"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
Saturday, September 01, 2012
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
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.
Friday, August 31, 2012
Jackson Hole, that is.
My quick summary:
- Things are really, really bad.
- The damage is cumulative; the longer this goes on, the worse the prospects for the future.
- The Fed has the power to do a lot to help the economy.
- 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.
- 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
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.
Thursday, August 30, 2012
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.
Wednesday, August 29, 2012
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
Davies 2.5 k
The Food Here is Poison and the Portions Are So Small (Paul Krugman Edition) by Baker
Hard-Hit Cities Show a Housing Rebound
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."
Tuesday, August 28, 2012
SCHMOOZE OR LOSE: Obama doesn’t like cozying up to billionaires. Could it cost him the election? by Jane Mayer
Neo Fights (Slightly Wonkish and Vague) by Krugman
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.
Monday, August 27, 2012
True Blood’s finale climaxes in a tornado of vampire true death by Meredith Woerner
Sunday, August 26, 2012
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.