How is it that it is not until now that I realize that the Lord Chamberlain, whose men Shakespeare, Burbage, and company were, was Robert Dudley, Earl of Leicester?
...as opposed to simply rejecting Republicans.... Without a credible economic plan, the US left risks being little more than a rainbow coalition. This is the danger facing Mrs Clinton’s candidacy. It is possible--perhaps even likely--that Republicans will select a nominee who has alienated so many Americans that he will be unable to compete in a general election. It is also plausible that Mrs Clinton will appeal to enough women, Hispanics and others to ensure her electoral maths are prohibitive. That is the working theory. Unless Mrs Clinton can find a positive story to engage America’s middle classes it is the only one that is likely to work in practice....
Mrs Clinton’s network of donors are comfortable with social liberalism. The bulk of her money will come from places like Wall Street and Silicon Valley, which are either neutral or supportive on social issues. Their focus is on lower taxes and fewer regulations. Mrs Clinton’s challenge will be to square her donors’ priorities with America’s increasingly apolitical young voter.... Those who are unemployed want jobs. Those who have jobs want a pay rise. All that most will remember is eight lean years under President Barack Obama.... Mrs Clinton will need new ideas and new faces. Who they will be--and what they will advise--is anyone’s guess.... In the absence of new ones, Mrs Clinton’s bridge to the White House looks rickety.
Three Words and the Future of the Affordable Care Act: "Adler and Cannon have offered a strained interpretation of the ACA that...:
...if accepted, would make a hash of other provisions... and undermine its stated purpose.... The more natural reading... [is that] the “by the State” language just reflects Congress’s assumption, unchallenged at the time, that the states would establish their own exchanges. But even if you think that Adler and Cannon’s claim is plausible... the contrary interpretation offered by the government is at least reasonable.
That brings me to the aspect of their argument that troubles me the most: their unyielding conviction that they’ve identified the only possible construction of the ACA. Nowhere do they so much as acknowledge the possibility that maybe, just maybe, they’re wrong. That’s because they can’t admit to doubt. Because of the deference extended to agency interpretation, doubt means they lose.
But their unwillingness even to acknowledge ambiguity reflects an important difference between legal advocacy and neutral interpretation.... The courts would violate their obligation of fidelity in statutory construction if they mistook [their legal] ingenuity for genuine obeisance to congressional will. The latest challenge to the ACA is political activism masquerading as statutory restraint.
Waving a Magic Wand
J. Bradford DeLong :: U.C. Berkeley
The problem I have with such questions--with such "magic wands"--is that I am never sure just how powerful they are supposed to be.
Let me propose three, all of which are small scale in terms of policies but larger scale in that in order to become durable policies they do require, as John Adams said, changes "in the hearts and minds of our countrymen [and women]...":
(1) A Federal Reserve committed to nominal GDP level targeting, with a trend growth rate in nominal GDP of 7%/year: In my view the question of the origin of "general gluts"--demand-side business cycles characterized by (i) insufficient demand for pretty much every currently-produced good and service, and (ii) positively- rather than negatively-correlated fluctuations relative to trend of prices and employment--was decisively and correctly answered by John Stuart Mill back in 1829. A general glut arises when if there is full employment workers, savers, and managers wish to hold more in the way of liquid cash and readily-collateralizable safe savings vehicles than the economy is supplying. READ MOAR
Monday Smackdown: Did Anthony Watts Ever Correct His Erroneous Claim That the EPA "Jump[ed] the Shark, Banning – ARGON"?
I take it not:
...Why on Earth would the EPA plan to ban something as inoffensive as Argon? IceAgeNow has a theory--they think Argon is part of a list supplied by a scientifically illiterate NGO, which the EPA plans to rubber stamp. If anyone with any real scientific training whatsoever had seen this silly list before it was published, or had taken the trouble to do 5 minutes of research on each entry in the list, to discover how ridiculous and ignorant the inclusion of Argon on a list of dangerous chemicals to be banned really is, then the EPA would not be facing their current very public embarrassment.... When I first saw this story, I though surely this must be some sort of spoof or misunderstanding that led to this. Sadly, no...
Over at Equitable Growth: Things I Should Have Written About When They Were Published: Lawrence Summers on ‘House of Debt’: Daily Focus
...looks likely to be the most important economics book of 2014; it could be the most important book to come out of the 2008 financial crisis and subsequent Great Recession.... It persuasively demonstrates that the conventional meta-narrative of the crisis and its aftermath, which emphasises the breakdown of financial intermediation, is inadequate. It then goes on to provide a supplementary and in some ways alternative explanation focusing on the deterioration of household balance sheets, an analysis that has profound implications for policy directed both at preventing crises and responding to them when prevention fails.... READ MOAR
The German Inflation Undershoot: The European Outlier: "The point is a simple but important one...:
...at this point any European imbalances associated with the surge in capital flows to the periphery after the formation of the euro have been worked off via extremely painful and costly disinflation.... From 1999 to the present, most of Europe has had cost growth and inflation just about consistent with the ECB’s long-standing just-under-2 percent inflation target. There’s just one big outlier.... The European imbalance problem is a German problem, caused by Germany’s persistent failure to have wage and price increases in line with what the euro requires. This German undervaluation is in turn exporting deflation to the rest of Europe. By contrast, France, Spain, and even Italy have been playing by the rules.
