"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, August 02, 2014

Strange Defeat: Supreme Court, New Keynesians and Democrats

The Anti-Court Court by David Cole

Conservatism was able to hold on thanks to Bush v. Gore and install Roberts even though Bush lost the popular vote by half a million votes.

Strange Defeat by J.W. Mason
We argue that this consensus – with its methodological commitment to optimization by rational agents, its uncritical faith in central banks, and its support for the norms of “sound finance” – has offered a favorable environment for arguments for austerity. Even the resounding defeat of particular arguments for austerity is unlikely to have much lasting effect, as long as the economics profession remains committed to a view of the world in which in which lower government debt is always desirable, booms and downturns are just temporary deviations from a stable long-term growth path, and in which – in “normal times” at least -- central banks can and do correct all short-run deviations from that optimal path. Many liberal, New Keynesian, and “saltwater” economists have tenaciously opposed austerity in the intellectual and policy arenas. But they are fighting a monster of their own creation.
Strange Defeat

Strange Death of Liberal England

I'm still digesting the heterodox critique of New Keynesiansim. They don't have a well-defined counter-narrative except that NK is too focused on equilibrium and the self-correcting nature of the macroeconomy and supply and demand. See the debate Piketty sparked.

Friday, August 01, 2014


The center-left, as represented by people like Krugman and DeLong, have not come forward with an alternative transformative agenda, but have instead preached a narrow and fundamentally conservative vision of countercyclical re-stabilization and temporary demand stimulation, apparently with no greater end in sight than a kind of "return to normalcy". Krugman has resolutely resisted calls to understand the crisis of 2007/8 as only one symptom of a fundamentally sick, unjust, oppressive and extractive system. He has insisted that structural transformation is not necessary, and that we should focus like a laser beam on cyclical matters. Krugman is not associated in the public mind, insofar as I can tell, with any particular program of national renewal, restructuring or transformative change.
All these kinds of changes, however, terrify the average New York Times reader or elite professional in academia or elsewhere. Their affluence is, in the end, constructed in great part out of the meagerly-recompensed labor of their social subordinates. Those opportunities have been lost. Mission accomplished for the center-left. 
Lately, Krugman has lately turned media space into an ongoing effort to enhance the social prestige of economists, and to make sure everyone knows that Paul Krugman in particular has always been right about everything. It’s become quite boring and obtuse. Ultimately, Krugman has no interesting ideas, and seems to revel in his hidebound liberal conservatism. Then he wonders why he can’t get enough people to pay attention to him. 
Honestly, if I were staffing a new administration I think I might not hire a single economist. Their “science” amounts to a wall of sophistic conservative blather and apologetics for an ancien regime of hierarchy and exploitation. They intimidate otherwise well-meaning people into a cowed and slavish deference to their rambling pseudo-explanations, their mathematical reconstructions of fantasy worlds and their reification of cruelty and oppression into some kind of natural order.

supply side

Yeah I know, weird little random blog post. My aim is to clean up the meme links (Piketty, Philips curve and macro wars, German trade surplus, Floor system) and add them to the side bar.

But basically I was thinking how Democrats need to be come the force for demand side solutions. Leave the supply side to the Republcians. Education reform? Attacking the teachers unions with Campbell Brown. It was funny how she wouldn't divulge who was funding her efforts.

Universal Basic Income, NGDP level path targeting and helicopter drop versus the social democratic welfare state, unemployment and wage inflation, and money-financed government spending, what's the commonality. Conservatives like to get govenrment out of the way but economic demand stabilization is seen by most Republicun economist as the thing wedge of socialism.

Bernstein on GDP:

A potentially important development: is the improving job market helping to stabilize the labor force?

"The idea is that if greater labor demand pulls people into the labor market who are currently sitting out, that will boost GDP growth, which is roughly the sum of productivity growth plus labor force growth."

But what is productivity growth?

Another thing about the macro wars: New Keynesianism wasn't setting off alarm bells over the housing bubble and overleveraged financial sector even if people like Shiller, Rajan and Baker were. There weren't alarm bells over the shadow banking sector.

supply side

Improving education is supply side. Say's Law doesn't hold.

