Kockerlakota and the North Dakota oil boom

Kocherlakota dissents. I believe his turn about first came when he visited the North Dakota "man camps" of the oil boom.

Oct. 29 FOMC statement:

Voting against the action was Narayana Kocherlakota, who believed that, in light of continued sluggishness in the inflation outlook and the recent slide in market-based measures of longer-term inflation expectations, the Committee should commit to keeping the current target range for the federal funds rate at least until the one-to-two-year ahead inflation outlook has returned to 2 percent and should continue the asset purchase program at its current level.

'The Overnighters' shows dark side of North Dakota oil boom

Charles Evans

Patience Is a Virtue When Normalizing Monetary Policy by Charles Evans

Kocherlakota

Kocherlakota and the Cultists by Krugman

Narayana Kocherlakota

A Federal Reserve Policy Maker Urges It to Do More by Binyamin Appelbaum

"The evolution of N.K."

Josh Barro

I thought Josh Barro did an excellent job on Real Time with Bill Maher last night, especially when he argued monetary policy with Carly Fiorina.

Atlantic article by Jonathan Chait.

James Tobin

James Tobin doesn't seem to get enough credit or recognition. In this interview, Krugman points to a book of his. In the recent Time magazine cover story, it describes how Yellen was his graduate teaching assistant and took marvelous notes which he used.

Interplanet Janet

Janet Yellen: The Sixteen Trillion Dollar Woman by Rana Foroohar

"I'd like to see real wages going up," Yellen says, adding that the average American male worker's inflation-adjusted wages have been flat or down for the past 20 years."

And via Thoma:

Recurring Themes for the New Year by Charles Evans

inequality-palooza (political economy)

I highlight the discussion of the political economic dynamics of inequality.

Inequality isn’t ‘the defining challenge of our time’ by Ezra Klein

Inequality, Ezra, Paul, and the Unifying Theory (and Evidence) by Jared Bernstein

Well, here’s a unifying theory: demand-side policies that that significantly lower unemployment will also reduce inequality. It’s right there in figures 2.5-2.7 of my new book with Dean Baker on getting back to full employment.

A major factor driving inequality, particularly earnings’ gaps, is the diminished bargaining power of middle and low-wage workers. In an economy like ours, with little (not-enough, IMHO) pressure from collective bargaining, low minimum wages, and a large low-wage sector relative to other advanced economies, very tight job markets are about the only friend working families have.

...

Second, my point here is that full employment enforces a more equitable distribution of growth.  That’s not saying anything about the impact of inequality on growth itself, though the theory I develop in my CAP paper does introduce what I think are potentially important feedback loops between inequality, debt bubbles, and recession, with a generous sprinkling of money-in-politics to close the loop.

Inequality As A Defining Challenge by Krugman

Third, there’s the political economy aspect, where you can argue that policy failures both before and, perhaps even more crucially, after the crisis were distorted by rising inequality, and the corresponding increase in the political power of the 1 percent. Before the crisis, there was an elite consensus in favor of deregulation and financialization that was never justified by the evidence, but aligned closely with the interests of a small but very wealthy minority. After the crisis, there was the sudden turn away from job creation to deficit obsession; polling suggests that this wasn’t at all what the average voter wanted, but that it did reflect the priorities of the wealthy. And the insistence on the importance of cutting entitlements is overwhelmingly a 1 percent thing.

...

Finally, very much tying in with this, is the question of what progressive think tanks should research. Klein suggests that “how to fight unemployment” should be a more central topic than “how to reduce inequality.” But here’s the thing: we know how to fight unemployment — not perfectly, but good old basic macroeconomics has worked very well since 2008. There’s no mystery about the economics of our slow recovery — that’s what happens when you tighten fiscal policy in the face of private deleveraging and monetary policy is constrained by the zero lower bound. The question is why our political system ignored everything macroeconomics has learned, and the answer to that question, as I’ve suggested, has a lot to do with inequality.

Inequality and Incomes, Continued by Krugman

Ezra Klein Misses the Mark: Inequality and Unemployment Are the Same Problem by Dean Baker

These are the people who are most likely to get jobs. And those with jobs will also have the opportunity to work longer hours. And, a tight labor market will create conditions in which workers at the bottom will have more bargaining power. Walmart and McDonalds will be paying workers $15 an hour if that is the only way that they can get people to work for them.

For this reason, the high unemployment policy that Congress is pursuing with its current budget policy is a key factor in the upward redistribution of income that we have seen in the last three decades. This means that people concerned about inequality should be very angry over budgets that don't spend enough to bring the economy to full employment (also an over-valued dollar). So Ezra is absolutely right that progressives should be yelling about unemployment, but inequality is a very big part of that picture.

