Debating Bernanke by Robert Waldmann

Fed Chairman Makes Case, in Strong Terms, for New Action by Binyamin Appelbaum

Woodford on Monetary Policy (Sort of Wonkish) by Krugman

So what should the Fed be doing? Woodford concludes that it needs to make a change in its basic policy pronouncements, so as to make them “history-dependent” — that is, it needs to promulgate a view of its intentions that would lead it to be slower to raise rates following a big slump than it would in other circumstances. And let me repeat the past tense: following a big slump, not just when you’re in it. 

How to do this? Nominal GDP targeting would be one answer, because it would give the Fed a reason to hold off for a long time on rate hikes. Other schemes might also do the trick.

A Flow Chart For Ben Bernanke by Yglesias

150,000 Jobs Per Month Is Not Robust Growth by Dean Baker

Okay, some cheap WAPO bashing this morning, an article on Bernanke's speech as Jackson Hole, described a rate of job growth of 150,000 a month or more as "robust." Sorry, that isn't close to right. 

The economy is down by more than 9.5 million jobs from its trend path. We need roughly 100,000 jobs per month to keep pace with the growth of the labor force. This means that at 150,000 jobs per month, we are making up the jobs shortfall at the rate of 50,000 a month. At this pace it will take us close to 16 years to get back to the economy's trend job growth path. A rate of job creation that gets us to full employment in 2028 is not robust. 

For the young uns out there, or those with bad memories we created 250,000 jobs per month over the last four years of the Clinton administration, and that was starting with an unemployment rate below 6.0 percent. We should not subject our economic policymakers to the soft bigotry of low expectations.

Self-Induced Paralysis and "Rooseveltian Resolve"

Fed Watch: Bernanke at Jackson Hole by Tim Duy

Michael Woodford Makes The Case For NGDP Targeting by Yglesias

Bernanke in the Hole by Krugman

Jackson Hole, that is. 

My quick summary:

1. Things are really, really bad.
2. The damage is cumulative; the longer this goes on, the worse the prospects for the future.
3. The Fed has the power to do a lot to help the economy.
4. While you can argue that there are costs to action, the case for major costs is quite weak, and in particular much weaker than the case for major benefits.
5. Therefore, what we at the Fed will do is, um, sit on our hands some more, and think very seriously about maybe, someday, doing something.

The Key Points From Ben Bernanke's Jackson Hole Speech by Yglesias

Here's what you need to know:

— The basic point of the speech was to defend past acts of quantitative easing.

— A secondary theme is to create some rationale for future acts of QE.

— But Bernanke continues to insist that there are hard-to-quantify and not-well-explained downside risks to QE, which mean that at the zero bound we need to tolerate larger output gaps than we would otherwise tolerate.

— The logical implication, which Bernanke does not draw, is that a 4 percent long-term inflation target would lead to fewer and shorter recessions and more real output over the long term.

— In general, Bernanke simply refuses to acknowledge the existence of the NGDP targeting line of criticism even though it's been embraced by a growing chorus of voices that includes the president of the Chicago Fed, former CEA Chair Christina Romer, and many voices in the press.

— Bernanke says fiscal austerity is currently a drag on the economy and will be an increasing drag going forward and claims that he "cannot neutralize the fiscal and financial risks that the country faces."

— A related point is that he simply fails to acknowledge that the country's primary macroeconomic stabilization institution might bear some responsibility for the biggest failure of macroeconomic stabilization in 70 years.

The Fed is suffering from self-induced paralysis. What the Fed needs is some "Rooseveltian Resolve." The problem is that the Central Planners at the Fed are looking after the institution's interest at the expense of the nation's.

Fear-of-China Syndrome by Krugman

How is it possible that we’re borrowing much less from foreigners when the government deficit has gone up so much? The answer is that the private sector is deleveraging, having moved into massive surplus as consumers try to pay down debt and corporations hold back on investment in the face of weak consumer demand. All those government deficits have only partly offset this move, so that overall national borrowing from overseas is down, not up. 

But what would happen if the private sector stopped deleveraging? The answer is, we’d have a strong economic recovery, which would among other things greatly reduce the budget deficit. A side implication of this point, of course, is that for the time being that deficit is a good thing, helping to support the economy while the private sector unwinds its excessive leverage. 

So who’s actually financing the US budget deficit? The US private sector. We don’t need Chinese bond purchases, and if anything we’re the ones with the power, since we don’t need their money and they have a lot to lose. In fact, we don’t want them to buy our bonds; better to have a weaker dollar (a point that the Japanese actually get.)

The last hyperlink sends one to:

Chinese Bond Purchases by Krugman

September 10, 2010

Regular readers may remember that I’ve spent more than a year trying to knock down the idea that the United States dare not get tough with China, because we need them to keep buying our bonds; as I wrote way back in May 2009, given the fact that we’re in a liquidity trap, a decision by China to buy fewer of our bonds would actually be doing us a favor — it would weaken the dollar, and help our exports. 

I’ve failed, despite repeated attempts, to get through with this point here — but the Japanese get it. They’re complaining to China about its purchases of yen-denominated bonds, which they argue — correctly — hurts Japan by strengthening the yen. 

Quick update: I should also link to this post, and quote Dean Baker again: China has an unloaded water pistol pointed at our head.

