Over at Equitable Growth: DRAFT For “Rethinking Macroeconomics” Conference Fiscal Policy Panel
Comments, critiques, and suggestions very welcome…
I take my assignment to discuss “fiscal policy in the medium term” to mean that I should assume a régime in which the economy is not at the zero lower bound on safe nominal interest rates. Thus I can assume that monetary policy can adequately handle all of the demand-stabilization role.
With demand stabilization taken off the table, it seems to me that there are three big remaining questions, even if I just confine myself to the North Atlantic: READ MOAR
Over at Equitable Growth: A correspondent writes:
It makes no sense for Bernanke to: 1. Have pounded his chest about the success of QE; 2. Now be claiming that he never had any effect at all, that he was just seeking the natural rate; and 3. If this IS in fact the natural rate, then it makes NO SENSE to suggest Summers is wrong on secular stagnation.
Do you really want to know how Ben Bernanke thinks?
OK. But, remember: you asked for it! READ MOAR
...I’ll take questions as long as anybody can endure listening, until they drag me away to wherever else I’m supposed to go.
Department of "Huh?!": Tyler Cowen calls me a semi-pseudo Hayekian:
Assorted links: 5. Brad DeLong, slouching toward recalculation...
But that's not it at all!
The point of my Anatomy of Slow Recovery is to build on Dan Kuehn's use of Steven Horwitz's jigsaw-puzzle metaphor to argue that Hayek and Schumpeter were completely and totally wrong. Monetarist and Keynesian policies to stabilize aggregate demand do not (as they claimed) interfere with structural adjustment. Rather, they are essential if structural adjustment is to proceed.
Tyler Cowen responds:
Over at Equitable Growth: And, of course, I think that it is him...
Dean maintains and has long maintained that the financial crisis was froth that had little impact on the overall economy:
...[having] something to do with the financial crisis... looming as a dark cloud hanging over the head of an otherwise healthy economy. Fortunately, for arithmetic fans the story was never very difficult. In the last business cycle the economy was being driven in large part by a housing bubble. The unprecedented run-up in nationwide house prices lead to booms in both residential construction and consumption.... In the 1980s and 1990s... residential construction accounted for an average of less than 4.4 percent of GDP. At the peak... in 2005, construction rose to more than 6.5 percent of GDP.... The $8 trillion in equity created by the housing bubble made homeowners feel wealthier.... When the bubble burst, homeowners cut back their consumption since this wealth no longer existed.... A long and severe downturn that was entirely predictable. There is no mystery about the downturn or the potential routes to recovery. The only problem is that the people in control of economic policy have no interest in taking the steps necessary to bring the economy back to full employment... READ MOAR
Note to Self: is the state’s failure to expand Medicaid and failure to aggressively inform citizens about the availability of exchange subsidies going to push Texas into recession this year?
Over at Equitable Growth: It is the absence of any recognition of the asymmetric power of the Federal Reserve's policy tools that leaves me most puzzled by the extremely-sharp Marty Feldstein this morning:
Only in 2017 would the real fed-funds rate even exceed 1%.... The Fed is... projecting that its policies will cause unemployment to decline to 5% by the end of 2015 and even lower in the next two years. Historical experience suggests that means inflation would eventually increase year after year.... READ MOAR
Over at Medium: I have a different take on Asness and Brown than Mark Buchanan does — largely because I take Asness and Brown’s claim to be just doing “climate-knowledge-free statistics” to be made in bad-faith.
J. Bradford DeLong is Professor of Economics at U.C. Berkeley, and was Deputy Assistant Secretary for Economic Policy of the U.S. Treasury during the Clinton Administration. He is completing “Slouching Towards Utopia?”, an overly-long economic history of the world in the twentieth century.
He is best known for “Noise Trader Risk in Financial Markets” (JPE, 1989), “Fiscal Policy in a Depressed Economy” (BPEA, 2012), “Did JP Morgan’s Men Add Value?” (book chapter, 1991), “The Survival of Noise Traders in Financial Markets” (JF, 1991), “America’s Peacetime Inflation: the 1970s” (book chapter, 1997), “Is Increased Price Flexibility Stabilizing?” (AER, 1986), “Speculative Microeconomics for Tomorrow’s Economy” (First Monday, 2000), “Meltdown to Moral Hazard: the International Monetary and Financial Policies of the Clinton Administration” (book chapter, 2001), “Have Productivity Levels Converged? Productivity Growth, Convergence, and Welfare in the Very Long Run” (AER, 1989), and “Should We Fear Deflation?” (BPEA, 1989).
Live from the Roasterie: Why the Hegemony of the New Keynesian Model? The baseline New Keynesian model was not, originally, intended to become a workhorse.
It was intended as a proof-of-concept: to demonstrate that introducing very small market-imperfection frictions into a DSGE framework generated very Keynesian-monetarist conclusions. But the extraordinary shortcuts needed for tractability were and are a straitjacket that makes it extremely hazardous for policy analysis. It cannot fit the time series. And when it does fit the time series, it does so for the wrong reasons.
So why require everything to fit in this Procrustean Box? This is a serious question--closely related to the question of why models that are microfounded in ways we know to be wrong are preferable in the discourse to models that try to get the aggregate emergent properties right.
Critics... well, probably better to call them "friends" have pointed out to me that last summer I didn't spend enough time linking to Dan Kervick's and Matt Brunig's contributions to the Piketty debate. I remember reading them at the time. And I cannot figure out why I didn't focus more on them--save probably because both seemed to me to be thinking along the lines I was thinking along, I didn't think that there was much new there. But usually I am anxious to promote people saying things that I think are smart and right, so it is a puzzle...
Over at Project Syndicate: The Monetarist Mistake:
Two months ago here, I briefly noted that I had found the best explanation for why the collective economic policymakers of the North Atlantic have left and continue to leave the job of fighting and guiding recovery from our Lesser Depression at most half-done. The best explanation is to be found in my friend, teacher, and patron, Barry Eichengreen’s Hall of Mirrors.
But I have short shrift to both the argument of the book, and to its praise. It is the best book on 2008-present that has yet been written. And Eichengreen’s book’s central argument deserves to be the centerpiece of a much larger discussion. READ MOAR
Over at Equitable Growth: It is always instructive to look at the materials that the Federal Reserve's Federal Open Market Committee pumps out, especially their semi-anonymized (hi, Charlie Evans, with your 3% longer-run value) estimates of what the appropriate federal funds rate would be.
Thus we can see, comparing January 2012 when the Federal Reserve began publishing its dot-plots to today, the Federal Reserve collectively and slowly come to recognize current reality. Back at the start of 2012 the FOMC participants all thought that in the "longer run"--which at the beginning of 2012 I take to be next year, 2016--the federal funds rate ought to be back at its normal mid-expansion level, which they all took to be in the 3.75%-4.5% per year range. Today, of course, only one participant (Charles Plosser?) still thinks the federal funds rate ought to be in that range next year, and at the very bottom of it. READ MOAR
I would like to thank President Williams for his kind introduction and the Federal Reserve Bank of San Francisco for inviting me to what promises to be a very stimulating and important conference.
As you know, last week the Federal Open Market Committee (FOMC) changed its forward guidance pertaining to the federal funds rate. With continued improvement in economic conditions, an increase in the target range for that rate may well be warranted later this year. Of course, the timing of the first increase in the federal funds rate and its subsequent path will be determined by the Committee in light of incoming data on labor market conditions, inflation, and other aspects of the current expansion.
...The bearing of the foregoing theory on the first of these is obvious. But there are also two important respects in which it is relevant to the second.... The removal of very great disparities of wealth and income... through... direct taxation... [is] deterred by... the fear of making skilful evasions too much worth while... of diminishing unduly the motive towards risk-taking, but mainly, I think, by the belief that the growth of capital depends upon the strength of the motive towards individual saving, and that for a large proportion of this growth we are dependent on the savings of the rich out of their superfluity.
Oh, this is going to be fun!
Let's start with J.W. Mason:
...One of Krugman’s bugaboos is the persistence of claims that expansionary monetary policy must lead to higher inflation.... As an empirical matter, of course, Krugman is right. But where could someone have gotten this idea that an increase in the money supply must always lead to higher inflation? Perhaps from an undergraduate economics class? Very possibly--if that class used Krugman’s textbook.
