Hughes appears to be a certified liberal, much to the relief of most of the magazine’s staff, alumni, and readers. Though he has been involved in some forms of activism—he ran the social media operation for the 2008 Obama campaign, and his significant other, Sean Eldridge, is the former political director of the same-sex marriage advocacy group Freedom To Marry—his comments on the direction of the magazine have been non-ideological, heavier on tech-world jargon than political talking points. On the phone from the airport, he spoke of “meeting thoughtful, intelligent people in the media space,” “integrating platforms,” and “mission-driven startups.” His reading includes both the Huffington Post and The Economist. “I wouldn’t say I’m a political junkie in the way that some people are,” he said. “I try to read about political issues of the day, but also cultural criticism, good books, and good music.” His past year’s reading included biographies of Katharine Graham and Henry Luce.
Why do economists expect growth to slow? The warm winter has probably pulled some spending forward into the last few months and will reduce spending in coming months, says Joshua Shapiro, an economist at MFR Inc. in New York. Rising oil prices also play a role. So does the continuing debt overhang, which makes a sustained recovery difficult.
None of these forecasts should be taken as gospel, of course. Maybe the gross domestic product numbers are wrong and will be revised upward in coming months, as government economists receive more data about the economy’s condition. Maybe the recent job gains will lead to a surge in confidence that lifts spending above expected levels.
But the most likely path includes a slowdown in job growth. It’s easy to forget that on a day with a jobs report as positive as this one.
My colleagues Binyamin Appelbaum and Annie Lowrey have each written recent articles with more details on the predicted slowdown.And:
On Friday, Macroeconomic Advisers, one of the most closely watched forecasting firms, reduced its estimate of economic growth in the current quarter to an annual rate of 1.8 percent, from 2 percent. And 1.8 percent growth does not generally lead to very strong job growth. In the fourth quarter of last year, by comparison, the economy grew 3 percent.
...
Sure enough, most forecasters do expect job growth to slow. Barclays Capital expects 200,000 jobs a month for the rest of the year. IHS Global Insight forecasts a slowdown to 180,000 jobs a month. Macroeconomic Advisers says it will slow to 140,000 jobs a month in the final three quarters of this year.
“We don’t get anything like the booming labor market with 300,000 jobs,” said Laurence H. Meyer, senior managing director of Macroeconomic Advisers and former Federal Reserve governor. “It would take much stronger growth than we have to do that.”
Calculated Risk is more upbeat:As a benchmark, the economy needs to create roughly 125,000 jobs a month to keep up with population growth.
There are reasons to expect better job growth overall this year compared to 2011. Last year was negatively impacted by the tsunami, bad weather, high oil prices and the debt ceiling debate. We can't predict the weather, and oil prices are high again - but hopefully there will be no natural disasters this year, and also no threats of defaulting on the debt.
Plus residential investment (new home sales and housing starts) has made the bottom turn, and even with a sluggish housing recovery, residential investment will add to economicgrowth in 2012. Also, the employment losses from state and local governments will probably end mid-year. As the BLS noted:
Government employment was essentially unchanged in January and February. In 2011, government lost an average of 22,000 jobs per month.
EmploymentThe February job market: not bad by recent standards by Doug Henwood
Another positive report was the ISM services survey that indicated faster expansion in February. Negatives included a larger trade deficit, an increase in initial weekly unemployment claims, and - of course - falling house prices in January.
"In historical terms, Professors Acemoglu and Robinson see the progressive era at the beginning of the 20th century, including the development of countervailing power for the government against powerful private business interests, as an essential part of what has gone right in the United States of America."(via Thoma)
The fed funds futures showed a 58% chance of a 1/4 point cut and a 42% chance of a 1/2 point cut. The more than two percent fall in US equity indices after the 1/4 cut was announced implied a 5% swing in US equity prices hinged on the Fed decision. And foreign markets seemed to respond almost equally strongly–implying that the Fed’s decision destroyed well over a trillion dollars in shareholder equity worldwide.They kept cutting after but it didn't help as Bear Stearns was bailed out in March 2008. Maybe the system was such a house of cards that it didn't matter how much the Fed cut. Maybe if they cut more and bailed out Lehman and everyone else, there wouldn't have been a panic? But we wouldn't have had Dodd-Frank.
Morgan Stanley Still Expects QE3 This Year: Morgan Stanley continues to think the Federal Reserve will provide more stimulus via bond buying this year, even as improving economic data have led many in the market to think the sun may be setting on that particular strategy. “For some time, our call has been that the Federal Reserve will undertake additional balance-sheet action in the first half of 2012,” writes Vincent Reinhart, an economist with the bank and a former top-level Fed staffer. He argues it’s most likely the Fed will act to expand its balance sheet via Treasury and mortgage bond buying — in market parlance, QE3 — at either the April or June Federal Open Market Committee, and that the ultimate size of the program could tack on $500 billion to $700 billion onto what is currently a $2.9 trillion balance sheet…. Officials won’t wish to be seen starting a high-profile action in the thick of the presidential campaign. Also, he reckons growth will still be too weak, and inflation will be falling short of the Fed’s 2% target.
