- What I Am Going to Be Doing on August 21, 2017... - Washington Center for Equitable Growth
- #FF: The Best of Daniel Davies: Friday Focus for August 22, 2014 - Washington Center for Equitable Growth
- Nighttime No-Read: No List of Papers at the FRBKC Jackson Hole Conference Tonight for Me! - Washington Center for Equitable Growth
- Nighttime Must-Read: Matt O'Brien: Worse than the 1930s: Europe’s Recession - Washington Center for Equitable Growth
- A Note on Understanding the Debate Inside the Federal Reserve: Afternoon Comment - Washington Center for Equitable Growth
- Morning Must-Read: Willem H. Buiter: The Simple Analytics of Helicopter Money: Why It Works--Always - Washington Center for Equitable Growth
- Morning Must-Read: Cardiff Garcia: “The System Worked”, by Dan Drezner - Washington Center for Equitable Growth
- Morning Must-Read: Alex Tabarrok: Ferguson and the Modern Debtor’s Prison - Washington Center for Equitable Growth
- Nighttime Must-Read: Scott Sumner: DeLong on the Mother of All Black Swans - Washington Center for Equitable Growth
- Naive Keynesianism to Keep You from Believing Macroeconomic Idiocy of Various Kinds: A Useful Graph for Jackson Hole Weekend: Thursday Focus for August 21, 2014 - Washington Center for Equitable Growth
- Time to Change My Mind: The Quality of Medicare Advantage: Wednesday Focus for August 20, 2014 - Washington Center for Equitable Growth
Must- and Shall-Reads:
- Jesse Livermore: Fixing the Shiller CAPE: Accounting, Dividends, and the Permanently High Plateau
- Mark Thoma: A Conversation with Peter Diamond
Carola Binder: Wage Inflation and Price Inflation
Matt O'Brien: Worse than the 1930s: Europe’s recession is really a depression: "As I was arguing last week, it's time to call the eurozone what it really is.... Six and a half years later, Europe has distinguished itself by not having much of a recovery at all. And, as you can see above, that's about to make it worse than the worst of the 1930s.... It's a policy-induced disaster. Too much fiscal austerity and too little monetary stimulus have crippled growth like almost never before. Europe is doing worse than Japan during its "lost decade," worse than the sterling bloc during the Great Depression, and barely better than the gold bloc then—though even that silver lining isn't much of one. That's because, at this rate, it'll only be another year until the eurozone is well behind the gold bloc, too. So how is Europe making the Great Depression look like the good old days of growth? Easy: by ignoring everything we learned from it.... The euro is the gold standard with moral authority. And that last part is the problem.... Europe is stuck with a fixed exchange system that doesn't let them print, spend, or devalue their way out of a crisis. But, unlike then, Europe might never give it up. It's a fidelity to failure that even the gold bloc couldn't have imagined. And that leaves the ECB as Europe's only hope—which means they're probably doomed.... They have made a desert, and called it the eurozone."
Scott Sumner: Black Swans: "Brad DeLong... is mildly critical of Shiller... in almost precisely the same way that I am.... DeLong and I think... the real mystery [is] not so much why stocks were so high in 1929, 2000, and now, but rather why they were so low 90% of the time. I think WWI is a great black swan example, but... I’d like to throw out another possible black swan—1968.... Switching to a permanent fiat system was much more inconceivable to people in the old days than you might imagine.... Even Keynes opposed a pure fiat regime, and viewed these historical examples as sort of pathological cases.... DeLong identifies three periods when stock investors did poorly over the following 10 years—right before WWI, the late 1960s and early 1970s, and the late 1990s. Even today I’m not sure exactly how much of the poor stock market performance of 1968-81 was due to the Great Inflation.... I am confident, however, that moving to a fiat money regime was a black swan for the US 30-year Treasury bond market, and pretty much every other bond market as well."