Thursday, July 31, 2014


Collective Punishment in Gaza by Rashid Khalidi



Barry Eichengreen: The ECB Tries Again: "In June the European Central Bank announced a sers of new steps to counter deflation....
...Rather than bemoaning the failure of President Draghi & Co. to move earlier, it is more productive at this stage to ask: are the central bank's measures now up to the task?... The ECB's conventional measures, reducing its benchmark interest rate from 0.25 to 0.15 per cent and charging commercial banks 0.1 per cent on the money they deposit with the central bank, will make little difference.... Conventional monetary policy has run its course.... Thus, if policy is going to make a difference, policy will have to be unconventional. Here the ECB unveiled... one and a half... initiatives in June... 'Targeted Long-Term Refinancing Operation'... €400 billion, or some US$550 billion, cumulatively over four months. Recall that the Federal Reserve, under QE3, had been injecting $85 billion a month into U.S. financial markets before starting to taper in December. This makes TLTRO look like a substantial commitment.... The additional 'half an initiative' announced in June was that the ECB would study the possibility of security purchases.... These cautions should not be taken as a council of despair. If ECB officials conclude that the impact of TLTRO and securities purchase will be marginal, they should not give up hope; rather, they should strive to do more...
Emphasis added.

Bundesbank shifts stance and backs unions’ push for big pay rises
The Bundesbank has backed the push by Germany’s trade unions for inflation-busting wage settlements, in a remarkable shift in stance from a central bank famed for its tough approach to keeping prices in check. 
Jens Ulbrich, the Bundesbank’s chief economist, told Spiegel, a German weekly, that recently agreed pay rises of more than 3 per cent were welcome, despite being above the European Central Bank’s inflation target of below but close to 2 per cent.

In an article published on Sunday, Mr Ulbrich said that recent wage trends were “moderate” given Germany’s relative economic strength and low levels of unemployment. His comments echo the views of Jens Weidmann, Bundesbank president, according to a senior central bank official. 
The push for higher pay underlines the heightened concern among even the most hawkish members of the ECB’s governing council over the eurozone’s low inflation and signs that the region’s fledgling recovery is stalling. On Monday, the Bundesbank acknowledged the German economy was unlikely to have grown at all over the three months to June.

Wednesday, July 30, 2014

Fed Watch: FOMC statement

Fed Watch: FOMC statement

meme events, inflation and expectations

[rough draft. need meme links and clean up.]

Does the phrase "price level" encapsulate both inflation and deflation.?

Meme events inspire me to make link lists. There's Piketty's K21. The Floor system and the billion dollar coin. German trade surpluses.

And now the Philips Curve with anchored inflation expectations. And the 70s stagflation, new classical revolution which failed in the 80s. A commenter noted how people with debt and little savings are constrained in their spending. They may see higher inflation with food and gas prices going up, but what does this translate into as expectations. Fox News may convince your Republicunt uncle that inflation is raging but what does this mean for his savings and investment decisions?

The history of economic thought is not a food fight: Philips Curve edition by Daniel Kuehn


Inflation Expectations: How Credibility Pays Off by Cecchetti and Schoenholtz

Stagflation and the Fall of Macroeconomics by Krugman

Methodological seduction by Simon Wren-Lewis

Financial Market Oversight, Economic Recoveries, and Full Employment: Some Crucial Linkages by Jared Bernstein

The Tradeoff between Inflation and Unemployment: What We Don’t Know Can Hurt Us by Jared Bernstein

On (Rational) Expectations by Chris Dillow

Defending rational expectations by Simon Wren-Lewis

Aggregate Demand, Aggregate Supply, and What We Know (Wonkish) by Krugman

James Tobin and Aggregate Supply (Implicitly Wonkish) by Krugman

The Neo-paleo-Keynesian Counter-counter-counterrevolution (Wonkish) by Krugman

Unanchored by Menzie Chinn

Phillips curves with anchored expectations by Robert Waldmann

Further thoughts on Phillips curves by Simon Wren-Lewis


Nominal wage rigidity. What do inflation expections do? What's the mechanism. Does it effect demand via investment and savings. Those with debt can't really adjust much and don't effect demand much unless they go bankrupt. Aggregate effects? The elderly Fox News crowd can adjust behavior. Give less to Sarah Palin and Ted Cruz?

Tuesday, July 29, 2014

the bets

Let's see if I remember these bets, I tend to lose focus and forget.

Inspired by DeLong, I'm betting - without them knowing - that Lambert and Shlaes are wrong.

She retweets
5-Year TIPS spreads have been anticipating increasing inflation since the end of last year.
Look at 5 year Treasury Inflation-Indexed Security, Constant Maturity

and she links to U.S. TIPS Sale Yields Least in a Year on Inflation Bets
"The U.S. sold $13 billion in 10-year TIPS at the last auction of the securities, on May 22, drawing a yield of 0.339 percent."
$13 billion doesn't sound like that much. Maybe it is for one month.