The recent improvement in economic news, especially on the jobs front, will increasingly be seen as a head fake, the Morgan Stanley economist said. “We share the view that the fillip to economic growth associated with a restocking of inventories is fading and that real GDP growth will slow notably in the current quarter,” Reinhart said. “Anxiety-inducing headlines that the economy is losing steam will be conducive to Fed action.”China is weakening with a real estate market that has turned. DeLong reported slow growth in first quarter (where did he get that?)
Worse yet, the consequences were not limited to the acolytes of freshwater economics. Quite a few economists responded to the bitter warfare between schools of thought by running away from business cycle issues in general. I know whereof I speak: when Robin Wells and I began writing our principles of economics textbook, the general view was that you should focus on long-run growth, and relegate things like recessions and recoveries to a brief section at the end. Why? Because focusing on the long run was safer, less likely to get the committees that choose textbooks riled up.
Genevieve Koski
Joffrey Baratheon from the A Song Of Ice And Fire books and Game Of Thrones television series is the worst kind of twerp: a twerp with power. Entitled, insecure, venal, and violent, he can always be counted on—with prodding from his equally contemptible mother—to make decisions that benefit few besides himself and his immediate family, a quality that makes for a piss-poor king, but a grade-A villain. (Just ask the Starks.) Jack Gleeson’s portrayal of the young king in the TV series is perfectly sniveling, aided in no small part by Gleeson’s naturally haughty-looking, oh-so-slappable face. For anyone who’d like to watch Joffrey getting slapped for 10 minutes straight:
"Dornish law does not apply." Tyrion had been so ensnared in his own troubles that he'd never stopped to consider the succession. "My father will crown Tommen, count on that."George R.R. Martin -- A Storm of Swords
"He may indeed crown Tommen, here in King's Landing. Which is not to say that my brother may not crown Myrcella, down in Sunspear. Will your father make war on your niece on behalf of your nephew? Will your sister?" [Oberyn] gave a shrug. "Perhaps I should marry Queen Cersei after all, on the condition that she support her daughter over her son. Do you think she would?"
Never, Tyrion wanted to say, but the word caught in his throat.... "I don't know how my sister would choose, between Tommen and Myrcella," he admitted. "It makes no matter. My father will never give her that choice."
"Your father," said Prince Oberyn, "may not live forever."
Something about the way he said it made the hairs on the back of Tyrion's neck bristle. Suddenly he was mindful of Elia again, and all that Oberyn had said as they crossed the field of ash. He wants the head that spoke the words, not just the hand that swung the sword. "It is not wise to speak such treasons in the Red Keep, my prince. The little birds are listening."
"Let them. Is it treason to say a man is mortal? Valar morghulis was how they said it in Valyria of old. All men must die. And the Doom came and proved it true."
As I have said before, IMHO Cassel and Hawtrey see a lot but also miss a lot. The Bagehot-Minsky and the Wicksell-Kahn traditions have a lot to add as well. And Friedman was a very effective popularizer of most of what you can get from Cassel and Hawtrey.
But, as I have said before, those of us who learned this stuff from Blanchard, Dornbusch, Eichengreen, and Kindleberger--who made us read Bagehot, Minsky, Wicksell, Metzler, and company--have a huge intellectual advantage over others.
As auto sales per capita go up, unemployment goes down. And we just saw a major jump in auto sales. Eric Platt at Business Insider: ”As predicted by Business Insider, statistics firm Autodata Corp. is calling the February seasonally adjusted annual rate of sales at 15.1 million units for the U.S. auto industry. Earlier in the afternoon, Business Insider forecast the rate for February would come in at 15.1 million, a substantial jump from January’s 14.1 million pace.”
And plugging an extra million into the equation means that unemployment should drop around 0.3% – to a rate of 8%. We need to be talking 300,000+ jobs to get to that rate.
All kinds of caveats – no idea if the auto sales relationship holds up, lots of unemployed are on the sidelines, which means the unemployment rate may go up even with job gains as people re-enter the work force, etc. But still promises to be a monster next Friday. We’ll be covering it on twitter starting at 8:30am sharp.
But over the past couple of months we have now been experiencing a third round of positive signs on the recovery in the US. Is this spring likely to reveal yet another false start for the US economy?(via Thoma)
I don't think so. I think this time the improvements are for real, and more sustainable. There are two primary reasons that I say this (putting aside the obvious one, which is "third time's the charm"). First, the housing market finally appears to be well and truly near its cyclical bottom. Yes, house price indexes are still showing some declines, but there is good reason to think that there's very little further for house prices to fall. House price-to-rent ratios and real housing prices are just about where they were in the late 1990s, before the housing bubble was even a glimmer in any home-owner's eye. It's not likely that prices will fall much further. And construction activity has already bottomed out, with changes in real estate construction now adding to economic growth rather than subtracting from it.
The second reason is that the process of debt deleveraging by American households is further along than it was during the false economic starts of 2010 and 2011.