Alex Tabarrok: Ferguson and the Modern Debtor’s Prison: "How does a stop for jaywalking turn into a homicide and how does that turn into an American town essentially coming under military control with snipers, tear gas, and a no-fly zone? We don’t yet know exactly what happened between the two individuals on the day in question but events like this don’t happen without a deeper context. Part of the context is the return of debtor’s prisons that I wrote about in 2012.... You don’t get $321 in fines and fees and 3 warrants per household from an about-average crime rate. You get numbers like this from bullshit arrests for jaywalking and constant 'low level harassment involving traffic stops, court appearances, high fines, and the threat of jail for failure to pay'..."
Cardiff Garcia: Video and review: “The System Worked”, by Dan Drezner "I kept thinking of the well-publicised conversation... in January 2009.... Geithner: 'Your accomplishment is going to be preventing a second Great Depression.' Obama: 'That’s not enough for me. I’m not going to be defined by what I’ve prevented.' Geithner: 'If you don’t prevent a depression, you won’t be able to do anything else.' Obama: 'I know. But it’s not enough.' For global economic governance, as opposed to Presidential legacies, avoiding economic catastrophe when catastrophe was a non-trivial possibility is enough. That’s the case made by Drezner.... So, was it indeed good enough? Sluggish recovery in the US accompanied by lower median incomes. Double-dip recession in Europe.... Ongoing stagnation in Japan pending the outcome of Abenomics. Slowing growth in China.... A Bank for International Settlements that called for tighter money earlier than any reasonable analysis could justify. Currency wars. An IMF that pushed austerity before a later volte-face, not to mention its numerous mistakes in tackling the euro zone crises.... All of these items would suggest a deep failure....
"Drezner... begins by highlighting the scale of the global collapse.... And yet, despite important local exceptions, the worst global consequences of the Depression were avoided.... Later mistakes were inexcusable, especially the turn to austerity and premature monetary tightening in Europe. Yet many of these subsequent errors were national policy failures and 'had little or nothing to do with foreign economic policy or adherence to global governance structures'--admittedly a fine and not always obvious distinction.... I find the argument persuasive....
"But 'good enough' is a tough sell, and my colleague Alan Beattie isn’t buying.... Alan writes: 'The truth, as both of us I think admit, is that the record of global governance is patchy, and its results even now uncertain'.... whether the system as a whole worked is probably less important than knowing how to distinguish between the parts that worked and the parts that failed. The forthcoming book by Barry Eichengreen, whose data Drezner cites, appears to split the difference. Beattie refers to the resilience of wrong-headed ideologies.... Consider how much commentary about the crisis has naturally focused on the long list of subsequent policy failures. It’s good to have at least one book emphasising that the list could have been much longer still..."
Willem H. Buiter: The Simple Analytics of Helicopter Money: Why It Works – Always: "A permanent/irreversible increase in the nominal stock of fiat base money rate which respects the intertemporal budget constraint of the consolidated Central Bank and Treasury.... Three conditions must be satisfied for helicopter money always to boost aggregate demand. First, there must be benefits from holding fiat base money other than its pecuniary rate of return. Second, fiat base money is irredeemable – viewed as an asset by the holder but not as a liability by the issuer. Third, the price of money is positive. Given these three conditions, there always exists – even in a permanent liquidity trap – a combined monetary and fiscal policy action that boosts private demand – in principle without limit. Deflation, ‘lowflation’ and secular stagnation are therefore unnecessary. They are policy choices."
3rdMoment: On Bob Shiller and CAPE: "While I have great respect for Shiller, I don’t understand his confidence that the CAPE is likely to return to it’s historical average of around 16.... 1. The average levels of CAPE in most of the last century appear, with hindsight, to have been puzzlingly low.... 2. There has been a large shift in corporate payout mix, from virtually all dividends in the past, to a roughly equal mix of dividends and share repurchases today. This by itself will add a couple of points to CAPE.... 3. Some other accounting changes... might raise the CAPE.... 4. Lower information and transaction costs and the rise of index investing have dramatically lowered the cost of maintaining a globally diversified portfolio.... 5. The real 'risk free' return on treasuries seems to be very low.... This lowers the return stocks need to be attractive by comparison.... Some of these reasons are more certain than others, but taken together they seem to show that we have good reason to expect CAPE levels significantly above the historical average going forward. Are there any countervailing reasons offsetting the list above, factors that would tend to make CAPE lower than in the past? I can’t really think of any. And I haven’t seen anybody else offering any."
