Noted for May 15, 2013
Mark Thoma sends us to Tim Duy: What Does Japan Mean For The Rest of the World?: "Is Abenomics about boosting exports or domestic demand? I tend to agree with Lars Christensen on this issue: 'There has been a lot of focus on the fact that USD/JPY has now broken above 100 and that the slide in the yen is going to have a positive impact on Japanese exports. In fact it seems like most commentators and economists think that the easing of monetary policy we have seen in Japan is about the exchange rate and the impact on Japanese “competitiveness”. I think this focus is completely wrong.'… In my view, Abenomics has been remarkably centered on the domestic economy. The impact on the Yen is almost an afterthought, whereas in the past policymakers would have turned to intervention to directly support the economy. This looks like policymakers finally realized that such a policy approach wasn't working and they need to change gears to a frontal-assault on domestic policy levers…. Investment Week has an interview with hedge fund manager Hugh Hendry…. So what's right and what's wrong with that quote [from Hendry]? What's right is that there will be a trade impact…. What's wrong, however, is that this [trade impact] is exactly what the global economy needs…. If Germany and by extension Europe experiences weaker growth, European policymakers will need to respond… successful domestically-orientated policy in Japan will have second-round effects that will induce further policy easing Europe. And a good kick in the pants in Europe is exactly what we need right now. Rather than thinking about Japan's policy as triggering 'competitive devaluations', think of it as triggering 'coordinated global easing'. What's also wrong is Hendry's usual hedge-fund bias again monetary policy. By altering expectations to lower real interest rates, Japan's monetary policy is in a sense creating economic growth out of nothing. We frequently heard that 'uncertainty' was holding back the recovery, but isn't this the same thing as creating a recession out of nothing? If you can create a recession out of nothing, then why not an expansion?"
Paul Krugman: Which Textbook Is That, Exactly?: "Ryan Avent, like me, was favorably impressed by the Nick Crafts piece on British policy in the 1930s. I was, however, slightly puzzled, in a tooting-my-own-horn fashion, by the reference — which I missed in Crafts, but was repeated and emphasized by Avent — to the 'textbook approach' of raising inflation expectations to escape a liquidity trap. Um, which textbook is that, exactly? As far as I know, among basic textbooks only Krugman/Wells even talks about the liquidity trap; certainly we were the only one talking about it before 2008. And the whole discussion of inflation expectations and monetary policy in a liquidity trap as a sort of inverted version of the usual credibility problem — in fact, the whole revival of the liquidity trap as a modern concern — dates from this paper (pdf). This isn’t purely self-promotion (although obviously that’s part of it). I do think that one reason I’ve done pretty well in tracking this ongoing slump is that I’ve been thinking about liquidity trap issues for a very long time, years before almost anyone else." <-- IMHO, an extraordinary demonstration of Paul Krugman's complete and total intellectual victory here
Paul Krugman: It's Baaack: Japan's Slump and the Return of the Liquidity Trap | Austin Frakt: Power Calculations for IV Estimators | Tomas Hirst: The Bank of Englands Credibility Dilemma | Jaron Lanier: The Internet destroyed the middle class - Salon.com | Q & A with Josh Marshall |
Bruce Bartlett: Keynes and Keynesianism: "Paul Krugman took me to task for misconstruing the generality of Keynesian theory. My point was that policy makers in the early postwar era routinely accepted the idea that Keynesian stimulus was justified whenever the economy wasn’t doing as well as they wanted. I acknowledge that this view derived mainly from economists who called themselves Keynesians rather than Keynes himself. He was, in fact, a strong opponent of inflation…. Economists and policy makers mostly forgot that Keynes prescribed budget surpluses during economic upswings to offset the deficits that he correctly advocated during downturns. In his 1940 book, 'How to Pay for the War', he advocated balancing the budget over the business cycle. I think Milton Friedman was right that in a sense we are all Keynesians and not Keynesians at the same time. What I think he meant is that no one advocates Keynesian stimulus at all times, but that there are times, like now, when it is desperately needed. At other times we may need to be monetarists, institutionalists or whatever. We should avoid dogmatic attachment to any particular school of economic thought and use proper analysis to figure out the nature of our economic problem at that particular moment and the proper policy to deal with it."
Carola Binder: Monetary Policy and Equity Prices at the Zero Lower Bound: "If non-traditional expansionary monetary policy has a different effect on equity prices than traditional policy, than non-traditional contractionary monetary policy (i.e. and end to bond-buying) could have a different effect on equity prices than raising the fed funds rate. How do equity prices react to monetary policy at the ZLB? This is the subject of a Federal Reserve Discussion Series paper by Michael Kiley…. The key finding is: 'Implementation of our identification strategy suggests that, prior to 2009, monetary policy actions that would reduce the 10-year Treasury yield by 100 basis points were associated with a 6- to 9-percent increase in equity prices. In contrast, similar-sized declines in the 10-year Treasury yield associated with monetary policy actions since the end of 2008 have been accompanied by increases in equity prices of 1-½ to 3-percent - a notably smaller association'… non-traditional monetary policy has substantially different--less intense--effects on equity prices than traditional monetary policy."
Menzie Chinn: Crowding Out Watch, Heritage Edition: "According to the Swanson and Williams paper Furth cites, we are now in a liquidity trap-like situation. Now is exactly the time to undertake expansionary - not contractionary -- fiscal policy. At the very least, one would not want to cut government spending without cause. Interestingly, this implication Dr. Furth fails to note."
Will Wilkinson: Racism and immigration policy: The Richwine affair: "When we come upon a piece of social science that is weakly researched and poorly argued, it's reasonable to suppose that the 'conclusion' is actually a fixed point, a presupposition, and that the main body of the work had been contrived to support it. In this light, it's important to remember why Mr Richwine's dissertation became a subject of controversy. Mr Richwine had co-authored an abysmally rigged study with then-colleague Robert Rector that cast Hispanic immigrants as welfare leeches draining the lifeblood from the body politic. I suspect that Mr Richwine may have been able to survive either controversy taken in isolation. Had he not just argued, in an extremely tendentious fashion, that Hispanic immigrants are, on the whole, parasites, he might have endured public criticism of his dissertation. Had he not in his dissertation argued that Hispanic immigration ought to be limited on grounds of inferior Hispanic intelligence, he would have endured the firestorm over the risible Heritage immigration study, as Mr Rector did. Taken together, however, these two works produce a strong impression of hostility to Hispanics—they're parasitical because they're a bit dim as a breed, you see—which would be very hard to dispel. It's easy to see why Heritage let Mr Richwine dangle. Nevertheless, Mr VerBruggen, sees 'a shocking unwillingness on the part of Heritage to stand up to bullying and protect the academic freedom of its researchers'…. As long as conservatives are inclined to think that Mr Richwine was 'bullied' and 'lynched' for his brave empiricism, instead of having been sunk by the repugnant prejudice exposed by the shoddiness of his work, non-white voters will continue to flock to a party less enthusiastically receptive to the possibility of their inferiority."