In short, this is an unambiguously bad report. My view is that it is probably an anomaly. We will perhaps see upward revisions in the second report for January or a big bounceback in the February numbers. But, this report definitely deserved some attention. It might seem rude to spoil the celebrations over our 3.0 percent growth rate last quarter, but that is what reporters are supposed to do.E.U. Leaders Challenged by Rise in Joblessness
The jobless rate in the 17 euro zone countries rose in January to 10.7 percent, from 10.6 percent in December. It reached the highest level since 1999, when the euro was introduced, according to Eurostat, the European Union’s statistics agency. Flagging economies like Italy and Greece were responsible for much of the increase. For all 27 E.U. countries, the rate ticked up to 10.1 percent in January from 10.0 percent in December.
Federal Reserve Chairman Sees Modest Growth by Binyamin AppelbaumEuropean countries nonetheless diverged widely: Spain again topped the list with a 23.3 percent jobless rate, followed by Greece, at 19.9 percent in November. That compared with 4 percent unemployment in Austria and 5 percent in the Netherlands.
But the Fed has remained cautious, and Mr. Bernanke repeated a familiar list of reasons for that stance, including the depressed housing market and turbulence in Europe. The Fed also has overestimated the pace of recovery several times in recent years.
“The recovery of the U.S. economy continues, but the pace of expansion has been uneven and modest by historical standards,” Mr. Bernanke said. He noted that the Fed did not expect “further substantial declines” in the unemployment rate this year.
As a result, he said the Fed remained committed to continuing its economic stimulus efforts, keeping short-term interest rates near zero and maintaining a large portfolio of Treasuries and mortgage bonds to further reduce long-term rates, holding down borrowing costs for businesses and consumers.
Mr. Bernanke gave no indication that the Fed was considering new efforts, like increasing its holdings of mortgage-backed securities to bolster the housing market. Indeed, his remarks suggested that the Fed’s attention was shifting to the possibility that the recovery is outpacing its expectations.
Stimulus Is Maligned, but Options Were FewIt has three main shortcomings, though. 1) No mention of the Federal Reserve 2) no mention of aid to state and local governments. In the December 2008 Larry Summers memo to Obama, they mention Bush's 2003 aid to the states program as being effective. 3) Porter quotes Kenneth Rogoff as saying Obama was given an "'only move,' a move forced by circumstance." In one sense this is right in that government activism was required because of massive private market failure. People who hate government probably felt "forced." On the other hand, Obama should have done more. He should have had a plan B.
It was the winter of 2009 and the United States economy was shrinking. In the last three months of 2008 the economy had contracted at an annual rate of 8.9 percent, the sharpest decline in more than half a century. It shrank at a 6.9 percent rate the next quarter. By February 2009 the country had lost more than five million jobs.
We know what President Obama did. In February, he pushed Congress to pass the American Recovery and Reinvestment Act, an $831 billion fiscal stimulus package aimed at creating demand for goods and services to reignite growth and stop the downward spiral.
Only three Republican senators voted for the bill — Susan Collins, Olympia Snowe and Arlen Specter (who as a result of the vote had to change parties). Since then, Republicans have condemned the legislation as an unmitigated disaster. “These policies have made our economic woes worse,” the House speaker, John Boehner, wrote earlier this month on the third anniversary of the bill’s enactment. They “left millions of Americans out of work and made the future of job-crushing debt even more daunting for our children and grandchildren.”
The attack hardly fits an economy that appears finally to be gathering steam. By the end of last year the economy had recovered to its peak size in 2007, before the recession. Employment is growing at a steady, though modest, clip. The jobless rate is 8.3 percent, down from 10 percent at its peak in October 2009.
Perhaps more intriguingly, the Boehner attack suggests a question: Were there other plausible choices? And would they have fixed the economy sooner?”
Around the world, governments were trying to stimulate their economies at the time — on the right as well as on the left, totalitarian autocracies and parliamentary democracies. By early 2009, China had announced stimulus policies amounting to 4.8 percent of its gross domestic product. The austere Germans put in place measures worth about 3.4 percent of their G.D.P. to bolster flagging demand. A study published by the New York Fed found the average fiscal stimulus in a group of some 40 developed and developing countries was slightly less than 3 percent of national output.
There were alternatives. After an initial experiment with government stimulus in 2009, many European countries reversed course and slashed their budgets to try to restore fiscal balance, in the expectation that this would reassure businesses and investors that government finances were under control, and give them the confidence to invest and bolster the economy. But so far, these policies have proved to be an unmitigated disaster.
Britain — which has its own currency and enjoys low interest rates — offers perhaps the best parallel to the United States. In 2010 the coalition government of David Cameron came into office promising to undo the stimulus policies of its predecessor. It cut spending across the board, asking government departments to slash budgets by 25 to 40 percent. And it shot Britain’s incipient economic recovery in the foot.
By the end of last year the British economy was still 4 percent smaller than it was before the recession started four years earlier. And it is expected to contract a little more this year. Even after budget cuts, the government’s debt is bigger, compared with the size of the economy, than when Mr. Cameron took office.
By comparison, despite criticism of its size and composition by both the right and the left, the stimulus by the Obama administration did add to jobs and growth. The nonpartisan Congressional Budget Office estimates it will have contributed at least 1.6 million jobs and perhaps as many as 8.4 million by 2013.