Rogues Gallery

Casey Mulligan's Reality on Unemployment Insurance and Reality for the Rest of Us  by Dean Baker

In a blogpost yesterday Case Mulligan told readers:

"in reality, cutting unemployment insurance would increase employment, as it would end payments for people who fail to find work and would reduce the cushion provided after layoffs."

Unfortunately Mulligan provides no evidence to back up his version of reality. By contrast, Jesse Rothstein, an economist at Berkeley, looked at the behavior of unemployed workers. He found that at most, the supply-side effect from the extended duration of unemployment benefits in this downturn increased measured unemployment by 0.1-0.5 percentage points, 

Furthermore, most of this increase was due to keeping workers looking for work and therefore being counted as unemployed. (When a worker stops looking for work, they are no longer counted as being unemployed.)

Rothstein's calculations are only designed to pick up the incentive effect that Mulligan focuses on in his blogpost. Since the benefits gave workers tens of billions of dollars that they would not have otherwise, they undoubtedly had a large demand side effect. The Congressional Budget Office estimates the multiplier for unemployment benefits as being 1.6, meaning that the $40 billion a year in extended benefits (roughly the amount at stake) would lead to an increase in GDP of $64 billion or more than 0.4 percent of GDP. If the increase in employment is proportionate, it would imply 560,000 additional jobs. This would swamp the negative supply side effect that Rothstein found in his research.

Twitter may be helpful in coping with the insanity of the campaign season.

Added Sarah Silverman - 3,296k followers - who twatted: "Let us pray for the billions of tiny fallen Republicans lost in hookers' assholes this week #RNC"

Confessed 4 Life

Bridget Regan tweets "Almost 30,000 followers what!"

Like Firefly, Legend of the Seeker was one of those highly entertaining shows which was underrated at the time.

I resorted my arbitrary list of tweeters by number of followers.

At this time the - rounded - count is

Wilde      631.5k
Regan       30k
Leonhardt       21.5k
Franke-Ruta     14.5k
Kliff      13k
Appelbaum      9k
Davies       2.5 k

Along with Krugman's new book End This Depression Now! and Ahmed's Lords of Finance, I'd give Baker's End of Loser Liberalism to a young person interested in macroeconomics.

The Food Here is Poison and the Portions Are So Small (Paul Krugman Edition) by Baker


Hard-Hit Cities Show a Housing Rebound

DEPARTMENT OF COGNITIVE DISSONANCE: HOUSING EDITION by DeLONG

No, this is not what a "housing rebound" looks like...

One of the bad things about blogs are the word games. There appears to be a turn-around in housing. DeLong seems to be saying it's not very strong so is not in fact a "rebound." But I'm not sure. You don't want to overstate the extent of the turnaround but there appears to be a "bottoming out" which could lead to a virtuous circle.

One of the good things about blogs are coinages like Matthew O'Brien's "The Age of Niallism."

Martin Amis interviewed by Jacob Weisberg

The Nervous Breakdown of the GOP

Still Talking to Hitch: Author Martin Amis on coping with the loss of his best friend Christopher Hitchens.

The Problem With Porn

SCHMOOZE OR LOSE: Obama doesn’t like cozying up to billionaires. Could it cost him the election? by Jane Mayer

WHAT ECONOMISTS CAN LEARN FROM EVOLUTIONARY THEORISTS by Krugman 

via

Neo Fights (Slightly Wonkish and Vague) by Krugman

I just read Krugman's End This Depression Now! and consider it to be the book to give to younger folks inquisitive about economics. It is very, very good. Also I'd hand them Liaquat Ahmed's The Lords of Finance for a little history.

Warlow and Season 6

Some Thoughts on Global Risks and Monetary Policy by Charles Evans

...In June we decided to continue our Maturity Extension Program, which puts downward pressure on long-term interest rates by extending the average maturity of the Federal Reserve’s securities portfolio. I thought that was a useful step. However, I believe it is time to take even stronger steps, such as the purchase of more mortgage-backed securities, to increase the degree of monetary support for the recovery. As suggested recently by my colleagues Eric Rosengren and John Williams, these could be open-ended purchases, meaning that they would continue at a certain rate until there was clear evidence of improvement in economic conditions. To me, one example of clear evidence would be a resumption of relatively steady monthly declines in unemployment for two or three quarters. Once this momentum was confidently established, the Fed could stop adding to our balance sheet but keep the funds rate at zero.

(via Mark Thoma)

True Blood’s finale climaxes in a tornado of vampire true death by Meredith Woerner

A PLATONIC DIALOGUE ABOUT QUANTITATIVE EASING, OR, SUMMONING THE INFLATION EXPECTATIONS IMP

 by DeLong

We Need Inflation-Tolerance, Not Inflation by Yglesias

That's the situation I think American monetary policy is in. It's not that three or four percent inflation is such a wonderful goal. It's that extreme aversion to three or four percent inflation is causing the Federal Reserve to persistently "shoot too low" in terms of aggregate demand. Ben Bernanke's acting as if someone's holding his daughter hostage. Specifically, the reigning dogma is that if inflation were to go from 2 percent to 3 or 4 percent that long-term expectations might become "unanchored" and drift higher and higher, undermining the "hard won gains" of the Volcker years. But there's no empirical evidence that this is true, and no particularly strong theoretical reason to believe that the worst-case scenario if inflation tolerance goes wrong is worse that the current strategy of grinding the recession out by letting America's long-term productive capacity collapse.