Reflections 11 Years After the Crash: "I think the smart money in June 2008 was that the recession was or was about to be over. Housing investment had already rebalanced: the construction sector was back to a sustainable share of GDP. There were only about 500 billion of mortgage losses to be distributed around the world or to be bailed out by governments—really, trivial amounts in a world economy with 80 trillion of traded financial assets. And with Bear-Stearns the U.S. government had guaranteed the debt but not the equty of too big to fail institutions. Banks were still having trouble raising equity. But as long as people were confident that the 500 billion of bad mortgage debt would ultimately land on somebody who could absorb it, the only thing that would make a bad recession was if people anticipated a bad recession... #finance #highlighted #macro #politicaleconomy #2019-08-06
What Is the Federal Reserve Thinking Right Now?: "The market could be right and it could be wrong. An inverted yield curve has been a reliable warning signal in the past, but the world is different now, and perhaps that matters. However, failing to begin to validate market expectations now would shake confidence and raise uncertainty. We have no warrant for believing that our models are more knowledgeable right now than the market. And there is pronounced asymmetry here: we can always deal with too-high inflation via tighter money, but it is not obvious what we could do to fix the situation if a negative demand shock were to push the prime-age employment rate down two or four percentage-points. Hence we will validate market expectations and drop our policy rates by 25 basis points at our next meeting. What will follow that... will be data-dependent... 2019-07-26
Hoisted from the Archives: Risks of Debt: The Real Flaw in Reinhart-Rogoff: : A country that spends and spends and spends and spends and does not tax sufficiently will eventually run into debt-generated trouble.... But can this happen as long as interest rates remain low? As long as stock prices remain buoyant? As long as inflation remains subdued. My faction of economists—including Larry Summers, Laura Tyson, Paul Krugman, and many many others—believe that it will not... #hoistedfromthearchives #macro #fiscalpolicy #publicsphere #economicsgonewrong 2019-07-06
Smackdown: Failing to Do Robustness Checks Is Not a Virtue: There never was any "90 percent debt-to-GDP tipping point". Reinhart and Rogoff thought there was because they did not do any robustness checks of their data-analysis binning procedures.... Marking your beliefs to market makes your thoughts stronger and raises your credibility. Not doing so does the reverse... #mondaysmackdown #fiscalpolicy #economicsgonewrong #publicsphere 2019-07-06
More than Two Decades of Macroeconomic History Through the Lens of Four Key Components of Aggregate Demand: It is remarkable the extent to which you can tell the story of the U.S. macroeconomy over the past twenty-five years through the reactions of four components of aggregate demand to policies and shocks... 2019-06-16
The Intergenerational Burden of the Debt: Nick Rowe Tempts Fate Weblogging: Hoisted from the Archives: https://www.bradford-delong.com/2019/06/the-intergenerational-burden-of-the-debt-nick-rowe-tempts-fate-weblogging-hoisted-from-the-archives.html #economicsgonewrong #fiscalpolicy 2019-06-13 2012-10-12
Debt-Derangement Syndrome: No Longer Fresh at Project Syndicate—Long Version: For the past decade the public sphere of the Global North has been in a fit of high madness with respect to its excessive fear of government debts and deficits. But this affliction may be breaking... #publicfinance #politics #macro #fiscalpolicy #finance #economicsgonewrong #politicaleconomy 2019-02-24
The Federal Reserve in 2011 Debates Christina Romer's Ideas About the Need for "Regime Change": Weekend Reading: In late 2011, in a context in which prime-age employment was severely depressed and not going anywhere, the failure to see these two as policy priorities that called for, well, "regime change" is likely to appear largely inexplicable, and to be judged harshly... #weekendreading #monetarypolicy #macro 2019-02-22
Still Haunted by the Shadow of the Greater Recession... #presentations #greatrecession #macro #economicgrowth #economichistory #economics #finance #monetaryeconomics 2019-02-16
Note to Self: Thinking About Blanchard's Presidential Address...: Blanchard's calculations of the effect of debt on welfare in his AEA Presidential Address all take the form of evaluating the welfare of a generation of economic agents young in some period t after the resolution of all period-t stochastic elements. That is a fine thing to do. That is not quite the same thing as the effect on expected well-being behind the veil of ignorance... 2019-02-14
Debt Derangement Syndrome: Fresh at Project Syndicate: Standard policy economics dictates that the public sector needs to fill the gap in aggregate demand when the private sector is not spending enough. After a decade of denial, the Global North may finally be returning to economic basics: For the past decade, politics in the Global North has been in a state of high madness owing to excessive fear of government debts and deficits. But two recent straws in the wind suggest that this may at long last be changing.... Ken Rogoff.... Brendan Greeley... reported... “a panicked email” from the Committee for a Responsible Federal Budget (CRFB)... Olivier Blanchard.... What Rogoff and Blanchard are saying today is standard policy economics. In fact, I always found it hard to believe–and still do–that anybody can take exception to it. Whenever the private sector stops spending enough to keep unemployment low and jobs easy to find, the public sector needs to fill the gap in aggregate demand... #macro #fiscalpolicy #economicsgoneright #economicsgonewrong 2019-02-07