This month, the Booth School of Business at the University of Chicago surveyed a panel of economic experts of different political persuasions about the impact of the president’s stimulus package: eight out of 10 said it had contributed to lower unemployment by the end of 2010. There was less consensus on whether its benefits would exceed its long-term costs, including higher taxes to pay for the spending. Still, when asked if the policy was worth it, four times as many economists agreed as disagreed.
Regarding the children crushed by debt, no plausible economic strategy would have kept the budget deficit from mushrooming. President Obama’s fiscal stimulus package of February 2009 cost the equivalent of about 5 percent of the nation’s yearly output, most of which was spent over four years. Wrapping in other attempts by the Obama administration to ignite demand — from the payroll tax cut and extended unemployment assistance to the “cash for clunkers” program to encourage drivers to buy a fuel-efficient car — the cost rises to some $1.25 trillion, which amounts, on average, to about 2.1 percent of the nation’s annual output from 2009 through 2012.
International comparisons are explored. Empirical data considered. Republican politicians' claims debunked.While this is not cheap, it accounts for a small share of the budget deficit, which topped 10 percent of the country’s G.D.P. in 2009 and remained at 8.7 percent last year, swollen by plummeting tax revenue and mandatory expenditures as the country sank into recession and unemployment surged. (emphasis added)
I recall an extreme version of this back in the debate over privatizing Social Security. I made what should have been a fairly simple point: it was impossible to get 7 percent real returns in a stock market with a price to earnings ratio well over 20 and a projected real growth rate of 2.0 percent. This was simple arithmetic, but all the big names in economics, including the non-partisan professionals at the Congressional Budget Office and the Social Security administration continued to write 7.0 percent real returns into their projections.
We were finally able to score some points on this issue with the “No Economist Left Behind” test, which asked economists to write out a set of dividend yields and capital gains that added to a 7 percent real return. (in other words, they had to write down two numbers that added to 7.) Using the Social Security trustees profit growth projections, 7 percent real returns would have required either paying more than 100 percent of profits out as dividends or having price to earnings ratios of 300-400.
However, even our limited success in this case (no one in a position of authority acknowledged their error) was only accomplished after Paul Krugman wrote about the issue in his NYT column and the no economist left behind test caught fire in the blogosphere.
My point here is that anyone challenging the status quo is almost completely excluded from public debate. This was third grade arithmetic – the bad guys were just simply wrong – and we could not get people like the Washington Post editorial board and columnists to recognize this simple fact.I don't remember the episode that well even though I was reading the econosphere back then. It seemed to be that Bush was lackluster in his efforts - which failed miserably - and that the econosphere put up a good fight but I don't recall how much of an effect it had.
Echoing other commentators on the left, Mr. Scheiber also argues that the White House was slow to realize that “the G.O.P. had no interest in compromise,” and that it repeatedly caved to the Republicans over taxes, the deficit and the debt ceiling. He contends that Mr. Obama did little to line up Democratic support in Congress for his jobs bill and other policies, and that he “rarely exploited the massive stature of his office as a tool for influencing legislation” during the making of the original stimulus in 2009, during the initial push for health care reform, or during bargaining over the Bush tax cuts and the standoff over the deficit.
How is this glib? How is it premature? Why was there no plan B? There was a bubble but there was also a boom. Then there was a downturn. Kakutani doesn't appreciate how bad the downturn has been.Mr. Scheiber’s conclusion? “That Team Obama helped avert catastrophe” — that is, a slide into another Great Depression — is “beyond question,” but despite its heroic efforts, “the Obamans nonetheless failed at the task they set for themselves — of restoring the economy to something resembling its precrisis vitality.” Given that a lot of pre-2008 prosperity rested on shaky grounds (a housing bubble, huge amounts of leverage and deregulatory policies that fueled the Wall Street meltdown), and given recent sprouts of hope on the economic front (a rising Dow, an improving jobs picture), it feels like a glib and premature conclusion to what is a revealing, if polemical, book.
Things are terrible here [Lisbon, Portugal], as unemployment soars past 13 percent. Things are even worse in Greece, Ireland, and arguably in Spain, and Europe as a whole appears to be sliding back into recession.
...
In other words, the Hellenization of our economic discourse, in which we’re all just a year or two of deficits from becoming another Greece, is completely off base.
So what does ail Europe? The truth is that the story is mostly monetary. By introducing a single currency without the institutions needed to make that currency work, Europe effectively reinvented the defects of the gold standard — defects that played a major role in causing and perpetuating the Great Depression.
More specifically, the creation of the euro fostered a false sense of security among private investors, unleashing huge, unsustainable flows of capital into nations all around Europe’s periphery. As a consequence of these inflows, costs and prices rose, manufacturing became uncompetitive, and nations that had roughly balanced trade in 1999 began running large trade deficits instead. Then the music stopped.
If the peripheral nations still had their own currencies, they could and would use devaluation to quickly restore competitiveness. But they don’t, which means that they are in for a long period of mass unemployment and slow, grinding deflation. Their debt crises are mainly a byproduct of this sad prospect, because depressed economies lead to budget deficits and deflation magnifies the burden of debt.
supply-side inflation is something the Fed should ingore because the SRAS is fairly inelastic but eventually will shift as capital projects are completed.