Afternoon Must-Read: Peter Hart: NYT Columnist Andrew Ross Sorkin's Faulty Attack on Elizabeth Warren's 'Rage'
NYT Columnist Andrew Ross Sorkin's Faulty Attack on Elizabeth Warren's 'Rage': "Not so fast, says Sorkin...:
...this is no normal inversion:
While the merger is technically an inversion, it isn't comparable to so many of the cynically constructed deals that were done this year simply to reduce taxes.
That's what Burger King says–though Stephen Shay... says,
I would be surprised if in five years' time, their tax rate does not come down reasonably dramatically....
This is the crux of Sorkin's argument that Warren 'is, to put it politely, mistaken.' She calls this a tax inversion, and it's not--or actually it is, since it's 'technically an inversion.' Is that clear enough for you?... Sorkin admits that Warren could have had a better argument if she wasn't so blinded by her rage:
It is true that Mr. Weiss doesn't have a lot of experience in the regulatory arena... will be the beneficiary of a policy at Lazard that vests his unvested shares... by taking a government job.... Ms. Warren might be more persuasive if she focused on those issues.
Good point: Warren should have focused on his lack of regulatory experience. Oh wait....
That raises the first issue. Weiss has spent most of his career working on international transactions–from 2001 to 2009 he lived and worked in Paris–and now he's being asked to run domestic finance... oversee consumer protection and domestic regulatory functions at the Treasury.
Free tip for Andrew Ross Sorkin: Don't say someone should have emphasized a point they in fact raised as 'the first issue.' It makes it seem like you didn't read the article you're critiquing.
Comments on Stephanie Aaronson: Labor Force Participations: Recent Developments and Future Prospects
Discussion of Stephanie Aaronson: Labor Force Participations: Recent Developments and Future Prospects:
- Unemployment is a suspicious or rather contaminated measure of economic slack in today's economy
- Janet Yellen: "If the cyclical component is abnormally large relative to the unemployment rate then it might be seen as an additional contributor to labor market slack"
- Does a soft labor market discourage workers? The traditional belief is "very little"
- Observed: non-participation rate n and unemployment rate u. Unobserved factors: slack s, and non-participation influence x.
- n = x + γs
- u = s - αx
- s = (u + αn)/(1 + γa)
- This is a problem--but to answer it needs an instrument, which we do not have...
- The discussion has neglected the fact that we need to overshoot on inflation in order to create credibility that we will do the right thing the next time we hit the ZLB...
- Aaronson: pure aging 1.6%, cyclical 0.5%, other 1.1%--total 3.2% * What is the residual?: Special cyclical factors from this regression? Non-aging structural shifts?...
- All of Aaronson's residual has emerged since 2011:QI...
- Mean duration of unemployment accounts for all of residual through 2012 and half through today...
- When you have age and cohort effects you fit every time series... * Given the way they define the cycle, there cannot be any scope for a cyclical recovery in participation because right now there is next to no cycle...
- Marion Fourcade et al.: The Superiority of Economists
- A Question for Simon Wren-Lewis: How Can You Not Think That It Is All Ideology on the Other Side?
- Simon Wren-Lewis: Understanding Anti-Keynesians
- Justin Fox: Andy Haldane: The Regulator Who Explained the World
Must- and Shall-Reads:
- Reading Keynes at the Zero Lower Bound : Stock markets set to take off as Europe, Asia abandon austerity :
- A Conundrum for Saudis: Women at Work :
- Electricity in the 1920s and IT Today: Conversation with @billjaneway, @pmarca and @danfrost (with tweets)
- Honest Mom, I only bought the new Playboy to read the article on UMKC Economics :
- How income inequality undermines U.S. power :
- Justin Fox: Andy Haldane: The Regulator Who Explained the World
- The Superiority of Economists :
- Understanding Anti-Keynesians :
- In Front Of Your Macroeconomic Nose :
And Over Here:
The Superiority of Economists: "The dominant position of economics within...:
...the social sciences in the United States... the relative insularity of economics... the tight management of the field from the top down, which gives economics its characteristic hierarchical structure. Economists also distinguish themselves from other social scientists through their much better material situation (many teach in business schools, have external consulting activities), their more individualist worldviews, and in the confidence they have in their discipline’s ability to fix the world’s problems. Taken together, these traits constitute what we call the superiority of economists, where economists’ objective supremacy is intimately linked with their subjective sense of authority and entitlement. While this superiority has certainly fueled economists’ practical involvement and their considerable influence over the economy, it has also exposed them more to conflicts of interests, political critique, even derision.
The Friedrichstrasse station, with its broad stairways, which lead to a kind of underworld, is supposed to be bomb-proof. It is all rather as I imagine Shanghai to be.