Let's so how that goes.

Also Edward Lambert at Angry Bear is predicting a resession by the end of the year because profits are supposedly topping off. Let's revisit that and see how that goes.


NLRB Decision Could Make McDonald's Liable for Labor Practices of Franchisees by Julie Jargon
The National Labor Relations Board has notified McDonald's Corp. MCD +0.04% that it will start allowing workers filing labor complaints to treat the fast-food giant as a "joint employer" with its franchisees, a decision that could make the company liable for the labor practices of the thousands of independent operators who own its franchises. 
McDonald's employees, through a campaign organized by the Service Employees International Union, have alleged that they were fired for joining labor unions and have filed several lawsuits alleging that they were underpaid or had expenses deducted that left them below state or federal minimum-wage levels. 
If the NLRB's preliminary decision holds, it could set a precedent for the largely franchised fast food industry, in which parent companies are currently not held liable for the labor practices of their franchisees. Approximately 90% of McDonald's more than 14,000 U.S. restaurants are owned by franchisees. 
"We believe there is no legal or factual basis for such a finding, and we will vigorously argue our case at the administrative trials and subsequent appeal processes which are likely to follow from the issuance of the complaints," McDonald's said in a memo sent on Tuesday to franchisees about the NLRB decision, which was seen by The Wall Street Journal.

I don't think so.

Inflation Hawks Have Been Wrong for Years. Should We Listen to Them Now? by Danny Vinik
Richard Fisher, the president of the Dallas Federal Reserve, has an op-ed in Monday’s Wall Street Journal warning that the Fed’s current policy risks sparking high inflation. “Given the rapidly improving employment picture, developments on the inflationary front and my own background as a banker and investment and hedge fund manager,” Fisher writes, “I am increasingly at odds with some of my respected colleagues at the policy table of the Federal Reserve as well as with the thinking of many notable economists.” 
This isn't the first time Fisher has been at odds with his colleagues. When the Fed undertook “Operation Twist” in 2011, Fisher was one of three members of the Federal Open Market Committee—the committee that decides Fed policy—to dissent. He's also been the committee’s staunchest inflation hawk, and Monday’s op-ed was just the latest of many warnings Fisher has issued over the past few years about supposed forthcoming inflation. Here are five examples since 2011: 

Richard Fisher:
"I'd rather see the Texification of the United States than the Californification. California's a beautiful place. I was born there, and I go out there often."
How it all turns out is anyone’s guess — maybe we eventually see a California scenario on a national basis, with the growing diversity of the electorate and the evident madness of the right delivering an overwhelming Democratic majority; maybe we see some exogenous event tip the balance back to the GOP despite what looks like a trend the other way. But what I don’t think we’ll see, even if there’s a Clinton in the White House, is another Clinton era in which liberalism is afraid to take a stand.

helicopter money and UBI

When is helicopter money optimal? by Nick Rowe

Universal Basic Income Recycling by Max Sawicky

"Why, sometimes I've believed as many as six impossible things before breakfast." Work that brain muscle.

The Gold Standard was an accident

The Gold Standard Was an Accident of History by David Beckworth

I recently reviewed Lewis E. Lehrman's book, Money, Gold, and History for the National Review. This book is a compilation of his essays where he calls for a return to an international gold standard. He takes a very sanguine view of its history and how it would work today. Though the classical gold standard of 1870-1914 did work relatively well, the history of gold as money is far more nuanced than portrayed by Lehrman. 
Here is an excerpt of my review where I touch on this point:
Consider, first, the history of the gold standard. Though Lehrman claims that the gold standard is “the historic common currency of civilization” and the “proven guarantor of one hundred years of price stability,” the history of gold is far more nuanced. Silver actually was the dominant metallic standard for hundreds of years before gold. The main reason it was displaced by gold is not that gold was inherently better, but that important countries, including the U.K. and the U.S., introduced bimetallism—legally minting silver and gold into money—and did so at exchange rates that inadvertently led to the undervaluation of silver. This undervaluation eventually drove silver out of circulation as money. Gold became the money standard largely by accident.