That all sounds reasonable. But Yglesias has fallen into a trap. Unit labor costs are not “basically wages divided [by] productivity”. That’s not the right definition at all. [See update.] Unit labor costs are nominal wages per unit of output. With a little bit of math [1], it’s easy to show that
UNIT_LABOR_COSTS = PRICE_LEVEL × LABOR_SHARE_OF_OUTPUT
An increase in unit labor costs can mean one of two things. It can reflect an increase in the price level — inflation — or it can reflect an increase in labor’s share of output. The Federal Reserve is properly in the business of restraining the price level. It has no business whatsoever tilting the scales in the division of income between labor and capital.
Yet throughout the Great Moderation, increases in unit labor costs were the standard alarm bell cited by Fed policy makers as an event that would call for more restrictive policy. And all through the Great Moderation, except for a brief surge during the tech boom, labor’s share of output was in secular decline. (More recently, the Great Recession has been accompanied by a stunning collapse in labor share. Record corporate profits!)
...Update: It is easy to show that unit labor costs are not equal to total wages divided by labor productivity. But Nick Rowe points out in the comments that unit labor costs are equal to the average hourly wage divided by labor productivity. So, depending on how you want to interpret “wages”, I was too quick in tweaking Matt Yglesias for a misstatement. Sorry!
During the 90's and the early oughts, we also had a bigtime money-printing in place. Arguably we were expanding our money supply faster during the 90's and the oughts than we were in the '70's. (And here the Austrians have the their one useful insight: banking is a license to print money, and each bank is its own little Federal Reserve.) We did not suffer anomalous increases in unit labor costs (but we did have anomalous increases in the amount of credit!). And just so not coincidentally oil supplies were steadily increasing in volume during the period. When economic growth outran the ability to support steadily increasing growth, pop went the weasel. (emphasis added)Also, on the difference between demand-pull/demand driven and cost-push inflation, commenter Philip Pinkelton writes:
You have to track causality here. Why did the unit labour costs rise? My reading is that unions saw inflation go up that was largely driven by oil price rises. When they saw prices go up they started demanding higher wages and this led to a classic wage-price spiral.This sounds right to me. Inflation went also because of the Fed reserve trying to curry favor with Nixon and Vietnam War spending. There were a lot of variables, but it got locked in because of the power of unions to negotiate wage increases in anticipation (expectation) of further price increases. And so on. So maybe some of it was demand.
The underlying cause was the oil embargo. The response was the wage-bargaining on behalf of the workers. Then, wage-price spiral.
Here's the inflation from the era -- note the oil embargo kicks in in Oct. 1973 and instantly causes oil prices to skyrocket, the inflation then tracks this:
http://www.econedlink.org/lessons/images_lessons/6...
So, this was NOT a case of pure demand-led inflation which might result from a government running too high deficits. This was a political crisis which triggered an institutional crisis.
Unit labor costs are basically wages divided productivity. It's not the price of labor, in other words, but the price of labor output. If productivity is rising faster than wages, then even if wages themselves are rising unit labor costs are falling. Conversely, if wages rise faster than productivity than unit labor costs are going up. Clearly there's nothing wrong with a little increase in unit labor costs here or there. But over the long term, growth in unit labor costs needs to be constrained or else it becomes impossible to employ anyone. And you can see that in the seventies it's not just that gasoline got more expensive, we had an anomalous spate of high unit labor cost growth. That was inflation and it's what led to the regime change that's governed for the past thirty years.
His first and last sojourn in Washington began in 1982, when Martin Feldstein, then chairman of Ronald Reagan's Council of Economic Advisers (CEA), invited Krugman, Lawrence Summers, and a few other whiz kids onto the CEA's staff. The early '80s recession and debt crisis had thrown Reagan's economic policy into disarray, and Feldstein had been brought in to fix things up. Working in government had two contradictory effects on Krugman. On the one hand, it induced in him a deep dislike for those he would later describe as "policy entrepreneurs"--activists and journalists, usually lacking academic credentials, who seemed to exert so much influence over economic decision-making in Washington. Feldstein was a pioneer of the supply side policies then in favor among Reaganites, who believed taxes were the most important determinant of economic growth. But unlike policy entrepreneurs such as Jude Wannisky and The Wall Street Journal's Robert Bartley, Feldstein refused to pretend that Reagan's massive tax cut could pay for itself. When Feldstein insisted on issuing accurate budget projections anticipating government deficits, and even called for a small tax increase to offset them, the administration's supply side purists attacked. (Treasury Secretary Donald Regan even urged reporters to "throw out" the council's annual report.) Like many economists, Krugman cherished his discipline's purity, and the sight of Feldstein being pummeled for not painting a rosier election-year picture was deeply disillusioning. "One thing you learn when you're working in an administration--not to mention at the Fed, where it's even more extreme--is to think three times before you speak and then bite your tongue," says Alan Blinder, the Princeton economist and former vice chairman of the Federal Reserve. "That's not how academics normally behave."...