Ragged, romantic-looking characters in padded jackets, with high, Slav cheekbones, mixed with fair-haired Danes and Norwegians, smartly turned-out Frenchwomen, Poles casting looks of hatred at everybody, fragile, chilly Italians — a mingling of races such as can never before have been seen in any German city.
...a framework in economic theory, references to the latest in empirical research, grand historical sweep, and crystal-clear explanation... [plus] the subversive element found in the best of Haldane's work.... His Sept. 2, 2010 speech "Patience and Finance"... bowled over by how good it was....
Under one equilibrium, patience wins the day. When long-term investors start in the ascendency, prices tend to correct towards fundamentals. The performance of untested investors pursuing momentum strategies falters, while those pursuing longterm strategies flourish. The fraction of long-term investors rises. The self-correcting tendencies of market prices are thus reinforced, further supporting long-term investors. The patience gene thrives, the impatience gene dies. Natural selection results in a self-improving cycle, as with dieting, happiness and exercise. But there is a second equilibrium where this cycle operates in reverse gear.... Natural selection results in a self-destructive cycle....
Haldane then goes on to meticulously document the ways that, over the past decade, financial markets--especially in the U.S. and UK--succumbed to the impatience cycle.... Another Haldane speech 'The Short Long'... 'Control Rights (and Wrongs)'.... As somebody who has long trafficked in explanatory financial journalism, I stand somewhat in awe...
Over at Equitable Growth: A Question for Simon Wren-Lewis: How Can You Not Think That It Is All Ideology on the Other Side?: Daily Focus
Over at Equitable Growth: Simon Wren-Lewis bends over so far backwards to be fair that, I think, he loses sight of the ball:
Understanding Anti-Keynesians: "I have always thought it important to try and understand...:
...where the other side is coming from.... Let me single out three Keynesian propositions.
- Aggregate demand matters, at least in the short term and in some circumstances (see 2) maybe longer.
- There is such a thing as a liquidity trap, or equivalently the fact that there is a zero lower bound to nominal interest rates matters.
- At least some forms of fiscal policy changes will impact on aggregate demand, and therefore (given 1), on output and employment. Because the liquidity trap matters, when interest rates are at their zero lower bound we should use fiscal policy as a stimulus tool, and we should not embark on fiscal austerity unless we have no other choice. READ MOAR
Understanding Anti-Keynesians: "I should really stop there...:
...but having started with Tyler Cowen’s post, I really should say something about his comments on the UK.... Why the obvious fact that other things besides fiscal policy are important in explaining growth in any year is thought to be an anti-Keynesian point I cannot see. And if the case against Keynesian ideas rests on the incorrect forecast once made by a prominent Keynesian then this is really scraping the barrel.
Q: What happens, if you know your history, when one culture or one race or one religion overwhelms another culture or race? When one race or culture overwhelms another culture, they run them out or they kill them.'
Jonathan Eddy returned to Massachusetts in August. While the Second Continental Congress and George Washington would not authorize, fund, or otherwise support military activities in Nova Scotia, Eddy was able to convince the Massachusetts Provincial Congress to provide some material support (primarily muskets, ammunition, powder, and other military supplies) for an attempt on Fort Cumberland.... Eddy left Boston in September and sailed to Machias, where he recruited about 20 men. On October 13, this party sailed from Machias for Passamaquoddy Bay....
Thirty-Eight Columbia University Economics Professors Demonstrating Their Utter Cluelessness About the Macroeconomic Situation:
In the course of severe fighting lasting several days my troops have brought to a standstill the offensive of a numerically superior Russian army.
[Note: The Army Order reproduces a telegram from the Kaiser, in which the latter, after congratulating the commander on his new success and that of his troops, thanks him for protecting the eastern frontier. The Kaiser adds that he cannot better express his thanks than by promoting the General to the rank of Field Marshal.]
I am proud at having reached the highest military rank at the head of such troops. Your fighting spirit and perseverance have in a marvellous manner inflicted the greatest losses on the enemy.
Over 60,000 prisoners, 150 guns and about 200 machine guns have fallen into our hands, but the enemy is not yet annihilated.
Therefore, forward with God, for King and Fatherland, till the last Russian lies beaten at our feet. Hurrah!"
- Mark Thoma: Good News for the Unemployed
- Martin Wolf: Radical Cures for Unusual Economic Ills
- Paul Krugman: Keynes Is Slowly Winning
- Anne Laurie: Monday While-We’re-Waiting
- Thanksgiving weekend reading :
Must- and Shall-Reads:
- Tax Extenders Package Is Fundamentally Flawed :
- 2014 PKConference
- Some good job news for a hard-hit group : Radical cures for unusual economic ills :
- Monday While-We’re-Waiting Open Thread » Balloon Juice :
- Keynes Is Slowly Winning :
- Germany’s Four Neins :
- Ello: On Jeet Heer on Neocons and Neolibs
- Ello: On David Roberts on the Noise Machine
- Ello: On Sleeping Beauty and "Halvers"
And Over Here:
...in recent years is a trend that started before the Great Recession.... But where do those who have lost their jobs go?.... Many people believe most of those who lose middle-class jobs end up worse off than before, but recent research by economic policy analyst Ellie Terry and economist John Robertson of the Federal Reserve Bank of Atlanta finds... 'of those in middle-skill occupations who remain in a full-time job, about 83 percent are still working in a middle-skill job one year later.... What types of jobs are the other 17 percent getting? Mostly high-skill jobs; and that transition rate has been rising. The percent going from a middle-skill job to a high-skill job is close to 13 percent: up about 1 percent relative to before the recession. The percent transitioning into low-skill positions is lower: about 3.4 percent, up about 0.3 percentage point compared to before the recession.'... We still have plenty to fret about over employment across all skill levels, especially middle-skill jobs. But it could be even worse...