U.S. Recession No Longer Improbable: No Longer Fresh at Project Syndicate: For the first time in nine years, Americans and investors in America need to be prepared for not a probable but rather a not improbable economic downturn—and for the likelihood that should such a downturn come, it will be a deep and prolonged one... #projectsyndicate #monetarypolicy #recessionwarning Forecasting Monetary Theory and Policy 2019-01-22
By Popular Demand: What Is “Modern Monetary Theory”?: If one must choose between MMT on the one hand and the yahoos of either monetary stringency or fiscal austerity on the other, choose MMT. It is closer to being an accurate view. We do seek a circular flow of spending, production, and incomes both high enough to keep us from unnecessary unemployment and also from surprisingly and distressingly high prices and inflation. This is a modest goal. It is not something pushed out of reach by some malign and austere economic or budgetary accounting logic. #macro #monetaryeconomics #monetarypolicy #fiscalpolicy 2019-01-21
Costs and Benefits of International Capital Mobility: Reply to Bhagwati: Hoisted from 20 Years Ago: Needless to say, time has left me a lot wiser: We need to design economies so that they can operate without disaster even when deregulatory clowns like those of the George W. Bush or the Donald J. Trump administrations are in control of the levers of policy at key moments. How to do that is not so clear. What is clear is that only a fool today would think that our political economy would support a clever technocracy so that we might have our cake and eat it too. Indeed, the most likely scenario seems to be that we will be unable to eat our cake, and then the kleptocrats will steal it out from under our noses so that we will not have it either. In short: I should have listened harder to Jagdish 20 years ago... #globalization #macro #finance #hoistedfromthearchives #monetaryeconomics #monetarypolicy 2019-01-11
Supply and Demand Shocks, and Seasonal Adjustment: Think that there is no such thing as aggregate fluctuations generated by shifts in tastes and technologies? Think again. Look at the pattern of monthly payroll employment changes. We are more used to looking at the seasonally-adjusted pattern, which looks very, very different indeed...
Project Syndicate: What Will Cause the Next US Recession?: Live at Project Syndicate: The culprit will probably be a sudden, sharp “flight to safety” following the revelation of a fundamental weakness in financial markets. That... is the pattern that has been generating downturns since at least 1825, when England’s canal-stock boom collapsed.... The particular nature and form of the next financial shock will be unanticipated.... The death blow to the global economy in 2008-2009 came not from global imbalances or from the collapse of the mid-2000s housing bubble, but from the concentration of ownership of mortgage-backed securities...
Barro prefers to have no explanation at all for why production per capita was lower than it had been in 2007Q4, and yet maintain unshaken confidence that he has a deep and correct understanding of what determines the level of production. You can't do that—hold that you have the correct theory, and yet not explain how it applies to the world in which you live... #economicsgonewrong #publicsphere #moralresponsibility
No. The Fed Was Wrong to Raise Interest Rates: But, once again: You can say that "overleverage" and "reaching for yield" are bad effects of low interest rates, but given that "portfolio balance" is a good (and desired!) effect of low interest rates you should then go on to demonstrate why the cure is not capital and reserve regulation. The fact that nobody has done so makes me think the argument is weak...
Note: It now looks like the FOMC does not have the right model of the economy: How Powell May Approach Regulation: Bloomberg Daybreak Asia 2017-12-01: Hoisted from the Archives: Powell... was an extremely effective undersecretary of the treasury back in the George H.W. Bush administration. He has been a very responsible and positive contributor to the Federal Reserve Board's discussions and debates over the past years.... The question is whether the Federal Reserve Open Market Committee has the right model of the economy. If it does, he will be a very successful Fed chair...
Hoisted from the Archives: "How an Economy Can Live Beyond Its Means on Its Wits...": Confront economists' theories of depressions and what (if anything) the government should do about them and you find yourself immediately confronted with what look to be at least seven different theories...
Contra Tim Duy, The Lack of Federal Reserve Maneuvering Room Is Very Worrisome...: This, by the every sharp Tim Duy, strikes me as simply wrong: Contrary to what he says, the Fed has room to combat the next crisis only if the next crisis is not really a crisis, but only a small liquidity hiccup in the financial markets. Anything bigger, and the Federal Reserve will be helpless, and hapless...
Monetary and Fiscal Policy and Theory