Liveblogging World War II: January 30, 1943
The Very Last David Graeber Post...

Noted for January 31, 2013

  • Miles Kimball: Contra John Taylor: "Having tweeted that John Taylor’s op-ed this morning, “Fed Policy is a Drag on the Economy” was “extraordinarily bad analysis,” I need to back up my view. Let me go point by point…. [I]t is implausible for critics of Fed policy to say that (holding short-term rates fixed) changes in the holdings of long-term government bonds and mortgage-backed securities have no power to stimulate aggregate demand when the economy is in a slump, but going in the other direction, could have a dangerously powerful negative effect on aggregate demand once the economy is on the mend and asset positions are pulled back. The truth is that these effects were always likely to be modest…. As I wrote in “What to Do When the World Desperately Wants to Lend Us Money,” there are many ways that it is completely appropriate for the government to take low (real) interest rates into account in spending decisions…. [I]t is good that expansionary US monetary policy helps to inspire expansionary monetary policy by other countries…. Finally, let’s turn to John’s most remarkable claim—the one that inspired my statement that his op-ed had “extraordinarily bad analysis.”… This is just wrong. To the extent that forward guidance has bite, the Fed is promising to shift the demand curve for assets in the future and thereby get to a particular equilibrium interest rate. This is not at all like rent control. The right analogy is, say, New York City getting rents to come down by reducing making it easier to get a building permit, or by subsidizing the building of new apartments."

  • Felix Salmon: Europe’s robust financial-transactions tax: "The tax is being implemented by 11 countries, including most importantly Germany and France, and it’s going to be levied at two levels: 0.1% on securities trades, and 0.01% on derivatives trades…. even the UK, which is implacably opposed to the European tax and which won’t ever join such a scheme, levies a surprisingly large 0.5% tax whenever anybody — anywhere in the world — trades a UK stock. And yet, somehow, London remains the first choice for international companies looking for a place to list their shares. The European tax, which is much smaller than UK stamp duty, will similarly have little effect on how and where financial markets operate. The “if you tax me, I’ll just move elsewhere” threat is a pretty empty one, in practice, especially if you have a carefully-drafted law which makes tax avoidance difficult, and if you’re talking about established financial institutions rather than individuals…. I think that the financial transactions tax will actually be very good at raising money…. On the other hand, I doubt that speculators will find this tax particularly off-putting. Europe doesn’t suffer from the high-frequency trading that has overtaken the U.S. stock market, and these taxes are low enough that any remotely sensible financial transaction will remain sensible on a post-tax basis. It’s possible that total trading volume might decline a little bit in some markets, and that would be fine."

  • Peter Orszag: It’s Too Soon to Celebrate a Recovery

  • David BeckworthL Why is There Still a Shortage Safe Assets?: "Safe assets facilitate transactions for institutional investors and therefore effectively acts as their money. During the crisis, many of these transaction assets disappeared just as the demand for them was picking up. Since these institutional money assets often backstop retail financial intermediation, the sudden shortage of them also meant a shortage of retail money assets. In other words, the shortage of safe assets matters because it means there is an excess demand for both institutional and retail money assets. This excess money demand, in turn, is keeping aggregate nominal expenditure growth below where it should be…. The problem is that safe assets, treasury securities in particular, cannot make this adjustment when they are up against the zero lower bound (ZLB) on nominal interest rates…. Note what is happening here: treasuries and money become increasingly close substitutes as they approach the ZLB, while the overall transaction asset market becomes increasingly segmented from other asset markets. In other words, as arbitrage becomes more powerful among transaction assets like money and treasuries, it becomes less powerful between the market for transaction assets and other asset markets. The short answer to Koning's question, then, is that the ZLB has segmented the transaction asset market and this is preventing the safe asset market from clearing."

  • Paul Krugman: Ratings and Rates: "The interest rate on U.S. long term debt is up a bit, briefly breaking above 2 percent today. So, is this reflecting worries about US debt sustainability? Of course not — and by now it seems that even financial reporters get it. The main cause of the slight uptick, according to news reports, was a better-than-expected durable goods number, which brings marginally closer the day when the Fed might finally start raising rates. In other words, it was economic optimism, not pessimism, behind the rate rise…. [M]ore evidence that everything the Very Serious People have been saying about confidence and the bond markets is wrong."

  • Kathy Ruffing and LaDonna Pavetti contra Nick Kristof: SSI and Children with Disabilities: Just the Facts: "Here, we present basic facts about the program and try to clear up some significant misunderstandings. Is the number of children receiving SSI benefits mushrooming?  In a word, no. In October 2012, SSI provided monthly cash benefits to 1.3 million disabled children under age 18 whose families have low incomes and few assets (these are basic eligibility criteria) — or about 1.7 percent of all children in the United States. That rate has inched up very gradually for the last decade, probably due to advances in detection and diagnosis of certain disabling conditions and the rising rate of child poverty, and has temporarily increased in the wake of the prolonged economic downturn, which has increased the number of families with low incomes and hence the number of disabled children eligible for SSI. The number of children on SSI represents about one-fifth of the 8 to 9 per cent of U.S. children who are estimated to have serious disabilities. Who qualifies? Contrary to some journalistic portrayals, the eligibility criteria are stringent.  A child’s impairments must match (or equal in severity) a list of disabling conditions compiled by the Social Security Administration (SSA).  Qualified medical professionals — physicians, licensed or certified psychologists, or certain other experts — must submit evidence of the disability. Assertions by parents and teachers are not enough. As evidence that the criteria are stringent, note that SSA rejects about 60 percent of applications for SSI for disabled children."