Wednesday Cognitive Science Blogging: What Are the Odds Princeton's David Lewis Understands Probability Properly?
Sleeping Beauty: Reply to Elga: "Researchers at the Experimental Philosophy Laboratory... Sleeping Beauty...:
...On Sunday evening they will put her to sleep [P-]. On Monday they will awaken her briefly. At first they will not tell her what day it is [P], but later they will tell her that it is Monday [P+]. Then they will subject her to memory erasure. Perhaps they will again awaken her briefly on Tuesday... depend[ing] on the toss of a fair coin: if heads they will awaken her only on Monday, if tails they will awaken her on Tuesday as well.... We shall need to consider her credence functions at three different times.
Radical cures for unusual economic ills: "Crises are cardiac arrests of the financial system...:
...The time to worry about a patient’s lifestyle is not during a heart attack. The need is to keep them alive.... In my book, The Shifts and the Shocks, I suggest that a number of shifts in the world economy created chronically weak demand in the absence of credit booms... excess savings in emerging economies... shifts in income distribution, ageing and a secular decline in the propensity to invest in high-income countries... globalisation, technological innovation, and the growing role of the financial sector. It is not enough to clean up.... Policy makers also have to eliminate the dependence of demand on unsustainable credit. Without that, even a radical clean-up will not deliver buoyant demand.... The crisis left a grim legacy. The eurozone has done a worse job of dealing with this than, say, the US. But the origins of the crisis are to be found in longer-term structural weaknesses. Policy has to address these failings, too, if exit from the crisis is not to be the beginning of a journey into the next one. The answers are likely to be unorthodox. But so, too, is today’s economic condition. Rare ailments need unusual treatments. So look for them.
...which called not just for fiscal austerity but for interest rate hikes--350 basis points on the Fed funds rate by the end of 2011!--because, well, because. Now the OECD is calling for fiscal and monetary stimulus.... It’s not the same people.... A new chief economist, Catherine L. Mann, whose excellent research has always been pragmatic.... But by selecting Ms. Mann the OECD was making a statement, and my sense is that the ground is shifting.... It has taken a while. In early 2013, with the infamous growth cliff at 90 percent debt and the case for expansionary austerity collapsing, many of us thought we had the austerians on the run. But we underestimated the extent to which officials and, to some extent, the news media had a professional stake in the positions they had staked out.... This still goes on. Simon Wren-Lewis complains, and rightly, about ‘mediamacro’--and his government has learned nothing. The Bundesbank is still what it always was.
But the hawks seem in retreat at the Fed; Mario Draghi... sounds an awful lot like Janet Yellen; the whole way we’re discussing Japan is very much on Keynesian turf.... Businessweek was declaring that expansionary austerian Alberto Alesina was the new Keynes; now... Keynes is the new Keynes... Paul Singer complaining about the ‘Krugmanization’ of the debate.... Partly, I think, it’s just a matter of time.... The refusal of almost everyone on the anti-Keynesian side to admit any kind of error has gradually made them look ridiculous. All of this may be coming too little and too late to avoid policy disaster.... But it’s something to cheer, faintly..."
- Fiscal policy would be ineffective at the zero lower bound.
- Austerity would be expansionary.
- The retarding effects of debt on growth had some sort of a cliff at a debt-to-annual-GDP ratio of 90%.
- Increased debt could have any adverse effects on economies that issued reserve currencies and had low interest rates.
Economics as a system of knowledge has had remarkably little impact on either economic policy or on the character of the public debate since 2009.
Monday While-We’re-Waiting: "Matt Yglesias...:
...[on] the new Wingnut Wurlitzer meme:
Conservative pundits who didn’t like the bipartisan comprehensive immigration reform bill that passed the US Senate in 2013 also didn’t like Obama’s deportation relief through executive action. They object to both the content... and to the process... as roughly akin to overthrowing the democratic constitutional order through military force in order to establish a brutal Latin American dictator.... There are many things one could say about this comparison, starting with the fact that unlike a proper caudillo such as Augusto Pinochet, Obama hasn’t had thousands of people detained and tortured without trial. Or, indeed, that it was actually Obama’s predecessor who was having people detained and tortured without trial.
But perhaps the strangest thing about it is that when American conservatives analogize Obama to a Hispanophone military dictator, we are meant to understand this a criticism when the historical reality is that American conservatives have generally been quite enthusiastic about caudillos.... Indeed, thanks to the miracle of modern-day traffic recirculation methods, old National Review content singing Pinochet’s praises falls directly adjacent to complaints about Obama’s caudillismo...
Today is a peaceful day in the country. The usual occupations, a walk in the woods, much writing and reading, are all that I can report.
As we read our newspapers today, I pray that the valor of our men in their determined attacks will finally discourage the enemy. These attacks are costing much in the way of ammunition, planes, guns, tanks, etc., as well as our boys' lives. It is for that reason that General Eisenhower begs the people at home not to let up in their production. Those of us who have sons on the fighting fronts realize what the work of the people at home means to them. They are grateful for what the people at home have done in the past and hope that they will find the strength to continue to the end.
With respect to:
...but I still found the story a little bit off from what I've personally experienced.... Shane mentions that she thinks the pendulum is about to swing the other direction and she envisions talking to people at legacy organizations in a few years and saying 'You're still there? Really?!?!' I'd say 'You're still there? Really?!?!' has already probably been the single most common question anyone at a legacy news organization has gotten over the previous decade. The past decade has been a relentless drumbeat of departures....
It's not a pendulum. It's a wrecking ball and it's been swinging ferociously into legacy media and carrying away the rubble for more than a decade. I frankly know nobody in the rank-and-file who isn't taking it seriously. Even within the walls of legacy organizations, the legacy skills of reporting have lost their value compared to internet skills. Maybe it comes across as dismissive--that's one way humans cope with a wide range of existential threats--but make no mistake: the emotion is fear.
- European Economic Integration: The Rebalancing Challenge in Europe: Monday Focus
- A Question for Richard Koo: Daily Focus
- Over at Project Syndicate: Economic Growth and the Information Age: Daily Focus
- Lars E. O. Svensson: Monetary Policy and Financial Stability
- Jonathan Cohn: Obama's Immigration Order: A Vote for American Exceptionalism
- Nicholas Bagley: Three Words and the Future of the Affordable Care Act
- Are big businesses slowing wage growth? :
- An appreciation of Robert Solow :
- What’s the link between corporate profits, investments, and economic growth? :
Must- and Shall-Reads:
- Lars Svensson: Monetary policy tradeoffs in CESEE
- Measuring Europe’s investment problem :
- Lies, damned lies, and liquidity expectations :
- Left, Right and Macroeconomic Competence :
- Three Words and the Future of the Affordable Care Act :
- Obama's Immigration Order: A Vote for American Exceptionalism :
- Lars E.O. Svensson http://larseosvensson.se: Monetary policy's best contribution to financial stability?
- The bond market’s dance over European debt will not last forever :
And Over Here:
- top 1% incomes grew at 3.6%/year,
- rest of the top fifth grew at 1.6%/year,
- middle three-fifths grew at 0.9%/year,
- bottom fifth at 0.5%/year-—with the proviso that improved access to medical care was worth a good deal more than its market cost.
But the past generation has seen a third industrial revolution, a worthy information-age successor to the first of steam, iron, cotton, and machines and to the second of internal combustion, electricity, steel, and chemicals. Not everyone, but almost everyone in the North Atlantic and many and soon most in the world, can now if they wish have a smartphone--and so gain cheap access to the universe of human knowledge and entertainment to a degree that was far beyond the reach of all but the richest of a generation ago.
...the ACA extends tax credits to anyone earning between one and four times the poverty level who buys a qualified health plan so long as the individual is ineligible for Medicaid and doesn’t have access to employer-sponsored coverage.... As Michael Cannon and Jonathan Adler read the ACA, however, my kids’ piano teacher can’t get tax credits at all. Nor should roughly 9.5 million other people... Yet... the government’s alternative reading makes much better sense of the statute as a whole and avoids assigning a meaning to the ACA that is blatantly at odds with what the statute aims to accomplish.... To make out their case, however, it’s not enough for Adler and Cannon to show that it’s possible to read the ACA to withdraw tax credits from refusal states. If the statute is ambiguous on that point, it’s black-letter law that the courts must defer to the IRS’s authoritative interpretation (Chevron U.S.A. v. Natural Res. Def. Council, 467 U.S. 837 ). Adler and Cannon... have to demonstrate that the statute unambiguously withdraws tax credits.... They haven’t come close to making such a demonstration...
The Most Remarkable Sentence I Have Read Today Comes from Scott Winship of the Manhattan Institute: Live from La Farine
It comes from Scott Winship of the Manhattan Institute:
...even those who regularly disagree with me and who don’t like me, I think–know that I value integrity above nearly all else...
It is remarkable because of the context, which includes things like:
is something Obama’s critics claim he doesn’t believe in. ‘Our president doesn’t have the same feelings about American exceptionalism that we do,’ Mitt Romney said during the 2012 presidential campaign. In a 2010 cover story in National Review, Rich Lowry and Ramesh Ponnuru declared, ‘At the heart of the debate over Obama’s program is the survival of American exceptionalism.’... One consistent feature of exceptionalist discourse has been the idea that America permits greater upward mobility than does the Old World.... In recent decades, sadly, the reality of American mobility has diverged sharply from the myth.... America, Marco Rubio said a few years back, ‘is the only economy in the world where poor people with a better idea and a strong work ethic can compete and succeed against rich people in the marketplace.’ That’s not actually true. But it’s truer today than it was last week because the president who supposedly wants to make America more like Europe has instead made America more like its best vision of itself.
￼￼Monetary policy tradeoffs in CESEE###
Lars E.O. Svensson
Department of Economics, Stockholm School of Economics, P.O. Box 6501, SE-113 83 Stockholm, Sweden, www.sse.edu
Conference on European Economic Integration (CEEI) 2014 Vienna, November 24, 2014
￼Monetary policy's best contribution to financial stability?
- Inflation on target and resource utilization at long-run sustainable rate
- Suppose 2% inflation and 3% real growth, nominal growth 5% of asset prices and disposable income, doubling every 14 years
- For any given nominal debt, LTV and DTI ratios halved in 14 years. Pretty good for repair of balance sheets.
- Monetary policy should only be the very last line of defense of financial stability, normally not to be used
I used to buy Airfix model aeroplane assembly kits and put them together.Since there were few toys around I was able to sell these to a shop in New Cross Gate. The shop was situated next to the railway bridge, which is part of the main road, at New Cross Gate in a row of shops opposite Woolworths.
I am not sure that I can ask this question coherently. So if I do not, please feel free to just say "that was not coherent" and move on to answering the coherent questions...
The conventional arguments of those whom Martin Wolf calls the Austerians runs more-or-less like this: someday QE will succeed in shifting beliefs from an expectation of permanent depression to an expectation of rapid normalization. Savers then look at their holdings of maturing government bonds and roll them over only if they are offered a normal and positive real interest rate. And then the price level will rise very rapidly to a value at which--as John Maynard Keynes said of France during its inflation of the 1920s--real future government primary surpluses discounted at the normal real interest rate are equal to the nominal debt divided by the price level.
In your framework, that would be a sudden very large shift in private-sector net savings behavior from surplus to deficit. And in your framework such a shift is almost inconceivable. But in their framework such a shift seems almost inevitable. Can you tell me why judgments of likelihood of a near-hyperinflationary collapse upon normalization are so different in the two frameworks? I know that 25 years of history strongly suggest that they are wrong, but why? It was, after all, right for France in the 1920s. It was possibly right for peripheral European countries trapped in the eurozone. It was right for Argentina. Why is it not right--or not possible for any reasonable probability--for reserve currency-issuing credible sovereigns? READ MOAR
Nowotny: calls attention to the relative success of manufacturing- and cross-border heavy economies--the Visegrad Group--in doing relatively well, with a stress on "relatively"...
Chakrabarti: Remarkable divergence east of Germany: Poland vs. Croatia. Structural reform especially necessary in post-transition economies. Overhangs: non-performing loans, distressed overleveraged corporations, investment shortage, mobilizing public debt capacity.
Kuodis, Svensson, Nowotny, Singer, Fabris, Daianu: "For more than two decades economies lived in the dream of the Great Moderation..." http://www.oenb.at/dms/oenb/Publikationen/Volkswirtschaft/CEEI/2014/svensson-ppp/Svensson%20panel_ppp.pdf Lars Svensson goes there: "Monetary policies best contribution to financial stability? --Inflation on target and resource utilization at long-run sustainable rate. --Suppose 2% inflation and 3% real growth, nominal growth 5% of asset prices and disposable income, doubling every 14 years. --For any given nominal debt, LTV and DTI ratios halved in 14 years. Pretty good for repair of balance sheets..."
In T'Veld, Schuberth, Pribil, Koo: Why do I think that Richard Koo would have more influence if he would write papers with titles like: "Financial Overleverage, Balance Sheets, and the Steepening of the LM Curve"? http://www.oenb.at/dms/oenb/Publikationen/Volkswirtschaft/CEEI/2014/koo_ppp/Koo_PPP.pdf
For Koo: The conventional arguments of those whom Martin Wolf calls the Austerians runs more-or-less like this: someday QE will succeed in shifting beliefs from an expectation of permanent depression to an expectation of rapid normalization. Savers then look at their holdings of maturing government bonds and roll them over only if they are offered a normal and positive real interest rate. And then the price level will rise very rapidly to a value at which, as John Maynard Keynes said of France in the 1920s, real future government primary surpluses discounted at the normal real interest rate are equal to the nominal debt divided by the price level. In your framework, that would be a sudden very large shift in private-sector net savings behavior from surplus to deficit. And in your framework such a shift is almost inconceivable. But in their framework such a shift seems almost inevitable. Can you tell me why judgments of likelihood of a near-hyperinflationary collapse upon normalization are so different in the two frameworks? I know that 25 years of history strongly suggest that they are wrong, but why?
