Glaukon: So: Blogging...
Hypatia: I would like to start by offering the floor to the Great and Good Felix Salmon:
Felix Salmon: To All the Young Journalists Asking for Advice...: I’m also very flattered by the lovely things you said... about how you’d love to have a career in journalism... do[ing] the kind of thing... I do. You won’t.... By the time you’re my age... you’ll... be doing something... nobody today... foresee[s]....The obstacles facing you are much greater than anything I managed to overcome.... The exact same forces which are good for journalism and good for owners are the forces which are bad for journalists....
Over at Equitable Growth: Ezra Klein, one of the viri illustres making us hope that the press corps over the next generation will actually be a net plus to the nation (cough, Judy Miller of the New York Times; cough, Fred Hiatt of the Washington Post) has a good post that, I think, misses one important point:
Over at Equitable Growth: More often than I would have thought likely, people ask me: "We're thinking of having a conference about economic inequality What should be on the agenda?"
My standard answer makes three points:
Have the conference about not inequality but equitable growth. "Inequality" automatically forces you into a partisan political frame, and you may want to get there at the end of your conference but you probably do not want to start there.
Focus down: you cannot cover the whole topic--you need to pick one or two or three subtopics if you are going to get anywhere.
Have a balance between people who summarize past literatures and people who break new ground.
But often they ask for more: a list of what the topics and issues are. READ MOAR
The estimable Miles Kimball emails that after http://www.wsj.com/articles/the-depression-that-was-fixed-by-doing-nothing-1420212315, he wonders whether 1920-1921 is not perhaps worthy of more attention.
I agree that it is a very interesting episode: it appears to be the only time in American history in which significant deflationary pressure did not produce a prolonged, deep, grinding slump. Certainly we see a prolonged, deep, grinding slump today; we saw one in the 1930s; and we think we see one back in the Jacksonian era with Jackson's war on the Second Bank of the United States.
Over at Equitable Growth: While I found things sufficiently intriguing to be worth a focus post today, I have not been able to get one into good enough shape to pass the quality bar imposed by my internal quality censor.
Therefore: In lieu of a focus post: Nick Bunker, Adam Ozimek, and Richard Freeman; Frances Coppola and Olivier Blanchard; Cosma Shalizi; Paul Krugman and Marty Feldstein; Tim Duy; Richard Reeves; and Janet Currie--all of whom are greatly worth paying detailed and careful attention to, and are among those whom one disagrees with at one's intellectual peril READ MOAR:
It is time for me to reedit and revise this before I give it again. How should it change? What does it say that no longer needs to be said? What does it not say that now needs to be said?
Zimbabwe!: Here is a piece of currency, a dollar bill. It is from Zimbabwe. It is for $100,000,000,000,000 Zimbabwean dollars.
Over at Equitable Growth: Vir illustris Martin Feldstein starts by saying: downward nominal price stickiness is such a thing that we do not have to worry about deflationary spirals in consumer prices. I agree. But I do not understand where his argument ends up:
Over at Project Syndicate: If we as a species can avoid nuclear war; curb those among us who are violent because they are God-maddened, state-maddened, or ethnicity-maddened; properly coordinate global action to reduce global warming from its current intolerable projected path to a tolerable one, adapt to the global warming that occurs, and distribute paying for the costs of that adaptation--well, if we can do all of those things, the human race can have a very bright future indeed.
I want to label something that I see "cognitive capture", and think about it.
The vir illustris Ron Rosenbaum, however, disagrees. Rosenbaum is writing about David Corn's story that Bill O'Reilly was not in fact in a "war zone" in 1982, and about how O'Reilly is responding by saying: "you can tell that I am a truth-teller because the liberals attack me so much". And he thinks that "cognitive capture" is not a useful concept. We should pretend it does not exist. We should instead just tell the truth day by day as if we were having a reasoned discussion. And we should hope that eventually, with enough truth-telling, the chips will fall where they should:
Some Hoisted from the Archives from Six Years Ago, Most Newer...: Speaking of people who had not done their homework, were spreading lots of wrong information, and who lack the ovaries to have ever marked their beliefs to market or apologize for their purveying misinformation, we have Allan Meltzer starting in February 2009 as the Paul Revere of the coming upward breakout of inflation.
It is a real clown show.
One of the things that was supposed to get done in January but didn't was a revision of this piece--it is now three years out-of-date, after all, and while it is still useful it is less useful than it was, or would be were I to properly review and update it. But it did not get done in January. It is not going to get done in February. So I am putting it up both as a useful (albeit somewhat out of date) resource, but primarily as a reproach to myself to get cracking on the revision in my copious spare time...
FEBRUARY 2012 VERSION: Budgeting and Macroeconomic Policy: A Primer
by J. Bradford DeLong
Budgeting and Macroeconomic Policy: A Primer
Over at Equitable Growth: OK: Now that I am awake and coherent and caffeinated, we may resume...
I draw somewhat different conclusions from the wavering track of potential GDP since 1990 than do the viri illustres Steve Cecchetti and Kermit Schoenholtz:
First, I think that monetary policymakers should not be looking at potential output and the output gap at all. They should be looking at the labor market. You can determine whether monetary policy is such as to accord with people's previous expectations and thus balance supply and demand in the labor market much more easily than you can track whether actual production and demand are above or below what your retrospective estimate of potential output will turn out to be.
Over at Equitable Growth: There are the different agendas at different time frames--say two years, ten years, and fifty years. The smart young whippersnapper Marshall Steinbaum reports on the growing consensus that dealing with the Rise of the Robots is on our fifty-year agenda, and not on our two-year or our ten-year agenda. On the two-year and ten-year agendas, he says, are dealing with and reversing the enormous upward redistribution that has taken place with the rise in the social, political, and economic power of the Overclass. That is:
Underlying this position is a belief, perhaps, that so much of what is produced is so close to a joint Leontief product that something like the marginal product theory of distribution is profoundly unhelpful, and that questions of distribution are overwhelmingly resolved by economic bargaining power conditioned by social mores and politically-chosen institutions. Perhaps there used to be three sources of bargaining power, and thus three sources of durable advantage:
And then, perhaps, over the past generation the third has dropped away, with the coming of globalization and the successful war against private sector unions. The rest are now themselves in flux. And perhaps they have been joined as a source of rent-extraction by those with the ability to tap into the savings produced in this age of the Global Savings Glut...
But I think that the sources of this enormous upward redistribution have not yet been properly sorted-out.
...when it comes to the consequences of rapid technological change on the U.S. workforce... techno-optimist[s].. [and] the pessimistic view that better technology substitutes for workers and... harms them. A debate between the two... was probably what the organizers intended for an event last week hosted by The Brookings Institution’s Hamilton Project entitled ‘The Future of Work in the Age of the Machine.’... Yet the debate last week actually highlighted a third position. If either the techno-optimists or the techno-pessimists are right, then we should see a major positive impact on worker productivity. But it just isn’t there... [even though] we definitely see worker displacement, stagnant earnings, a failing job ladder, rising inequality at the top, ‘over-education’ (workers taking jobs for which they’re historically overqualified), and declining rates of employment-to-population and household and small business formation.... Former Treasury Secretary Larry Summers made this point forcefully....
So if not technology, what explains labor displacement?... Market practices and public policies that favor managers over workers, and those who make their living by owning capital over those who make their living by earning wages. That choice lurks behind the decline in full employment as a priority... a shift in the legal standards, mores, and incentives of corporate management in favor of the interests of [equity] owners over other stakeholders... the abandonment of long-term productive investment as a priority in public budgeting.... In 1988, Summers wrote an article fleshing out the idea that the division of rents between corporate stakeholders is what drives rising inequality. More than a quarter century later, he could not have been more prescient. The good news is that if such a profound shift played out over only three or four decades, then it’s reversible. That wouldn’t be true if it were the result of the technological trends detailed in [Brynjolffson and McAfee's] ‘The Second Machine Age.’... We know what needs to be done and how to do it, because we’ve done it before...
Right now, the financial markets are telling us that for the next 20 years at least they expect not a surplus but rather a shortage of federal debt.
The interest rates at which investors are willing to hold federal debt now and expect to hold federal debt in the future tell us that it is an extraordinary valuable asset
Those interest rates tell us that investors at least think the world economy would be better off with more federal debt than with less. READ MOAR
Over at Equitable Growth: I see that the femina spectabilis Diane Lim is a very unhappy camper:
...‘Critical investments’ and ‘shared prosperity’ are ‘in.’ Deficits are down to an economically sustainable range.... Our policymakers are no doubt relieved to take a break from having to talk about the hard stuff (spending cuts and tax increases) and getting to focus on the nice-sounding stuff (spending increases and tax cuts).... Dismissing fiscal responsibility as a socially irresponsible idea is irresponsible.... READ MOAR
Over at Equitable Growth: I see that the vir illustris Lawrence Mishel, our neighbor here in the Great Center-Left Atrium Building at 1333 H St. N.W., has had his ire awakened by the femina clarissima Melissa Kearney and her forthcoming Hamilton Project event on robots tomorrow: http://www.hamiltonproject.org/papers/future_of_work_in_machine_age/...
I would still dearly love to see what this is a reply to.
But I don't think I ever will.
Which is, in itself, very very interesting: it suggests that whatever I imagine Hayek wrote to Thatcher, the reality is worse...
February 17, 1982
Thank you for your letter of 5 February. I was very glad that you able to attend the dinner so thoughtfully organized by Walter Salomon. It was not only a great pleasure for me, it was, as always, instructive and rewarding to hear your views on the great issues of our times.
I was aware of the remarkable success of the Chilean economy in reducing the share of Government expenditure substantially over the decade of the 70s. The progression from Allende's Socialism to the free enterprise capitalist economy of the 1980s is a striking example of economic reform from which we can learn many lessons.
However, I am sure you will agree that, in Britain with our democratic institutions and the need for a high degree of consent, some of the measures adopted in Chile are quite unacceptable. Our reform must be in line with our traditions and our Constitution. At times the process may seem painfully slow. But I am certain we shall achieve our reforms in our own way and in our own time. Then they will endure.
I read the Economist, and I shake my head in confusion:
...and Mr Putin is winning... the Kremlin’s undisputed master... a throttlehold on Ukraine.... His overarching aim is to divide and neuter [the western] alliance.... Only the wilfully blind would think his revanchism has been sated.... To him, Western institutions and values are more threatening than armies. He wants.... supplant them with his own model... [in which] nation-states trump alliances, states are dominated by elites, and those elites can be bought.... The biggest target is NATO’s commitment to mutual self-defence. Discredit that—by, for example, staging a pro-Russian uprising in Estonia or Latvia, which other NATO members decline to help quell--and the alliance crumbles....
Wikipedia: Vir illustris - Wikipedia, the free encyclopedia: "The title vir illustris ('illustrious man') is used...
...as a formal indication of standing in late antiquity to describe the highest ranks within the senates of Rome and Constantinople. All senators had the title vir clarissimus ('very famous man'); but from the mid fourth century onwards, vir illustris and vir spectabilis ('admirable man', a lower rank than illustris) were used to distinguish holders of high office....
Over at Equitable Growth: Something has bothered me ever since I read the highly-eminent and highly-esteemed David Autor's "Polanyi's Paradox and the Shape of Employment Growth":
David Autor (2014): Polanyi’s Paradox and the Shape of Employment Growth: "[The] human tasks that have proved most amenable to computerization...
...are those that follow explicit, codifiable procedures.... Tasks that have proved most vexing to automate are those that demand... skills that we understand only tacitly.... The interplay between machine and human comparative advantage allows computers to substitute for workers in performing routine, codifiable tasks while amplifying the comparative advantage of workers in supplying problem solving skills, adaptability, and creativity. Understanding this interplay is central to interpreting and forecasting the changing structure of employment in the U.S. and other industrialized countries.... READ MOAR
Over at Equitable Growth: I have a new list of three articles that bring you up to speed on the current state of the process of assessing and assimilating Thomas Piketty's Capital in the Twenty-First Century:
...between r and g is indeed one of the important forces that can explain historical magnitudes and variations in wealth inequality: in particular, it can explain why wealth inequality was so extreme and persistent in pretty much every society up until World War I.... That said, the way in which I perceive the relationship between r > g and wealth inequality is often not well-captured in the discussion that has surrounded my book--even in discussions by research economists.... For example, I do not view r > g as the only or even the primary tool for considering changes in income and wealth in the 20th century, or for forecasting the path of income and wealth inequality in the 21st century. Institutional changes and political shocks--which can be viewed as largely endogenous to the inequality and development process itself.... READ MOAR
Over at Equitable Growth:
The mixing of the human genome via intermarriage occurs remarkably fast--we are and are likely to remain one single human race, and should treat one another as such:
Ah. Andrew Sullivan looks forward--a little too eagerly?--to the division of the human race into subspecies along racial lines:
http://www.AndrewSullivan.com - Daily Dish: Humans are still evolving - and at quite a brisk pace, according to new research. Bad news for liberals: at the rate research is going, you will soon have to choose between believing in evolution and denying any subtle, genetic differences between broad racial groups.
Over at Equitable Growth: Can someone point me to something Stuart Butler has written in the past three years that has turned out to be correct?
I mean, it seems to be blinkered, partisan, wrong--and obviously wrong at the time, both in its analysis of the political forces and of the policy substance.
Am I wrong?
Take a look:
Over at Equitable Growth: I am left with a lot of questions: If Senator Richard Burr does not see a path to passing an ObamaCare replacement this year, why make a splash with a proposal that is not a bill rather than simply scheduling hearings? If Richard Burr thinks that the Burr-Coburn-Hatch proposal from last year was unfairly rejected by his Republican colleagues and that they should take another look at it, why put Burr-Hatch-Upton forward as if it were brand-new--as if it were not a reboot of last year's Burr-Coburn-Hatch? And why does Peter Sullivan of The Hill not tell his readers that BHU is a reboot of BCH--if, that is, he has the slightest desire at all to be in the trusted-information-intermediary business? And even if he doesn't want to be in the trusted-information-intermediary business, why does it please Burr to have The Hill's readers thinking that this is something that Burr has come up with in the last two months, rather than a line of approach that he has been thinking bout, tweaking, and trying to get right for years? READ MOAR
Over at Equitable Growth: I think, yet again, that this New York Times story on the Burr-Hatch-Upton ObamaCare replacement proposal would have been much better if it had been assigned to David Leonhard's The Upshot rather than to the New York Times's national news desk. The indispensable link that should be in Robert Pear's story but isn't is here. And it should have been compared to last year's equivalent
Robert Pear's article:
Apropos of people regarding the models they teach as ritualistic incantations to be thrown away the moment they contradict their political masters' ideological prejudices...
The way to analyze whether, at the margin, it is raising or lowering government spending that is better for the economy right now is to do a benefit-cost analysis.
Following DeLong and Summers (2012), let the parameters for an economy at the zero lower bound of nominal interest rates and with anchored inflation expectations be:
The policy debate on the sources, causes and potential solutions to rising income and wealth inequality has intensified in the past few years. Recently, French economist Thomas Piketty’s popular book 'Capital in the Twenty-First Century' garnered much attention and ignited further debate about these issues. Piketty argues that wealth will inevitably become more concentrated under capitalism because the returns to wealth are larger than economic growth rates. The solution he proposes is a coordinated global tax on wealth. The Baker Institute's Tax and Expenditure Policy Program will host two renowned economists to discuss the underlying causes and consequences of inequality, evaluate the empirical evidence of rising inequality, and examine potential solutions for dealing with these problems in the United States.
As prepared for delivery:
J. Bradford DeLong :: U.C. Berkeley, NBER, WCEG, INET :: February 3, 2015 :: http://tinyurl.com/dl20150202a
I am very happy to be here, especially as Texas is a state I get to relatively rarely. I have unusually few relatives in it, you see. When the DeLongs got to Wichita they decided to turn north rather than south and wound up in DeKalb County, Illinois. And those who did end up here decamped to North Carolina, leaving me with none until last year when my cousin Annie and her husband moved to Dallas. The last time my wife and I spent any extended time in Texas was on our honeymoon, when we were washed out of our campsite in a swamp near the Louisiana border by a midnight mid-June thunderstorm, so we bypassed Galveston and Houston and then spent a week and a half going Austin-San Antonio-Permian Basin-El Paso.
Over on Twitter: Reflections in Tweets on Ezra Klein: What Andrew Sullivan's exit says about the future of blogging--an attempt to use Twitter to show how and why Twitter can and cannot be used for the conversational dialogue rather than the social-viral web.
Aggregated below the fold:
...which confirmed what the judges had ruled for years based on the testimony from doctors concerning her prognosis. Her limbs had atrophied, and her hands had clenched into claws, and her brain had started to disappear. It weighed barely more than a pound and a third, less than half the size it would have been under normal circumstances. ‘No remaining discernible neurons,’ the autopsy said. She couldn’t see. She couldn’t feel, not even pain. Forty-one years after her birth, 15 years after her collapse, Terri Schiavo was literally a shell of who she had been.
Bush read the autopsy—then wrote a letter to the top prosecutor in Pinellas County. He raised questions about Michael Schiavo’s involvement in her collapse and about the quickness of his response calling 911. ‘I urge you,’ the governor wrote to Bernie McCabe, ‘to take a fresh look at this case without any preconceptions as to the outcome.’
McCabe, a Republican, responded less than two weeks later, saying he and his staff ‘have attempted to follow this sound advice’--without any preconceptions:
unlike some pundits, some "experts", some email and Web-based correspondents, and even some institutions of government that have, in my view, reached conclusions regarding the controversy...
McCabe’s assessment: ‘all available records’ were ‘not indicative of criminal activity...’.
Let me (surprise, surprise!) back up Paul here: There is no doubt that, technocratically, reflation is the low-hanging fruit to boosting equitable growth. Successfully returning to full employment would boost real GDP in the North Atlantic by 10% today, would boost future economic growth substantially as well, and would lift all economic classes more-or-less equally. No plausible policy shifts to produce "structural reform"--save possibly the "structural reform" of raising the price level in Germany and Holland relative to Italy and Spain by 20%--promises North Atlantic-wide benefits even a fifth as much.
But for many, suppose you were to endorse Keynesian fiscal of Friedmanite monetary régime-change policies right now...
Sokrates Son of Sophroniskos: You are out of your century, and out of your country...
Titus Pomponius Atticus: I claim this to be my country, and here by the docks of the Piraeus to be my place. I am not called "Atticus" for nothing, you know...
Axiothea: Why are you called "Atticus"? It doesn't sound like a very Roman name...
Atticus: I made it up. My father had only two names--good old Titus Pomponius, no claims to triple-barreled noble senatorial-class names he, just an equestrian.
J. Bradford DeLong :: U.C. Berkeley
OëNB Conference on European Economic Integration :: Vienna :: November 24-25, 2014
There is an important purpose of an opening keynote talk like this one. Its task is to start from first principles and then give a large-scale bird's-eye overview to what is to come. We have panels to come on monetary policy, balance-sheet adjustment and growth, inequality and its role in generating internal macroeconomic imbalances, external macroeconomic rebalancing, and banking sector regulation. They all presuppose that Europe, and within it the regions of Central, Eastern, and Southeastern Europe that we focus on here, need not just higher aggregate demand in the short-term but more. They need large-scale sectoral rebalancing. And that sectoral rebalancing needs to be rapid. Why? Because these economies will not grow smoothly without deep structural reforms--in these reforms need to be not just at the bottom but at the top, reforms of institutions, governance structures, and regulatory practices and mandates need to be carried out as well.
...So I’m disturbed to see that people who are making roughly infinity more money than me out of the practice aren’t sticking to the unwritten rules of the game.... The whole idea of contrarianism is that you’re... setting out to annoy people.... If annoying people is what you’re trying to do, then you can hardly complain when annoying people is what you actually do. If you start a fight, you can hardly be surprised that you’re in a fight. It’s the definition of passive-aggression and really quite unseemly, to set out to provoke people, and then when they react passionately and defensively, to criticise them for not holding to your standards of a calm and rational debate. If [Levitt and Dubner's] Superfreakonomics wanted a calm and rational debate, this chapter would have been called something like: ‘Geoengineering: Issues in Relative Cost Estimation of SO2 Shielding’ [rather than the book being subtitled 'Global Cooling'], and the book would have sold about five copies....
Hoisted from the Archives: The conventional Fisher-Friedman approach to the determination of nominal spending and income focuses on the equilibrium demand and supply of money through the quantity theory:
(1) PY = MV(i)
If the economy’s money-supply process has produced “too little” money for the current level of spending, businesses and households attempt to shift their portfolios and accumulate more money by (i) trying to sell some of their other financial assets for cash, and (ii) cutting back on their spending. Thus the flow of spending—and income, and production—falls until PY has fallen by enough to make households and businesses no longer seek to increase their money holdings. Combine this focus on money supply and money demand equilibrium with some model of price theory and price adjustment, and the result is a theory of the monetary business cycle.
Over at Project Syndicate: For a while the best book on the macroeconomic catastrophe that struck the North Atlantic starting in 2007 was Gary Gorton's Slapped by the Invisible Hand. Them for a while the best book was Alan Blinder's After the Music Stopped. Now these have been superseded by two: the extremely-observant sensible Tory Martin Wolf's The Shifts and the Shocks; and my friend, patron, teacher, and (until the last reshuffle) office neighbor Barry Eichengreen 's Hall of Mirrors. Read and grasp the messages of both of these, and you are in the top 0.001% of the world in terms of understanding what has happened to us--and what the likely scenarios are for what comes next.
Paul Krugman fears that somebody is trapped inside an echo chamber, hearing only things that confirm what they already believe:
Disagreement... over US monetary policy... [between those] very worried that the Fed may be gearing up to raise rates too soon... [and the] sanguine... seems to depend on one thing: whether the economist in question is currently in a policy position.... We don’t have access to different facts; we don’t, in any fundamental sense, have different economic models...
But how can we tell which side has lost contact with the reality out there?
Well, I think--as does Paul--that it is the "insiders" who are being optimistic and unrealistic in their plans to start raising short-term safe interest rates from zero in June 2015 and then, if past tightenings are any guide, raise them to what they regard as a full-employment growth-along-the-potential-path level of 5%/year or so by the end of 2017. READ MOAR
My problem this morning is that I have four starting points. Or maybe my problem is that I have five starting points:
I. A Little Dutch History
My first starting point is the history of the Netherlands.
I would have to be more rash indeed than the fifteenth century's Charles de Valois-Burgogne,2 the last sovereign Duke of Burgundy, to dare to opine about classical Dutch history with Jan de Vries in the room. But my read of it tells me that "political union" is a very vague and sketchy concept indeed. Consider the "political union" of what was surely the strongest power in seventeenth-century Western Europe: the seven United Provinces of the Netherlands that dominated the economy and were the political-military lynchpin of the coalition to contain the aggressive King Louis XIV Bourbon of France. READ MOAR
Over at Equitable Growth: I was writing a piece about the rather strange belief I hear that the failure of the U.S. economy to fall into a recession in 2013-2014 demonstrates that fiscal multipliers are relatively small. But Robert Waldmann did it first, and better than I was doing:
...of how fiscal tightening in the first quarter of 2013 (the fiscal cliff in January and Sequestration in March) was followed by decent growth in the second half of 2014.... I have two more thoughts. First... there was a contractionary fiscal shock... and a contractionary forward guidance of monetary policy shock.... No matter what one’s view of the relative effectiveness of fiscal policy and of non standard monetary policy at zero lower bound, one would expect disappointing growth... very disappointing compared to forecasts of rapid growth reducing the output gap as all past US output gaps have shrunk. READ MOAR
the first female to land the role in the publication’s 170-year history...