Is the American Left Wrongheaded? And Is the WCEG Part of the Problem?: Ezra Klein vs. Ashok Rao and Brad DeLong and **UPDATE** Steve Randy Waldmann: Friday Focus (December 13, 2013) by DeLong

And then there are the political consequences of inequality. A more unequal economy is one in which the voice of the rich speak louder in the political debate, and the rich want to keep what is theirs. Before 1975 the U.S. made a uniquely large effort to educate its people, and win the race between education and technology. The result was a middle-class society for white guys (and, alas, for white guys alone). Then came what Robert Kuttner calls The Revolt of the Haves: the great pulling-up of the ladder of free public higher education. The consequence was another factor pushing for the great widening of income inequality, as America began to lose the race between education and technology. And the consequence was that 0.3%/year of American real economic growth simply vanished as we were no longer making the requisite educational effort to keep our population the best-educated in the world. Over 35 years that failure has made us another 10% poorer–and more unequal to.

Terrible by Steve Randy Waldman

"There is little tension between addressing inequality and pursuing the other goals Klein says we should focus on. Klein sets up a straw man when he argues

A world in which inequality is the top concern is a world in which raising taxes on the rich is perhaps the most important policy choice the government can make. A world in which growth and unemployment are top concerns are worlds in which very different policies — from stimulus spending to permitting more inflation — might be the top priorities."

Ten Theses on Growth, Employment, and Inequality by Matt Yglesias

The Defining Problem of Our Age by Ashok Rao

Charles Evans

Yglesias tweet:

Charlie Evans, hero of good sense:  

http://blogs.wsj.com/economics/2013/10/18/feds-evans-bad-idea-to-use-monetary-policy-to-burst-bubbles/ …

Fed’s Evans: Bad Idea to Use Monetary Policy to Burst Bubbles by Michael S. Derby 

Federal Reserve Bank of Chicago President Charles Evans said those who would prefer to tighten monetary policy to reduce the threat of new financial bubbles are barking up the wrong tree.

The central banker, who has been a strong supporter of the Fed taking aggressive actions to aid the economy, said that instead of using monetary policy actions to bolster stability in markets, the central bank should use its expanding portfolio of regulatory powers to target imbalances.

“Without adequate safeguards, excessive and persistently low interest rates could lead to excessive risk-taking by some investors,” Mr. Evans said in the text of a speech to be given in Chicago before the Financial Management Association Annual Meeting Luncheon. But those safeguards now exist: “Regulatory efforts can effectively minimize the risks of another crisis and increase the resiliency of the financial system,” the official said.

Kocherlakota

Fed official: It is time for resolve in fighting unemployment by Neil Irwin

The U.S. economy has the opposite problem now: too-high unemployment and too-low inflation. But Kocherlakota is arguing that, again, resolve by the central bank is the solution. Here is his key argument:

I’ve spent a lot of time talking about 1979, because I see three key parallels between the economic situation in 1979 and the economic situation in 2013. First, just like in 1979, the Federal Open Market Committee faces a challenging macroeconomic problem—although this time, the problem is stubbornly low employment as opposed to stubbornly high inflation. Second, there is a widespread perception that monetary policymakers lack either the tools or the will to solve this problem. 

And third, the perception of monetary policy ineffectiveness is itself a key factor in generating the problem. Let me elaborate on this last point. If the public thinks that monetary policy is ineffective, then it will expect relatively weak macroeconomic conditions in the future. But these expectations about the future have a direct impact on current macroeconomic outcomes. If households expect their incomes to be low in the future, they will save more and spend less today. If businesses expect low future demand for their products, they will invest less today and hire fewer people today. In this way, any perceptions of future FOMC ineffectiveness in generating favorable macroeconomic outcomes are hurting current employment.

Rooseveltian resolve! Reiterating Christina Romer. Bullard and Kocherlakota have really impressed me with how they altered their views as new evidence came in. They dispaly some realy integrity.

Narayana Kocherlakota's Brilliant Speech by Matthew Yglesias

Evans rule

Chicago Fed President’s ‘Evans Rule’ Completes Its Odyssey, As the Fed Gets Dovish by Whet Moser

Good picture and caption.

We Get Results, Japan Edition by Krugman

Abenomics Takes Off: Can Japan Un-Doom Itself? by Matt O'Brian

The Immorality of the Interest Rate Hawks by Krugman

Economic Conditions and Conditionality by Charles Evans

Why Is Ben Bernanke The Only Man in Washington Who Care About Jobs? by Timothy Noah

Raise the Economy's Speed Limit by Jared Bernstein

Dave Brubeck died

Perspectives on Current Economic Issues by Charles Evans

(via Thoma)

The Age of Niallism (emphasis added):

...The damage from the Great Recession was substantial; and to date, the recovery has been disappointing. The real value of goods and services produced in the U.S. today is probably more than 5 percent below what economists call potential — that is, the economy’s ability to produce goods and services without generating inflationary pressures. The unemployment rate has been stuck at around 8 percent for nearly a year — well above the 5 percent to 6 percent level we would see if all of our resources were fully engaged. In the absence of further monetary stimulus or fiscal repair, the outlook would be for more of the same: moderate growth that is not strong enough to generate substantial improvement in the labor market; an unemployment rate that is likely to remain above its long-run level for a long time to come; and an economy that would be vulnerable to shocks at home and abroad.

Now, I am an optimist. I think we can do better than this gloomy outlook. That is why action is important. A great deal of state-of-the-art analysis — done both inside and outside of the Fed — indicates that the severe downturn in 2008–09 was mainly the result of a large drop in aggregate demand which left the economy operating below its potential. Research also shows that better and more accommodative policies have the power to reverse these setbacks and raise employment, output and incomes.[2] In other words, more accommodative policy can deliver a stronger economy and the resiliency we are seeking. Furthermore, appropriate policy can deliver these better outcomes without generating inflation that is significantly higher than the Fed’s long-run goal of 2 percent.

There are many who believe otherwise. In their view, our current low output and high unemployment are the hallmarks of an economy that has lost its competitiveness — an economy that experienced permanent disruptions in its infrastructure, the skills base of its work force and its technological capability. In such a dismal view of the economy, monetary policy is powerless and cannot generate a stronger, more robust expansion. Any attempt to increase aggregate demand through more accommodative monetary policy would simply lead to higher inflation rather than better resource allocation.

I see little evidence to support such a pessimistic view of the world. And I refuse to be so nihilistic in the absence of strong evidence of permanent disruptions. It is very hard to believe that millions of people who were working productively just a few years ago have suddenly become unemployable. And while many of the pessimists have been predicting higher inflation for several years, it hasn’t materialized. Indeed, core inflation has been under 2 percent since the end of 2008; and except for some near-term transitory movements in food and energy prices, most forecasters do not see any major change in inflation over the next few years.

Charles Evans could be the one who laid the groundwork and created the space for Bernanke's change of direction towards open-ended commitments. I know he mentioned Woodford in a recent speech (this year?) and will look it up.

Reserve Bank Presidents' Speeches, 2007-2012

Evans's August 27th speech

Bernankeapalooza

An Internet Success Story. Chicago Fed President Charles Evans should feel vindicated for all of his hard work and for sticking his neck out.

A Quick Note on the Fed by Krugman

In effect, the Fed seems to be trying to “credibly promise to be irresponsible”, which is what I advocated way back when in this kind of situation. 

3. That’s all good. However, it’s kind of vague. No clear target, whether nominal GDP or some kind of inflation/unemployment mix. Put it this way: you could imagine a future Fed chairman tightening policy in line with the same Taylor rule that seemed to describe policy before the crisis — a rule that suggests that interest rates wouldn’t start to go up until unemployment was below, say, 7 percent — and still being able to claim that he had not violated any promise Bernanke made. In other words, it’s not totally clear that we really do have a shift in future policy. And since the whole point is to move expectations, leaving this kind of wiggle room is not a good thing. 

To paraphrase an old joke: what do you get when you cross a Godfather with a central banker? Someone who makes you an offer you can’t understand. 

4. Romney is talking destructive nonsense.

The Scott Summer Rally by Yglesias

It Is What It Is by Scott Sumner

On a lighter note, yesterday was “Scott Sumner day” and yet I had to go to work.  That doesn’t seem fair!  I’d also note that Cardiff Garcia at FT Alphavillementioned David Beckworth and I (along with Woodford), in their discussion of economists who had played a role in the debate. Don’t get me wrong, I realize that Woodford’s 100 times more influential than I am.  But I also think we’ve had some impact, mostly by putting out ideas that other more famous people have discussed and/or advocated (Christy Romer, Krugman, DeLong, Jeffrey Frankel, Jan Hatzius, etc.)  So it’s a good day for market monetarism.

Why QE3 Matters by Yglesias

Federal Reserve Finally Working Expectations Channel With Open-Ended QE by Yglesias

The Fed Announces Additional Easing by Mark Thoma

Ben Bernanke rescues the US economy from the nihilism of the right by Robin Wells

Two Cheers for Ben by David Glasner

Fed Ties New Aid to Job Recovery in Forceful Move by Binyamin Appelbaum

Something new by Ryan Avent

AND QE III HAS LANDED: EXPANSIONARY MONETARY POLICY EDITION... by DeLong

Daddy, Where Do Jobs Come From? by Jared Bernstein

Other fiscal measures have more reliable job-creation chains.  Increasing unemployment benefits or food stamps helps because those folks typically spend the money.  And new infrastructure is a pretty direct way to go.  Same with state fiscal relief.  I remember during the Recovery Act, mayors cancelling planned layoffs the day they received Recovery Act funds.

The punch line is a simple one, but it’s one that seems to have been forgotten amidst our increasing love affair in America with laissez-faire economics: the more direct the policy measure—i.e., the fewer links in the chain between the policy and the job—the better it will work.

The New Normal

The Employment Situation by Krugman

Review of End This Depression Now! and 
The Price of Inequality: How Today’s Divided Society Endangers Our Future:

What Krugman & Stiglitz Can Tell Us by Jacob Hacker and Paul Pierson

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."