In the U.S., bimetallism was introduced in 1792. Soon afterward, changing market prices led to an overvaluation of silver at the mint and a de facto silver standard that lasted until 1834. Congress then changed the mint ratio and, in an instant, gold became overvalued, and would serve as the monetary standard from 1834 to 1861. This change was part of President Andrew Jackson’s famous war on the Second Bank of the United States, whose bills were backed by silver. There was nothing market-driven or natural about this switch from a silver standard to a gold standard. It was pure politics.

That gold was an accident of history is further evident in the contentious debate over a gold standard versus a bimetallic standard after the Civil War. Convertibility of dollars into metals had ended with the Civil War, and Congress had set 1879 as the year it would resume. Congress, however, failed to authorize the further coinage of silver. This meant that dollars would be convertible only into gold. Had silver still been coined at the mint, it would have become, by 1879, the de facto money standard, given market prices. This shift to gold irritated many, particularly those who thought gold was too deflationary; this was such a concern that it became the defining issue of the 1896 presidential election. Only with the Gold Standard Act of 1900 was the possibility of monetizing silver permanently put to rest. If gold was the “currency of civilization” for centuries, as Lehrman claims, why was its success an accident, and why has the U.S. money standard always been so contentious?

Lehrman also claims that politicians cannot manipulate a gold standard as they can fiat currency, because the gold supply depends on real-world gold production. But the above examples and others (such as the suspension of convertibility during the Civil War and FDR’s confiscation of gold in 1933) clearly show that even the gold standard is susceptible to manipulation.

That the U.S. gold standard was an accident of history and that its longest unchallenged, continuous run was only a quarter of a century suggests the question: Was it was the gold standard, per se, that created the long-run price stability of the 18th and 19th centuries, or was it a deeper political and institutional commitment to price stability?
I go on to make the case that it is not price stability per se we want, but monetary stability. I argue that is best accomplished by stabilizing the expected path of total dollar spending growth. You can read the rest of my review here.

(via Ritholtz)

Kalecki and fiscal policy

Why Not Fiscal Policy? by Chris Dillow
Simon Wren-Lewis suggests there might be “other motives at work“ than macroeconomic reasoning for the government’s refusal to consider using fiscal policy to combat rising unemployment. 
If he is anything like the Oxford macroeconomics lecturers of my day, he is hinting at Michal Kalecki’s 1943 paper, Political Aspects of Full Employment
Under a laissez-faire system the level of employment depends to a great extent on the so-called state of confidence…This gives the capitalists a powerful indirect control over government policy: everything which may shake the state of confidence must be carefully avoided because it would cause an economic crisis. But once the government learns the trick of increasing employment by its own purchases, this powerful controlling device loses its effectiveness... The social function of the doctrine of 'sound finance' is to make the level of employment dependent on the state of confidence…. 
'Discipline in the factories' and 'political stability' are more appreciated than profits by business leaders. Their class instinct tells them that lasting full employment is unsound from their point of view, and that unemployment is an integral part of the 'normal' capitalist system.
A lack of discipline in the factories and political instability should be valued more by the left than wage gains. That is, lasting full employment should be *the* priority.

The goal should be to allow "government to increase employment by its own purchases." The doctrine of "sound finance" should be fought root and branch.

Bundesbank, helicopter drop and wage inflation

Bundesbank shifts stance and backs unions’ push for big pay rises
The Bundesbank has backed the push by Germany’s trade unions for inflation-busting wage settlements, in a remarkable shift in stance from a central bank famed for its tough approach to keeping prices in check. 
Jens Ulbrich, the Bundesbank’s chief economist, told Spiegel, a German weekly, that recently agreed pay rises of more than 3 per cent were welcome, despite being above the European Central Bank’s inflation target of below but close to 2 per cent. 
In an article published on Sunday, Mr Ulbrich said that recent wage trends were “moderate” given Germany’s relative economic strength and low levels of unemployment. His comments echo the views of Jens Weidmann, Bundesbank president, according to a senior central bank official. 
The push for higher pay underlines the heightened concern among even the most hawkish members of the ECB’s governing council over the eurozone’s low inflation and signs that the region’s fledgling recovery is stalling. On Monday, the Bundesbank acknowledged the German economy was unlikely to have grown at all over the three months to June. 
The calls for higher wages by Germany’s central bank highlight one of the most puzzling conundrums to befall the eurozone’s economic powerhouse: why, despite record low unemployment, the average German worker’s wage has hardly risen over the past decade. The problem is important for the region as a whole, as economists view a pick-up in spending by Germans as a prerequisite of the eurozone’s economy returning to full strength. 
Ursula Engelen-Kefer, a lecturer at Hochschule der Bundesagentur für Arbeit university and former deputy chair of DGB, Germany’s confederation of trade unions, said she was “flabbergasted” by Mr Ulbrich’s remarks. 
“It goes to prove that even the central bank recognises that we can’t improve internal economic growth without wages,” she added. 
Stefan Körzell, a member of the DGB’s board said, while the confederation was “pleased” by the Bundesbank’s move, trade unions had done well without the central bank’s advice in the past and would continue to do so in the future. 
While German wage settlements this year were encouragingly strong, the central bank signalled the trend must continue if consumers in the eurozone’s largest economy are to provide the lift to demand that is so desperately needed. 
Until now, the German central bank has backed only the most modest rises in pay, and has often objected to measures to improve workers’ rights, including the planned introduction of a minimum wage and proposals to lower the retirement age for employees with more than 45 years in the labour market. 
The Bundesbank’s support for faster wage growth in Germany is also the latest in a series of moves towards the mainstream of ECB thinking. Mr Weidmann has in the past found himself in a minority of one on the governing council, including when the ECB pledged to buy government bonds of troubled countries. In June, however, the Bundesbank president backed the package of exceptional measures which the ECB unveiled to stave off the threat of deflation. 
At 0.5 per cent, inflation remains little more than a quarter of the ECB’s target. 
The weakness in price pressures in the eurozone is partly a positive development: it reflects an improvement in the competitiveness of workers in the bloc’s periphery, where productivity has traditionally lagged behind levels seen in economies such as Germany’s. However, even in the region’s strongest economies inflation is below target, with German prices rising by just 1 per cent in the year to June. 
Guntram Wolff, director of Bruegel, a Brussels-based think-tank and a former Bundesbank economist, said: “It’s a very good, very important sign from the Bundesbank. Not just of pragmatism, but of understanding that they are setting monetary policy for the entire eurozone. With that, comes the recognition that German wages have to rise at a faster pace.”

Sunday, July 27, 2014

Mad Max

When the next financial crisis hits, the odds are that there won't be bailouts. There won't be enough stimulus. The Fed won't quantitively ease beyond the mortgage market into corporate and municipal bonds. Then we'll be in Mad Max territory.

Negative outlook?

helicopter drops and the floor system

A quick note on “helicopter drops” by Steve Randy Waldman

(via Steve Roth)

A new link meme? The great synthesis.

DeLong objects.

And here.

This relates to the Floor system.

DeLong against the synthesis


open market operations

The continuum from monetary to fiscal by Nick Rowe
We normally think of open market operations, where the central bank buys government bonds, as a purely monetary policy. But if a government just happened to have a very small debt/GDP ratio, the central bank would soon run out of government bonds to buy, even if the shock were very small, or even if there were no shock at all. And if the inflation target were lower, or if the NGDP level path growth target were lower, that would also mean the central bank would run out of government bonds to buy sooner. What then? Maybe the central bank should buy (an index fund of) commercial bonds as well, or/then commercial shares, or/then land, or/then existing capital goods, or/then newly-produced capital goods, like bridges. 
Where exactly do you draw the line between monetary and fiscal? Does it matter? 
It might matter on micro public finance/public choice grounds (is this the sort of asset we would want the government-owned central bank to own?). But if you don't want the government-owned central bank owning all that stuff, then maybe you need to increase the inflation target or NGDP level path growth target, so you get a smaller central bank. (Too dedicated a pursuit of low inflation and the optimum quantity of money leads to communism, with government ownership of everything.)
How much money should the central bank print and buy things with? As much as is necessary, to hit the NGDP target. And if it runs out of other things to buy, like government bonds, or commercial bonds, or......, then it should buy newly-produced things, if necessary. And if that means it is buying too much, and getting too big, then raise the NGDP target and the implied inflation rate and the implied tax on holding currency.
What particular things should be bought and held on the asset side of the consolidated balance sheet of the government plus central bank? That is a micro public finance question. 
What particular things should be held on the unconsolidated central bank's balance sheet rather than on the government's balance sheet? That is a public choice question. If the central bank runs out of things to buy and needs to buy new bridges to hit its NGDP target, and if the government doesn't want the central bank owning bridges, the government should buy those bridges financed by issuing bonds, and let the central bank buy those bonds. 
I don't think there's anything left to argue about. Except a lot of micro public finance and public choice stuff. 
But I'm sure we will think of something.