From my perspective, likely to be a very good hire. However, two things seem to me to require rapid repair and a quick turn away from the Micklethwait era:
Over at Equitable Growth: From my perspective, QE has always seemed to me to be likely to be:
First, "secular stagnation" was a bad phrase for Larry Summers to have chosen to label what he wants to talk about. It is true that it was the phrase used by Alvin Hansen when he worried about a very similar thing at the end of the 1930s. And it is true that the root cause of what worried Hansen was his fear that technological progress had reached its culmination point--hence that future high return investments would be scarce. But what Hansen and Summers both worry about is not the absence of rapid technological progress per se. READ MOAR
The feel-good thing to read this week is my 2005 Social Security Reform statement:
In my view, a Social Security reform plan needs to clear five hurdles before it is worth considering:
You have already heard from Robert Shiller on how private accounts as proposed by the Bush administration are not a good deal for beneficiaries... higher returns are not worth the risk... the extra purchasing power gained in those states of the world when stocks do well does not match the losses beneficiaries see in states of the world when stocks do not do so well.... I don't have more than quibbles with Shiller....
I am actually, in at least one of my hearts-of-hearts, the heart-of-hears of an Eisenhower Republican, a believer in private accounts. I agree with Marty Feldstein that the... equity premium... over the past half-century tells us that the stock market has... not... mobiliz[ed] the risk-bearing capacity of the American economy... that... steps... to broaden and deepen stock ownership promise... significant improvements in the ability of America's business to raise capital.... I agree with ... Kent Smetters that it is a scandal and an outrage that the poorest half of Americans have no easy... low-fee way of investing in stocks.
But the Bush plan's private accounts are not private accounts that anybody should endorse. The 3%-plus-inflation clawback rate is just too high given likely future asset returns... READ MOAR
Over at Equitable Growth: Howard Gleckman writes:
...A recent debate between my Tax Policy Center colleague Bill Gale and UC Berkeley economist Brad DeLong.... Bill wrote that ‘a major priority should be to get our long-term fiscal house in order.’... Brad argued that... the fiscal gap is really not that bad... especially if you assume that Congress will eventually enact a carbon tax and that the Affordable Care Act will help control future health costs.... With interest rates so low... why worry about deficits in the current environment? Long-term debt is a problem for future generations. Let them figure out how to address it...
I don't think that that last paraphrase from the excellent Howard Gleckman quite gets at what I was trying to say. READ MOAR
Septima: My good friend Omar, whom I love so dearly! You just ran into that tree!
Axiothea: And why are you walking about muttering to yourself with your eyes glued not to the beautiful mountain afternoon but to your smartphone?
Omar Khayyam: THAR SHE BLOWS! THREE POINTS OFF THE LARBOARD BOW!! IT'S THE BERNE WHALE!!!
Trying to construct the Just City in the Sewer of Dionysios II:
...and you urge me to aid your cause so far as I can in word and deed. My answer is that, if you have the same opinion and desire as he had, I consent to aid your cause; but if not, I shall think more than once about it.
Now what his purpose and desire was, I can inform you from no mere conjecture but from positive knowledge. For when I made my first visit to Sicily, being then about forty years old, Dion was of the same age as Hipparinos is now, and the opinion which he then formed was that which he always retained, I mean the belief that the Syracusans ought to be free and governed by the best laws. So it is no matter for surprise if some God should make Hipparinos adopt the same opinion as Dion about forms of government. But it is well worth while that you should all, old as well as young, hear the way in which this opinion was formed, and I will attempt to give you an account of it from the beginning. For the present is a suitable opportunity.