Over at Equitable Growth: European Economic Integration: The Rebalancing Challenge in Europe: Monday Focus
- Over at Grasping Reality: Barry Eichengreen's "Hall of Mirrors"
- Wolfgang Münchau: Radical Left Is Right About Europe’s Debt
- Ed Luce: Washington’s Two Foreign Policies
- Hobson's Choice: (Late) Friday Focus
- Lawrence Summers: Companies on Trial
- Matthew Yglesias: The GOP's Counterproductive Policy Strategy
- Richard Milne: Central Banks: Stockholm Syndrome
Must- and Shall-Reads:
- The wrongest thing ever? My defence of multi-billionaire hegde fund inflation truthers :
- Free exchange: No country for young people :
- Radical left is right about Europe’s debt** :
- Washington’s two foreign policies **:
- Companies on Trial :
- The GOP's political strategy against Obama keeps leading to policies conservatives hate :
- Central banks: Stockholm Syndrome :
- Missouri State of Mind: The Hidden Co-Pay in Community Based Long Term Care :
And Over Here:
...on what the eurozone should do right now. Specifically, you want to see more public-sector investment and debt restructuring. Now ask yourself the following question: if you were a citizen of a eurozone country, which political party would you support for that to happen? You may be surprised to see that there is not much choice. In Germany, the only one that comes close to such an agenda is Die Linke, the former Communists. In Greece, it would be Syriza; and in Spain, it would be Podemos.... You may not consider yourself a supporter of the radical left. But if you lived in the eurozone and supported those policies, that would be your only choice. What about Europe’s centre-left parties, the social democrats and socialists? Do they not support such an agenda? They may do so when they are in opposition. But once in government they feel the need to become respectable, at which point they discover their supply-side genes....
Of the radical parties that have emerged recently, the one to watch is Podemos.... Nacho Alvarez, a senior member of the party’s economics team, laid out his programme with a refreshing clarity... renegotiation of interest rates, grace periods, debt rescheduling and a haircut... Podemos’ goal was not to leave the eurozone.... The aim is the economic wellbeing of the country. To an outsider, that seems a balanced position. Not so in Spain. The establishment fears that this agenda will turn the country into a European version of Venezuela. But there is nothing controversial about the statement that if debt is unsustainable it needs to be restructured.... It is logically inconsistent for the single currency to enter a secular stagnation and not restructure its debt. Since nothing is being done to avoid the former, there is a probability approaching 100 per cent of the latter happening. Yet, for the moment, European governments keep playing the 'extend and pretend' game...
On this day in 1944, 111 U.S. B-29 Superfortress bombers raid Tokyo for the first time since Capt. Jimmy Doolittle's raid in 1942. Their target: the Nakajima aircraft engine works.
Fall 1944 saw the sustained strategic bombing of Japan. It began with a reconnaissance flight over Tokyo by Tokyo Rose, a Superfortress B-29 bomber piloted by Capt. Ralph D. Steakley, who grabbed over 700 photographs of the bomb sites in 35 minutes. Next, starting the first week of November, came a string of B-29 raids, dropping hundreds of tons of high explosives on Iwo Jima, in order to keep the Japanese fighters stationed there on the ground and useless for a counteroffensive. Then came Tokyo.
What is best in life?
What is best in life is to spend the 11 hours of a Northern Hemisphere polar winter's night one spends in the belly of an A340-300 in transit from SFX to ZRH (a) eating Swiss chocolate, and (b) reading
More--hopefully much more--to follow...
Monday Smackdown: Danny Vinik Makes Us Aware That Reason Is Still Publishing People Like Peter Schiff. Shame on You, Reason!
Another Monday, and still a shortage of high-quality DeLong Smackdowns on the Internet that I can justify bringing to your attention.
But I can't face reading another Kindle screen from chapter 11 of David Graber's Debt right now.
So I am going to chicken out, and direct you to Danny Vinik on how Reason coors gasoline on its intellectual credibility and then sets it on fire.
Reason: as a magazine you have a choice:
You can give your megaphone to people like Peter Schiff in the hopes that money may drop from the pockets of the wingnuts he attracts, and you can then scoop it up.
You can participate in twenty-first century civil and political society.
You cannot do both.
I liked Matt Miller at lot when we worked on opposite sides of the White House during the early Clinton administration, but...
...when the phone buzzed was to meet with a publisher about a new book proposal—the next installment in what Jody lovingly mocked as my ‘one man government-in-exile’ series. The premise was that after two terms of a president seen by much of the country as a virtual socialist...
Note that Matt Miller does not, himself, endorse the assertion that Barack Obama is "a virtual socialist". But he does not qualify it either...
Wingnuts are supposed to think: Oh! Matt Miller gets it. Barack Obama is far-left!
Journalists with a clue are supposed to think: Well, he didn't tell a lie--even though Obama is not "a virtual socialist" and has tried to govern as a more-or-less old-style moderate centrist, "much of the country" does see him--because he has African-American, and because Rupert Murdoch's people have told them he is--"a virtual socialist".
But what are the voters of the 33rd congressional district of California going to think?
