above its income (this is an accounting identity). During the financial crisis many European countries faced a sudden stop.... It is not easy to use the IS-LM model to deal with sudden stops given that the IS-LM model is not the best model to analyze current account imbalances and situations where there is no price at which capital will fund a current account deficit.... To close a current account deficit you need to reduce imports. If there was a way to engineer a fall in imports, there would be no consequence to domestic demand and GDP. And if at the same time your currency is depreciating you could see an increase in exports and possibly in increase in activity. But there is no way to engineer a fall in imports....
James K. Galbraith (2007): Exit Strategy:
A more thorough treatment appeared in 1992, with the publication of John M. Newman’s JFK and Vietnam.... Newman’s argument was not a case of “counterfactual historical reasoning,” as Larry Berman described it in an early response. It was not about what might have happened had Kennedy lived. Newman’s argument was stronger: Kennedy, he claims, had decided to begin a phased withdrawal from Vietnam... [and] had ordered this withdrawal to begin.... (1) On October 2, 1963, Kennedy received the report of a mission to Saigon by McNamara and Maxwell Taylor.... The main recommendations... were that a phased withdrawal be completed by the end of 1965.... (2) On October 5, Kennedy made his formal decision.... (3) On October 11, the White House issued NSAM 263, which states: "The President approved the military recommendations contained in section I B (1-3) of the report, but directed that no formal announcement be made of the implementation of plans to withdraw 1,000 U.S. military personnel by the end of 1963."... Newman argues that the secrecy after October 2 can be explained by... a political reason: JFK had not decided whether he could get away with claiming that the withdrawal was a result of progress toward the goal of a self-sufficient South Vietnam.