Scott Lemieux: "Textualists" Decline to Cite Inconvenient Text "The premise... is that if close attention to isolated textual clauses produces an outcome that will cause millions of people to lose health care coverage, 'with reluctance' these people must be sacrificed to... 'textualism'. Never mind that your theory... produces an absurd result inconsistent with what everyone understood the statute to mean.... Needless to say, this theory has less than no chance of convincing anybody who doesn’t share the fanatical opposition to the ACA of the people who developed it. Fortunately, there’s a remedy... the en banc rehearing.... The architects of the Halbig litigation are desperate to avoid this outcome.... An obvious problem for these 'textualists'... is that not... the relevant textual passage of the Federal Rules of Appellate Procedure specifically cites circuit splits as an example of... the 'exceptional importance' that merits en banc review.
"So how do the Halbig architects in their deep reverence for textual language deal with this? Briane Gorod[:]... 'Funnily enough, these ostensible textualists declined to cite—even once—the text of the rule.... The law’s challengers try to distract... by pointing to a number of cases in which the D.C. Circuit (and other courts) declined to grant en banc review.'... Parody is killed again. Now, you might say that this is flagrantly unprincipled. But, to borrow Mark Tushnet’s line, it is simultaneously 0% and 100% principled. Obviously, they don’t really care about their particularly unattractive and unworkable version of 'textualism'. The principle of 'we must pursue any ad hoc legal theory that has a chance of sabotaging the Affordable Care Act', though--they’re deeply committed to that one."
On wages and inflation: jeers for fears: "We live in disinflationary times. Technological innovation in uniquely labour-saving sectors and globalisation holding down goods prices and wages. Aging populations. Stagnationist trends combined with inadequate crisis response policy, resulting in persistent global economic slack.... US headline PCE inflation has averaged 1.6 per cent since the start of the recession--a tremendous demand fail given the severity of the downturn and the ensuing sluggishness in real growth during the recovery. Deflation is still a legitimate worry in Europe, where inflation expectations have just tumbled again.... An uptick in wage growth from its currently weak pace wouldn’t necessarily be inflationary, at least not right away. We’ve recently come across two helpful items--one from a BCA Research note and another from an article by Chicago Fed economists--explaining why. Martin Barnes.... 'If wage trends are going to be a key determinant of Fed policy, then there is a risk that policy could be tightened prematurely.... In some ways, the technological and global forces that are depressing employee compensation give support to the idea that the economy may struggle to return to more normal growth rates. At the extreme, it even supports the secular stagnation thesis. If that is the case, then the Fed would be justified in taking a cautious approach to tightening--even if wage growth picks up.'... [Cleveland] Fed economists [Edward S. Knotek II and Saeed Zaman].... 'Connections among wages, prices, and economic activity are more akin to a tangled web than a straight line.... We document evidence of a more stable wage Phillips curve than a price Phillips curve, which is consistent with the idea that subdued wage growth is symptomatic of the existence of slack in the labor market. But given wages’ limited forecasting power, they are but one piece in a larger puzzle...'"
And Over Here:
- Liveblogging World War II: August 22, 1944: A Photographer’s Story (Brad DeLong's Grasping Reality...)
- #FF: The Best of Daniel Davies: Over at Equitable Growth: Friday Focus for August 22, 2014 (Brad DeLong's Grasping Reality...)
- WTF Are the Police on the Other Side of Missouri Doing?: Live from The Roasterie CCCXIV: August 22, 2014 (Brad DeLong's Grasping Reality...)
- Jeb Bush Tells Michael Barbaro: "I'm Not Like My Brother": Live from The Roasterie CCCXIII: August 21, 2014 (Brad DeLong's Grasping Reality...)
- Liveblogging World War II: August 21, 1944: The Polish Home Army in Warsaw (Brad DeLong's Grasping Reality...)
- Over at Equitable Growth: Naive Keynesianism to Keep You from Believing Macroeconomic Idiocy of Various Kinds: A Useful Graph for Jackson Hole Weekend: Thursday Focus for August 21, 2014 (Brad DeLong's Grasping Reality...)
Should Be Aware of: