Ben McLannahan: BoJ holds amid signs of economy ‘picking up’ | Paul Krugman: The point, I think, is that you can simultaneously fault the Fed and economists in general for failing to see this crisis coming, and ridicule the hedge fund guys for giving advice right now that is both ludicrous and dangerous. And you should | Martin Wolf: Global inaction shows that the climate sceptics have already won | Barry Ritholtz: GMAMX: Goldman Sach’s Muppet Fund of Funds | Robert Skidelsky: Austere Illusions | John Williams: Commencement Address: Economics Department: University of California, Berkeley: "Life’s Unpredictable Arc" | Peter Orszag: As Job Flow Slows, Americans Get Stuck in Place | Felix Salmon: Don’t fear the bubble | Eduardo Porter: A Keynesian Victory, but Austerity Stands Firm |
Mark Thoma: The Unemployed Need Bold, Creative Moves from the Fed: "The Federal Reserve has increased the size of its balance sheet nearly four-fold since the onset of the financial crisis, from around $870 billion in 2007 to $3.35 trillion today. This has caused people like Peter Schiff to predict that we are headed for a severe outbreak of inflation. An inflation problem is just round the corner we’ve been told again and again since 2008, yet inflation remains below the Fed’s two percent target, long-run inflation expectations are well-anchored, and there is little evidence in recent data that inflation is or will be a problem. Why is inflation so low?… Stimulating demand and creating inflation has not been as easy as the Fed thought it would be even with the dramatic increase in the size of its balance sheet, and the Fed has been unwilling to take the additional bold and creative steps needed to bring inflation up to –– or in the short-run even above –– its target level…. We do not want to repeat the wage-price spiral problems of the 1970s and the recession of 79-82 that was needed to break the cycle. So in the long-run, we want to hit our inflation target. We also don’t want to repeat the financial meltdown we’ve just been through. But the risks of inflation and financial instability have been overblown relative to the large costs associated with high long-term unemployment and it’s time for the Fed to address the unemployment problem with the same creativity, boldness, and perseverance it displayed when banks were its main concern."
Paul Krugman: German Wages and Portuguese Competitiveness: "But what really puzzles me about Cowen’s exposition here is his misplaced focus on the extent to which Portugal and Germany are in direct competition with each other…. This is very nearly irrelevant…. Germany and Portugal, for better or (mainly) worse, now share a currency, and what happens in Germany very much affects the value of that currency relative to other currencies. Cowen writes that rising wages in Germany 'solves (at best) only one of the core problems of the eurozone, namely incorrect relative prices between Portugal and Germany. It helps less with the “Portuguese nominal wages are too high” problem…' OK, stop right there… too high relative to what? As Rudi Dornbusch always used to say, it takes two nominals to make a real. And the answer, clearly, is 'too high relative to German wages'. What else could it be? But, you say, Portugal doesn’t compete that much with Germany. Ahem. Suppose that I could wave a magic wand (or play a few notes on a a Magic Flute) and suddenly increase all German wages by 20 percent. What do you think would happen to the value of the euro?… Portuguese exports would become a lot more competitive everywhere, including non-German and indeed non-Euro destinations. I guess I thought this was obvious. Apparently not…. Germany and Portugal share a currency. This creates obligations for Germany, whether it likes them or not."