"It is easy to confuse what is with what ought to be, especially when what is has worked out in your favor."
- Tyrion Lannister

"Lannister. Baratheon. Stark. Tyrell. They're all just spokes on a wheel. This one's on top, then that's ones on top and on and on it spins, crushing those on the ground. I'm not going to stop the wheel. I'm going to break the wheel."

- Daenerys Targaryen

"The Lord of Light wants his enemies burned. The Drowned God wants them drowned. Why are all the gods such vicious cunts? Where's the God of Tits and Wine?"

- Tyrion Lannister

"The common people pray for rain, healthy children, and a summer that never ends. It is no matter to them if the high lords play their game of thrones, so long as they are left in peace. They never are."

- Jorah Mormont

"These bad people are what I'm good at. Out talking them. Out thinking them."

- Tyrion Lannister

"What happened? I think fundamentals were trumped by mechanics and, to a lesser extent, by demographics."

- Michael Barone

"If you want to know what God thinks of money, just look at the people he gave it to."
- Dorothy Parker

Friday, November 18, 2011

Back in Sept. 2008 I thought this cartoon was clever how it melded news  from the hard sciences over apocalyptic concerns that the super collider would create tiny black holes with news from the economy that the swirling mortgage crisis had sucked down Lehman brothers.

Today you have the strange world of economics when you're near the zero bound / stuck in a liquidity trap and in the world of hard sciences:
The team which found that neutrinos may travel faster than light has carried out an improved version of their experiment - and confirmed the result.
In my previous post I quoted Glasner as writing:
I don’t think that his comment that I have been rehashing Krugman’s ideas without attribution is correct. What I am trying to do is to show how to apply the Fisher equation in a somewhat novel way and to come up with a result that fits in with Keynes. In the process, I think that I am shedding some light on both Fisher and Keynes. It is also not true that Krugman is the first one to understand the possibility of an equilibrium negative real rate. Pigou discussed the possibility in his review of the General Theory in 1936. But instead of introducing a positive rate of inflation to resolve the paradox, Pigou invented the Pigou effect as the way out.
I don't know enough about the Fisher equation or Pigou or negative real rates to know if any of this is true or not. Which makes it interesting to me. Glasner's original post was here.

Krugman blogged "I see that David Glasner is worried about what appears to be a need for negative real interest rates, and suggests that this may be close to concerns about the liquidity trap."

I suspect that a lot of time and effort has been wasted because smart commentators like Glasner “knew” that Keynesians were crude thinkers using mechanical approaches — I don’t know if that’s actually true for Glasner, but I’ve seen it a lot in others — leading them to spend several years laboriously arriving at the same conclusions people like me, Woodford, Eggertsson, Svensson etc. had already laid out in detail a decade ago.
OK, venting over. Now, what’s the proposal?
So Glasner could have just pointed to Krugman, etc. instead of writing his blog post? Glasner says no, that he is doing something new by pointing to the Fisher equation.

Glasner refers to the Fisher equation. Fisher is mostly known for his conception of a "deflationary spiral" which happened during the Great Depression. It is what Bernanke has been acting to avoid.

In his post on the Fisher equation, Glasner writes:
Although suggestions that weakness in the economy might cause the Fed to resume some form of monetary easing seem to have caused some recovery in inflation expectations, real yields continue to fall. With real yield on capital well into negative territory (the real yield on a constant maturity 5-year TIPS bond is now around -1%, an astonishing circumstance. With real yields that low, 2% expected inflation would almost certainly not be enough to trigger a significant increase in spending. To generate a rebound in spending sufficient to spark a recovery, 3 to 4% inflation (the average rate of inflation in the recovery following the 1981-82 recovery in the golden age of Reagan) is probably the absolute minimum required.
This is what Charlie Evan is saying. Would it be "Keynesian" to advocate getting inflation to 3 or 4 percent? Would this be done by the Fed or fiscal stimulus? I suspect it could be done with a combo.

In Christina Romer's paper on fiscal stimulus she says
When I was in the White House, I used to bristle when people would say I was a Keynesian economist. They acted as if I believed that fiscal stimulus mattered because of some theoretical book written in 1936, or because of what I was taught in graduate school. I used to say that I am not a Keynesian economist, I am an empirical economist. I believe what I do because of the empirical evidence.
Daniel Kuehn blogged
There are lots of people who get it who just have a problem with the whole Keynes packaging and perhaps some of the politics that go along with Keynesianism - many of the NGDP targeters are like this. But I read this post by Glasner, and I know he is worried about the same problem as I am, and that he has basically the same solution.
My all-encompassing theory is Kenyan Socialism, named in honor of our President.

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