This is a district that gives Obama, Boxer, Feinstein, Brown something like 85% of their votes? The kind of person who would say, without qualification or explanation, that Barack Obama is "seen by much of the country as a virtual socialist" and has spent much of his time arguing for a Third Way to the right of today's Democratic and the left of today's Republican Party is not the kind of person who is likely to attract much grassroots support or raise much money in the 33rd congressional district of California.
And outside money-funded media-blitz campaigns are pushed as effective primarily by professional campaign consultants who get a cut from or are part of a reciprocal favor network funded by such media buys. Nevertheless:
...would be unacceptable to Benyamin Netanyahu’s Israel. The same applies to Saudi Arabia and other US Gulf allies. The Saudis have been putting it about that Riyadh would start its own nuclear programme if the US struck a deal that fell short of fully dismantling Iran’s.... Not only, it seems, will there be two US foreign policies. But most of America’s Middle East allies will be backing Capitol Hill’s. Can Mr Obama thread a path through this?
The most dramatic example of clashing US foreign policies was after the first world war. President Woodrow Wilson put his authority on the line in Paris to create a League of Nations that the US would lead. His enemies in Congress, led by the patrician Henry Cabot Lodge, had different ideas. They sunk the treaty and with it America’s engagement on the world stage for the next 20 years. An Iran deal would also be faced with Congressional hostility. The big difference is that Mr Wilson pulled out all stops to sell his treaty. It still foundered.
In the words of Vali Nasr, a former Obama official, this president sees an Iran deal as a ‘nice to have’, rather than a ‘must have’. Unless ‘must have’ becomes both the goal of Mr Obama and Congress, a Wilsonian fate awaits.
With very high probability, a Wilsonian fate awaits. Full stop.
CHICAGO, Monday—I have had a number of letters in the course of the last few days, some of them stating that I was wrong when I said in a recent column that the President did not promise, in the campaign of 1940, that our boys should not leave these shores. In other letters, the writers stated that they have read articles in the newspapers which said that I was wrong, and they wished to assure me they had heard the President qualify this statement over the radio, by the words: 'Except in the case of attack.'
Therefore, in order to clear this situation up, I have decided to give the whole thing in chronological order:
- 'The Democratic platform adopted in Chicago, in 1940, stated: 'We will not participate in foreign wars, and we will not send our army, naval or air forces to fight in foreign lands outside of the Americas, except in case of attack.' 2.'On September 11, 1940, in Washington, D.C., the President said: 'I hate war, now more than ever. I have one supreme determination—to do all that I can to keep war away from these shores for all time. I stand, with my party, and outside of my party as President of all the people, on the platform, the wording that was adopted in Chicago less than two months ago. It said: 'We will not participate in foreign wars, and we will not send our army, naval or air forces to fight in foreign lands outside of the Americas, except in case of attack.''
- 'On October 23, 1940, in Philadelphia, the President again said: 'We are arming ourselves not for any foreign war. We are arming ourselves not for any purpose of conquest or intervention in foreign disputes. I repeat again that I stand on the platform of our party: 'We will not send our army, naval or air forces to fight in foreign lands outside of the Americas, except in case of attack.''
- 'On October 30, 1940, in Boston, Mass., the President said: 'And while I am talking to you, mothers and fathers, I give you one more assurance. I have said this before, but I shall say it again, and again and again. Your boys are not going to be sent into any foreign wars. They are going into training to form a force so strong that, by its very existence, it will keep the threat of war far away from our shores. The purpose of our defense is defense.'
It is this last speech which probably created a false impression, and yet everyone of us knows quite well that once the bombs dropped on our soil at Pearl Harbor, the war was no longer a foreign war, but was a war in defense of our own country. Had we not fought on distant shores, we would soon have fought on the shores of the United States.
...or in some other way degrades performance. I’ve been wary... in part because it appeals so much to my general leanings.... I continue to be skeptical, in part because there have been some pretty bad crises with lousy recoveries in countries that don’t have a lot of inequality. Consider, in particular, the post-1990 Swedish slump.... Just one piece of evidence. But I’m still having trouble with this one.
Companies on Trial: "Lord Chancellor Edward Thurlow...:
corporations have 'no soul to be damned, no body to kick'.... Garrett’s data and his narrative provide a textured understanding of these trade-offs and many others in dealing with corporate crime.... The current trend towards large fines as the response to corporate wrongdoing seems to promote a somewhat unattractive combination of individual incentives. Managers do not find it personally costly to part with even billions of dollars of their shareholders’ money, especially when fines represent only a small fraction of total market value. Paying with shareholders’ money as the price of protecting themselves is a very attractive trade-off. Enforcement authorities like to either collect large fines or be seen as delivering compensation for those who have been victimised by corporate wrongdoing. So they are all too happy to go along. In the process, punishment of individuals who do wrong or who fail in their managerial duty to monitor the behaviour of their subordinates is short-changed. And deterrence is undermined. There is a broader cultural phenomenon here as well. Relative to other countries such as the UK or Japan, the principle that leaders should resign to take responsibility for failure on their watch even when they did not directly do wrong is less established in the US. This is probably an area where we have something to learn...