The School of Athens, Plus Gods and Robots...
Jo Walton: The Just City
...has heard the prayers of all her worshipers through the ages who have read Plato's Republic.... So she summons them all to a volcanic island... doomed to be lost to eruption... ensuring that her tampering... will not unduly disrupt the future, which will only dimly remember the island as Atlantis. In this place, men and women from all times and places set to making a place for the children whom they will raise to be philosopher kings....
Over at Equitable Growth: The very sharp John Plender makes what is now the standard--but I believe incoherent--argument that central banks are doing bad things with quantitative easing and need to reverse it and raise interest rates. They need to do so, Plender thinks, even though doing so will reduce spending, raise unemployment, put downward pressure on wages and prices, and increase risk in a world that still appears to be grossly short of risk bearing capacity. So it is natural to ask: "Why?" What is the upside supposed to be? Is there an upside aside from believing that this will make it easier for investment managers to report black rather than red numbers to their clients while still holding safe Treasury bond-based portfolios?
That Plender's argument is incoherent is, I think, demonstrated by the fact that markets do not respond as he thinks he should--he saw the end of large-scale US QE coming at the start of 2013, and confidently predicted a fall in US Treasury bond prices that simply has not happened. READ MOAR
The way I see it is this: The root problem is an inability of financial intermediaries to stand behind or to credibly assess risks, and so a reluctance on the part of investors to provide the factor of production of risk-bearing to the marketplace. Pushing safe interest rates way, way, way down and then pushing the supply of risk-free assets that the private sector can hold way, way, way down provides a form of Dutch courage to otherwise reluctant investors: even though they don't trust financial intermediaries' risk assessments, the low rates on and low volumes of safe assets give them no alternative. The long-run problems are twofold: First, safe interest rates expected to be very low for a long time artificially boost the value of long-duration assets--so capital is misallocated and we wind up with a capital structure that has in it too many long-duration relatively-safe projects that make at best very small contributions to societal well-being. Second, the demand for risky assets just generated is not a well-based demand for soundly-analyzed risks but rather for any priced risk at all--so the market becomes vulnerable to Ponzi and near-Ponzi finance.
From my point of view, however, the proposed cure of higher unemployment, lower demand, and greater fundamental risk from continued and deeper depression is worse than the disease. First best would be fixing the credit channel so that financial intermediaries would be able to stand behind risks they have credibly assessed. Second best is having the government take over and be a financial intermediary--have it borrow and spend, accepting that its spending will to a certain degree follow a political logic of greasing powerful and squeaky wheels more than amplifying wealth. Third best is continuing QE. Worst is attempting to revert to normal interest rates without financial policy to fix the credit channel or fiscal policy to maintain demand near normal-employment levels.
...at the turn of the year was a salutary reminder of how hard it is to invest in markets that are heavily distorted by central banks. At the start of 2013 there was near-consensus among investors that US Treasury yields had nowhere to go but up.... The US Federal Reserve did indeed stop buying in the summer, but Treasury prices continued to rise and yields to fall. The most plausible explanation for this defiance of conventional wisdom was the persistence of global imbalances... excess savings in Asia and northern Europe had to find a home. The additional yield available in the US market, along with the potential for further dollar strength, made this a compelling trade.... Central banks, most notably the Fed, have put a cushion under asset prices when they go down while imposing no cap when they bubble up.... The great bond bull market that began in 1982 has yet to revert.... Market professionals who have hitherto contributed to the efficiency of market pricing through their analytical skills are reduced to hanging sheeplike on the words of central bankers about the likely direction of bond-buying programmes. And they remain bewitched by the mandarins of central banking despite the mixed quality of their forward guidance.... Whatever the benefits of QE, there are bound to be significant economic costs arising from the artificially cheap cost of capital. Capital will be misallocated. And it may go on being misallocated, for the central banks seem to be trapped in a process whereby measures to counteract the fallout from one bubble pave the way for another.