Very soon, however, Washington disappointed Krugman again. His writing and congressional testimony about income inequality brought him to the attention of Bill Clinton's campaign in 1992, which used some of his findings to attack the Bush administration. When Wannisky and other conservatives argued that skyrocketing income inequality was in fact a myth, Clinton's aides enlisted Krugman to help them fight the ensuing propaganda war. When he published a defense of Clinton's economic plan in the Times that August, it was widely assumed that Krugman would be Clinton's pick, should he win, as chairman of the Council of Economic Advisers.
Clinton did win. But his economic transition team was headed by Robert B. Reich, a Harvard lecturer, journalist, and author who had penned the early '90s other big policy tome, The Work of Nations. Not only had Reich tussled with Krugman over trade policy during the 1980s; he had also gone to Oxford with Clinton. Eventually, Reich became Secretary of Labor in the new administration, while Berkeley economist Laura D'Andrea Tyson was named chair of the CEA. Many other economists were drafted into top administration slots, including Krugman's colleague from the Reagan days, Larry Summers. But Krugman was passed over--largely, say former Clinton officials, because he was deemed too volatile. (After clashing with fellow attendees at Clinton's Little Rock economic summit, for example, he had appeared on "Larry King Live" to declare the meeting "useless.")
The Peltzmann EfFect:(sic) the more effective the satefy net is perceived to be, the more risks people will take. Yes, it is micro, but I suspect applied to macro it explains a heck of a lot. It explains why real economic growth rates in this country hit peaks in the 1930s and 1940s, and again in the 1960s, and have been going downhill since.Steve Roth comments on his comment:
Very interesting. I've been pondering the idea that widespread economic security is a public good, with positive externalities in encouraging "good" risk-taking and allocation of investment. (See the latest at interfluidity.) Ironically, this involves using the Peltzmann Effect to argue for positive outcomes, rather directly contrary to Peltzman's examples.Kenyan Socialists would agree with Roth. The strong economic performance of the 50s and 60s was due to the safety net and creation of the middle class via the New Deal and GI Bill, etc. In the 1970s things went sideways as Japan and Germany came online and the inflation of the 70s brought on a Thermidor by the ruling class such as Doug Henwood has discussed. We've been living with the consequences ever since.
These “starter savings accounts” would be a popular vehicle for ordinary people who want convenience and safety with as little entanglement as possible in casino finance.
But the real benefit would be macroeconomic. “Market monetarists”, MMTers, and old-fashioned Keynesians love to squabble with one another, but they have a great deal in common.
Kenyan Socialists would support this. We're all about the positive externalities! Let's make the dismal science a little less dismal.By whatever combination of monetary and fiscal policy, in a depression, all these groups agree that some manner of expansionary intervention should be pursued to maintain spending and effective demand. But any such policy increases the risk of inflation, and so is opposed by people holding debt or fixed-income securities. The people with the most to lose from inflation are the very wealthy, who hold a disproportionate share of financial claims. But middle-class savers value their small nest eggs just as dearly, and make common cause with multibillionaires to oppose inflation. By providing means for small savers to protect themselves from inflation when intervention is called for, we can stop the very wealthy from using middle-class retirees as human shields, and thereby create political space to adopt expansionary policy.
Others in the industry are also bullish, pouring money back into mortgage securities. Trading has surged in recent weeks. Prices have risen more than 15 percent in the first two months of 2012, after dropping by as much as 40 percent last year.
“There was a lot of money waiting on the sidelines because yields were starting to look very attractive,” said Jasraj Vaidya, a strategist at Barclays Capital. “Lots of it seems to have come out now.”...
The mortgage bond market is a very different creature than it was before the financial crisis. For one, it is much smaller: very few residential mortgage-backed securities have been issued since the crisis. The market, at $1.3 trillion, is half the size it was at its peak and shrinks by an estimated $10 billion every month.
The NYT had a very good piece from Barry Schwartz, one of my former college professors, asking this question. The context is whether the Bain Capitals of the world should be allowed to downsize without any consideration for workers or the community.
The United States is the only wealthy country that allows companies to dump long-serving workers at will. It might be reasonable to require some amount of severance pay when they fire long-serving workers (e.g. 2 weeks per year of work). This would nor prevent downsizing where there are large efficiency gains, however it may prevent some cases where the gains are marginal.Kenyan Socialism supports this policy proposal as something doable which we can work towards. Policies other wealthy nations employ can be good guideposts. Conservatives prefer not to make international comparisons.
Our English stupidity is a point of pride for us. P.G. Wodehouse, whose spirit haunts the corridors of Downton, had the fundamental comic insight, when he made the manservant Jeeves well-read, cultivated, and sly, and his master Bertie Wooster genial, candid, and dim. So that, when Bertie occasionally rises to an apt Shakespearean adage—“And thus the native hue of resolution is sicklied o’er with the pale cast of thought”—he will always add the modest disclaimer: “Not mine—Jeeves’s.” The clever servant had been a stock figure in comedy way back in antiquity, but the master had never been so completely the servant’s creation as Bertie Wooster was.
Mr. Carson, the butler at Downton (Jim Carter), has a Jeevesian conservatism and sense of the decorums of country house life. Unfortunately, he is not blessed with the Jeevesian gift of total success at thwarting all comers. His master, the Earl of Grantham (Hugh Bonneville), commits the fundamental error of choosing his former batman from the Boer War, John Bates (Brendan Coyle), as his valet. In doing so, he has allowed his heart to influence his head. Bates has a limp and is therefore—as the rivalrous servants almost unanimously believe—unsuitable for the job.
This business, by the way, of officers giving employment to their batmen, their personal military servants, in later civilian life—this is or was a well-known cover for homosexual attachments. One went into the army and formed a passionate liaison with a man from another class. The war over, one brought the batman home, under pretext of valeting requirements. And while we have as yet (at the end of the second season, with a third already promised) no proof of any impropriety in the relationship between Bates and the earl—no eve-of-battle indiscretion on the veldt, no cuddles on the High Karoo—nonetheless we ought to treat with suspicion the bare story that, in some unspecified way, Bates saved the earl’s life in what was referred to as the African War.
What we learned from the Temin and Wigmore paper is that one way out of a recession at the zero lower bound is by changing expectations. To do that, often what is needed is a very strong change in policy – something economists call a “regime shift”. The most effective way to shake an economy out of a terrible downturn when we’re at the zero lower bound is an aggressive change in policy that makes people wake up, say “this is a new day” and change their expectations. What the Fed has done since early 2009 is much more of an incremental change.
I think that what the Fed needs instead is a regime shift. A number of economists have suggested that the Fed adopt a new framework for monetary policy, like targeting a path for nominal GDP. If the Fed adopted such a nominal GDP target, they would start in some normal year before the crisis and say nominal GDP should have grown at a steady rate since then. Compared with that baseline, nominal GDP is dramatically lower today. Pledging to get back to the pre-crisis path for nominal GDP would commit the Fed to much more aggressive policy – perhaps more quantitative easing and deliberate actions to talk down the dollar. Such a strong change in the policy framework could have a dramatic effect on expectations, and hence on the behavior of consumers and businesses.(via Thoma)
Doug Elmendorf, on the CBOBlog: "Slack demand for goods and services (that is, slack aggregate demand) is the primary reason for the persistently high levels of unemployment and long-term unemployment observed today, in CBO’s judgment."
Playboy (!) interview with KrugmanThis is correct. Strangely the subsequent discussion completely neglects monetary policy as relevant to demand. The Federal Reserve is supposed to conduct monetary policy independently, but that doesn't mean that other arms of government are supposed to pretend it's not there.
The German labor system, with its incentives to move workers to part time rather than lay them off, does appear to have been critical in keeping the country’s unemployment rate from rising more than it did during the credit crisis.
But the decline of unemployment since then has more to do with the fact that Germany — perhaps unintentionally but certainly effectively — has managed to assure that its currency is undervalued, both relative to that of its neighbors and to much of the rest of the world. That has helped the country’s exporters and brought more business to the country.The impact of currencies could be seen earlier this month on successive days when Nissan, the Japanese automaker, and Daimler, the German maker of Mercedes cars, announced profits. Nissan moaned about the yen, which makes it very difficult to make money exporting cars from Japan, while Daimler forecast strong earnings if the euro stays where it is. The euro has lost a third of its value against the yen since the credit crisis began.
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The O.E.C.D. report is worth reading for its explanation of labor policies that other countries should consider. In good times, many German workers work overtime but are not immediately paid for it. Those hours are credited to their account, and when times get rough they go on part time but are paid full-time wages, with the difference coming out of the account. Another government policy allows companies to reduce hours with the government making up two-thirds of the lost pay.
Those policies no doubt reduce hiring when times are good, but also hold down layoffs when times are bad.
Not all is rosy in the German labor market. Felix Hüfner, an O.E.C.D. senior economist in charge of the German desk, told me that he was worried about the fact that about two-thirds of younger German workers did not have permanent jobs. Instead, they have “fixed-term contracts,” which make it easier for companies to let them go when the contracts end. Germany may, he said, be in danger of becoming a “two-class society,” with most older workers in a protected group and most younger ones outside of it.
Ezra Klein's WonkBlog has an interesting piece asking whether Greece is going to have the dubious honor of having the largest economic downturn in modern history. The piece quotes Uri Dadush, a former World Bank official, who predicts a decline of 25-30 percent, which would beat both Argentina's 20 percent decline in 1998 to 2002 and Latvia's 24 percent decline in the current crisis.
The piece is a bit sloppy on one point, saying that Argentina's decline followed the default on its debt in December of 2001. Actually, the vast majority of the decline preceded the default. Argentina's economy had already contracted by more than 16 percent by the time of the default. It shrank by around 5 percent following the default before turning around in the second half of 2002.
Source: International Monetary Fund.
This matters in the current context since many people are asking what alternatives Greece has to following the austerity path being demanded by the IMF, the ECB, and the EU. While there are reasons that a default would be more difficult in Greece's case than Argentina's (most importantly Argentina had its own currency), the post-default experience of Argentina suggests that it probably chose the better route.
Japan's central bank took the extraordinary move of targeting a higher rate of inflation, setting a 1.0 percent inflation target. This should have been front page news.
The idea of a central bank setting an inflation target above its current level, in the hope of raising inflationary expectations, dates back to a paper by Paul Krugman in the late 90s. (Federal Reserve Board Chairman Ben Bernanke endorsed the same policy when he was still a professor at Princeton.) The logic is that if the central bank can credibly commit itself to a higher inflation target then the commitment could create self-fulfilling expectations. Businesses would invest and consumers would spend based on the expectation of higher inflation, which would mean a lower real interest rate. The increased business activity would then lead the inflation targeted by the bank.
This decision by the Japanese central bank will provide an opportunity to test whether such targeting can work. If it proves successful, it may lead to more pressure on other central banks (like the Fed) to go this route.Again with Potential Output by Tim Duy
In Bullard's model, the housing bubble popped, and millions of people who were employed are no longer employed, nor should we expect them to be employed (or to reenter the labor force) as there is no way to do so absent another bubble. This seems to me an obvious place for fiscal policy and monetary policy to step into the breach and compensate for the lost demand. That millions of people's labor and output be lost simply because they no longer believe that housing prices don't always rise is a gross waste of resources.
You can tell a story in which that bubble-driven demand was necessary to compensate for negative equilibrium interest rates for risk free assets (driven by excessive saving by Asian central banks and aging demographics in the developed world). Rather than wait for another asset bubble to come along and lift demand, or twiddle your thumbs hoping another recession doesn't hit while you are at the zero bound, you could pull out the old-Bernanke playbook and implement an even more aggressive mix of fiscal and monetary policy to compensate for the lost demand and flood the world with risk free assets.Mind the Gap by Menzie Chin
It seems to me that Bullard has shifted his position. In the first version, which I discussed here, Bullard seemed to be arguing that the wealth loss from the burst bubble represented a real destruction of economic capacity. Now he seems to be making a quite different case: that the economy in 2005-2007 was operating at an unsustainably high rate of capacity utilization, driven by the bubble.Link from yesterday, Ben Bernanke and the Zero Bound by Laurence Ball
I don’t buy this version either.
One reason not to buy it is the reason Duy cites: if the economy was so overheated in the mid-naughties, where was the inflation? Where were the labor shortages?
But there’s another reason I don’t believe it: demand in the mid-naughties was not, in fact, at fever pitch.
Yes, we had very residential construction and high consumer spending. But we also had record-high trade deficits, so that overall demand wasn’t that vigorous, after all....
In his Tokyo speech in May 2003, Bernanke was still urging aggressive policies at the zero bound. By July 2003, as we will see, he was ignoring most of his previous ideas and proposing more cautious policies. What explains this sudden change? The obvious answer, at one level, is that Bernanke was influenced by the FOMC meeting of June 24.When they deign to discuss the bubble and financial crisis, conservatives point to Fannie and Freddie or point to Greenspan keeping rates too low too long. Well in 2003 they are facing deflation! Bernanke seems concerned about avoiding deflation rather than maintaing full employment.
At the time of this meeting, Japan had been stuck at the zero bound for four years, and the United States was experiencing its deflation scare. In that setting, the meeting began with abriefing by Vincent Reinhart, Director of the Board’s Division of Monetary Affairs, called “Conducting Monetary Policy at Very Low Short-Term Interest Rates.” Reinhart outlined possible policies to “provide impetus to the economy” if the federal funds rate reached zero. After Reinhart spoke, Dino Kos, head of the trading desk at the New York Fed, described some details of implementing Reinhart’s ideas. A week earlier, FOMC members had received outlines of the Reinhart and Kos briefings in bullet-point form. [emphasis added.]
I can find only one occasion between 2004 and 2009 when Bernanke discussed policies at the zero bound. His comments were a response to a written question from Senator Bunning of Kentucky during Bernanke’s 2005 confirmation hearings. Bunning was the only Senator to vote against Bernanke’s first confirmation as Fed Chair. Bunning’s question is motivated by Bernanke’s reference to “helicopter drops” in his 2002 speech on deflation. Bunning notes that Bernanke has earned the nickname “helicopter Ben” and asks, “Would you like to elaborate on your comments on deflation?” In answering, Bernanke recalls the 2002 speech:
Bunning was one of the dumbest Senators around. Mitch McConnell hated him.I noted that one possible tool for combating deflation, a money-financed tax cut, was essentially equivalent to a theoretical construct used by Professor Milton Friedman, a “helicopter drop” of money. Of course, the “helicopter drop” metaphor is purely a pedagogical device to help explain money’s role in the economy, not a practical policy tool. A key message of my speech was that, contrary to some views that were being expressed at the time, the central bank still has the tools to address deflation even if the short-term interest rate reaches zero.
also known as the Solow–Swan growth model or exogenous growth model, is a class of economic models of long-run economic growth set within the framework of neoclassical economics. Neoclassical growth models attempt to explain long run economic growth by looking at productivity, capital accumulation, population growth and technological progress.As Duy writes, "The backbone of the CBO's estimates is a Solow Growth model".
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1) never reason from a price change: wage push is demand side inflation. Just because we have "inflation" does mean we have demand-side inflation. In fact, right now its all supply side (gasoline etc) because demand is cranking up. We really should not compare commodities prices to rock-bottom lows on 2009-2010 when demand sank. Gasoline prices are up but we've become a net exporter of refined products (combination of energy efficieny, vehicle-miles, and infrastructure issues).