...is mainly due to the way in which the marginal efficiency of capital fluctuates.... By a cyclical movement we mean that as the system progresses in, e.g., the upward direction, the forces propelling it upwards at first gather force and have a cumulative effect on one another but gradually lose their strength until at a certain point they tend to be replaced by forces operating in the opposite direction... until they too, having reached their maximum development, wane and give place to their opposite.... [And] the substitution of a downward for an upward tendency often takes place suddenly and violently, whereas there is, as a rule, no such sharp turning-point when an upward is substituted for a downward tendency....
...We women on the farm no longer expect to work as our grandmothers did. With the high prices to be had for all kinds of timber and wood we now do not have to burn wood to save the expense of fuel, but can have our oil stove, which makes the work so much cooler in the summer, so much lighter and cleaner. There need be no carrying in of wood and carrying out of ashes, with the attendant dirt, dust and disorder.
April Fools' Festival, Day XVII: Note that the Insane Clown Posse picture at the top right is not a happy clown. This is an insane clown. And this is a somewhat dangerous clown...
Shorter Thomas Friedman: Because my cell phone company drops calls when I take the Acela, it is very important that Michael Bloomberg run for President in 2012. He should run on the platform of Obama's policies. Thus he should split the vote for those policies between two candidates, and so raise the chances for Mitt Romney--who is running against those policies--to squeak in.
...On average, title-loan borrowers pay $1,200 in fees per year on loans averaging $1,000, according to a report released Wednesday by the Pew Charitable Trusts, an independent nonprofit based in Philadelphia. The findings come as the Consumer Financial Protection Bureau plans a Thursday public hearing on payday loans...
As I have said, the extraordinary number of payday loan and title loan storefronts in Kansas City MO/KS relative to Portland OR takes me aback every time I go from one to the other. READ MOAR
Over at Equitable Growth: A fine rant from the very sharp and newly-parental Matthew Yglesias:
...As Betsey Stevenson and Justin Wolfers put it, we have gone from shared production to shared consumption and formed more egalitarian partnerships based on common preferences rather than a swap of housework for rent money. This new model of partnerships has thus far not taken root as strongly in working-class relationships. That's unfortunate. But it's a mistake to believe women are making themselves worse off than their next actually available alternative. As women have become more empowered, they have gotten pickier. That means more single women, and a higher quality of relationship for the non-single. READ MOAR
On March 25, 1911, 146 workers at the Triangle Shirtwaist Factory in New York City died when the building in which they worked caught on fire. One of the most important events in American labor history, the Triangle Fire brought attention to the terrible sweatshop conditions of American labor, helped spawn important labor reforms, and became a touchstone for justice advocates over the next century.
Paul Krugman is the picador:
...Whenever someone steps up to declare that "Keynesian" economics is logically and empirically flawed... you know what comes next: a series of logical and empirical howlers — crude errors of reasoning, assertions of fact that can be checked and rejected in a minute or two. Levine doesn’t disappoint. Right at the beginning... he says:
Now suppose that the phone guy suddenly decides he doesn’t like tattoos enough to be bothered building a phone.
OK, stop right there. That’s an adverse supply shock, and no Keynesian claims that demand-side policies can cure the economy from the effects of such shocks.
Over at Equitable Growth: A question I will never ask any Federal Reserve policymakers— not in public, not in private. They do not need their elbows jiggled in this way: The decision by the Federal Reserve in the mid-1990s to settle on a 2% per year target inflation rate depended on three facts — or, rather, on three things that were presumed to be facts back in the mid-1990s: READ MOAR
Over at Equitable Growth: Fixed: "Beginning the normalization of policy will be a significant step toward the
restoration entrenchment of... normal abnormal dynamics
...However it is widely expected that the rate will lift off before the end of this year, as the normalization of monetary policy gets underway. The approach of liftoff reflects the significant progress we have made toward our objectives of maximum employment and price stability. The extraordinary monetary policy accommodation that the Federal Reserve has undertaken in response to the crisis has contributed importantly to the economic recovery, though the recovery has taken longer than we expected. The unemployment rate, at 5.5 percent in February, is nearing estimates of its natural rate, and we expect that inflation will gradually rise toward the Fed's target of 2 percent. Beginning the normalization of policy will be a significant step toward the restoration of the economy's normal dynamics, allowing monetary policy to respond to shocks without recourse to unconventional tools... READ MOAR
John Maynard Keynes: Mr. Churchill on the War: The World Crisis, 1916-1918. By Winston Churchill (New York: Charles Scribner's Sons. Two vols. 625 pages. $10): "This brilliant book is not a history....
...It is a series of episodes, a succession of bird’s-eye views, designed to illuminate certain facets of the great contest and to confirm the author’s thesis about the conduct, in its broadest strategic aspects, of modern warfare. There are great advantages in this procedure. Mr. Churchill tells us many details of extraordinary interest, which most of us did not know before, but he does not lose himself in detail. He deals in the big with the essential problems of the higher thought of the conduct of the War.
Sokrates: Internet Media and the Fall of GigaOm
Adeimantos: What? Are you now intellectually flirting with both Hinduism and techno-transhumanism?
Felix Salmon: I told you so. If I may quote myself:
As I have said (often), I am on Mian and Sufi's side of this argument. But Dean Baker is not without points on his side: "What would our saving rate be if we didn't have [a] debt [overhang]?"
Dean Baker: Question for Brad DeLong and the Debt School of the Downturn: What Would Our Saving Rate Be If We Didn't Have Debt?: "Brad DeLong tells us that he is moving away from the cult of the financial crisis...
Over at Equitable Growth: Each time I go directly from Kansas City, Missouri-Kansas to Portland, Oregon--or from Portland to Kansas City--I am struck by cognitive dissonance.
There is a very large gulf between what I see around me and what, say, the charts people put up on the screen for relative levels of real cost-of-living adjusted income in Kansas City and Portland. The numbers seem to say that the Kansas City MO/KS metropolitan area is about 10% richer than the Portland OR metropolitan area. But my eyes tell me that Portland is about 20% richer than Kansas City.
There are a number of possible resolutions: READ MOAR
Live from Downtown Portland: Starbucks is now also a wine bar, serving hipster staples like truffle mac & cheese and artichoke-goat cheese flatbread?! I must live in a cave…
It does make sense: having disrupted the coffee shop in the morning and afternoon, why not use the fixed and network assets to disrupt the evening wine bar business next?
I wonder if live music and slam poetry is next?
Scott Sumner.... 'Simon Wren-Lewis also gets the GDP growth data wrong, in a way that makes austerity look worse'.... Sumner is not using ‘wrong’ and ‘claim’ in their ordinary sense.... What he means is that by choosing to use the (correct) annual data, I’m (accidentally, deliberately?) hiding something important. He then quotes two figures that supposedly prove his case. No analysis, no graphs....
Over at Equitable Growth: Picking up on In Lieu of a Focus Post: March 2, 2015 (Brad DeLong's Grasping Reality...): Janet Currie points out that the damage from a ruling adverse to the government in the King v. Burwell ObamaCare subsidies case is likely to carry a very heavy cost in terms of societal well-being along private health, public health, and economic growth dimensions. READ MOAR
The Federal Reserve:
Live from La Farine: Alissa Walker: Here Are the Water Restrictions California Should Have Passed Today: "After confronting the truth that we have only one year of water left, California passed new water restrictions today which are WIMPY AS HELL...
Let me thank Matt for doing some very serious and thoughtful digging. The upshot is that I am in an ideal position for a discussant: There are very interesting and important numbers here. These numbers have not been put together in this way before. There is here an author who is wise enough not to believe he has nailed what the numbers mean to the floor. READ MOAR
James Kwak: Who’s a Freeloader?: "Daniel Rodgers’s review [of Williamson et l.]... is titled “‘Moocher Class’ Warfare”...
...Tea Party members like Medicare and Social Security, which they think they have earned through their work, but don’t like perceived freeloaders who live off of other peoples’ work. From the [Williamson et al.] paper (p. 33):
Today's Must-Must-Read: This is an important point that is worth saying as often as necessary--perhaps as often as possible:
Over at Equitable Growth: Apropos of my too-hot-for-Equitable-Growth, Time for a Rant!: Why Oh Why Cannot We Have Better Economists?, Paul Krugman inquires asks whether:
have forgotten, or perhaps never noticed, was Levine’s rant against me back in 2009, accusing me of failing to understand the depth and power of modern economic analysis.
I cannot remember reading it. It is a doozy--I will put it way down at the bottom. I will cut off the list of errors and just note the first four things I found wrong with it: READ MOAR