What Krugman is reacting to in the post below is this post from DeLong.
DeLong post a chart he has used often which shows government purchases declining significantly.
If I had the time and energy I would make a chart that includes how the Fed reacted in 2007 onwards. It would also show how the 50 little Hoovers of state government offset Obama's stimulus. It would show how the sequester screwed us but the sequester is ending.
Tuesday, March 25, 2014
Krugman
What It Would Have Taken by Krugman
Brad DeLong is wrong. He thinks we have a disagreement, but he’s misinterpreting what I said when I argued that the Fed’s 2008 inflation phobia wasn’t responsible for the Great Recession and the Lesser Depression that have followed and continue to this day.
What Brad says — and I agree with — is that there is no economic necessity behind our ongoing employment and output disaster. We could and should have moved the resources employed in the housing boom to other uses, and needn’t have paid this immense cost.
But what would it have taken — what would it take now — to have maintained or restored full employment? My argument is that it would have required more radical, aggressive policies than anyone close to the levers of power has been willing to contemplate, at any point along the way. So the fact that the Fed was wrongly obsessed with inflation for most of 2008, the original subject of my post, was just a contributing factor; things would have been a bit better, but nowhere near OK, if the Fed had stayed focused on underlying inflation and ignored the effects of the commodity-price blip.
Think of it this way: what would a really effective set of policies be right now? First of all, we should aggressively reverse the fiscal austerity of the last few years, getting government at all levels spending several points of GDP more to boost demand.
Monetary policy should accommodate that boost; interest rates should not go up even if inflation goes somewhat above 2 percent. In fact, there’s an overwhelming prudential case for raising the inflation target — even if we’re not sure about secula(r) stagnation, it might be true, and we definitely know that the risk of hitting the zero lower bound is much higher than Fed officials imagined when they settled on 2 percent as the magic number.
I’m not totally wedded to these particular numbers, but let’s say for the sake of argument that the right policy is two years of fiscal expansion amounting to 3 percent of GDP each year, plus a permanent rise in the inflation target to 4 percent. These wouldn’t be radical moves in terms of Econ 101 — they are in fact pretty much what textbook models would suggest make sense given what we have learned about macroeconomic vulnerabilities. But they are completely outside the bounds of respectable discussion.
That’s the sense in which we are “doomed” to long-term stagnation. We have met the enemy, and it’s not the economic fundamentals, it’s us.
Monday, March 24, 2014
"The Fed, in its official policy statement, said it planned to keep short-term rates below what it sees as appropriate for a normal economy even after the unemployment rate and inflation revert to typical levels.
In 2016, for example, the Fed projects the jobless rate will reach 5.4%, economic output will be growing at a rate near 3% and inflation will be just below 2%. That level of unemployment would be lower than the average over the past 50 years.
Yet officials see the Fed's target short-term interest rate at just over 2% at the end of 2016, well below the 4% they consider appropriate for an economy running on all cylinders."
(via Calculated Risk)
positive and negative indicators
Bank says money multiplier is wrong - should we be shocked? by Simon Wren-Lewis
You Can’t Connect the [Fed’s] Dots Looking Forward by John Taylor
Saturday, March 22, 2014
Friday, March 21, 2014
Yellen
Yellen’s words vs what you heard by Cardiff Garcia
"In other words, she doesn’t think inflation will threaten to breach the 2 per cent level so long as unemployment is “quite high”.
This could be read either hawkishly or dovishly."In other words they could close the output gap more quickly by breaching the 2 percent ceiling, but they won't have to raise interest rates while unemployment is still "quite high."
Thursday, March 20, 2014
Wednesday, March 19, 2014
overshooting
Try overshooting for two years by Ryan Avent
THIS afternoon, Janet Yellen will release her first Federal Open Market Committee statement as chair and give her first post-meeting press conference. Conventional wisdom is that tapering will continue at its recent pace, and that the FOMC will clarify its forward guidance. It almost certainly won't be announcing a plan to tolerate above-target inflation in order to accelerate the recovery, despite the wisdom of that course.
...
It's a good post. I certainly agree that the mood of the Fed is not what one would call favourably disposed toward some overshooting. FOMC members came of age in the 1970s; as far as most of them are concerned it is never a bad time to trade off a little more unemployment for a little less inflation. Markets certainly don't expect any overshooting.
But I don't think it is as completely off the table as Mr Duy suggests, for a few reasons. First, policy statements are there to be changed, particularly when the facts justify a switch. At the time the 2% target was set, the median FOMC member projected that the fed funds rate would be 0.75% by the end of this year. Markets now anticipate rates reaching that level in 2016. The longer the Fed maintains its anachronistic policy position, the longer the American economy remains stuck against the zero lower bound. At some point, someone at the Fed may notice this.
Second, while hopes for a more ambitious policy agenda from Ms Yellen have diminished, it is still the case that there is no time for a regime change like a regime change. It's Ms Yellen's Fed now, and her committee may arrive at a different judgment than Mr Bernanke's. It almost certainly won't, but it could.
Third, there is actually a lot of wiggle room around that 2% target. As recent experience has shown: the annual change in the price index for personal consumption expenditures—the magic indicator in the target statement—has been below 2% since April of 2012. Indeed, over the past year inflation has been below 1.2% on average. One might argue that a steadfast commitment to a 2% inflation target demands some overshooting to make up for this long period of underperformance; after all, a central bank that tolerates undershooting of its target but not overshooting is missing its target on average.
Fourth, it's not clear that the Fed has entirely ruled out something of that nature. On the one hand, statements continue to note that the Fed will take a "balanced approach" as it begins to pull back on accommodation. On the other, it was not long ago seen as significant that the the head of the Fed's monetary affairs division was putting his name to researchdemonstrating the benefits of overshooting.
Though it would be the right thing to do, I don't expect the Fed to announce a new 3% inflation target or 5% wage growth target, or declare its intention to make up half of the shortfall in nominal output relative to the pre-crisis trend. Though it would be a very good thing to do, I don't expect them to say that, in order to defend the integrity of their 2% inflation target, they intend to make up the shortfall in inflation accumulated over the past two years with an 18-month period of overshooting. But while I don't expect those things, I don't think they are entirely outside the realm of possibility, nor do I think that the Fed tied its hands forever in January of 2012.
Congressman Bill Foster
Lawrence White: On the right and on the left.
Congressman Bill Foster: Those on the left did not share this mania about runaway inflation. Dr. Bivens, do you have a diagnosis of this failure to understand the problem?
Josh Bivens: Yes. I think inflation remained so low in spite of those predictions because people totally underestimated how long it would take the economy to recover. We still have deeply depressed aggregate demand in the economy. That is what is keeping prices low. I just do not buy that a quarter of a percent [per year] interest rate on reserves is what is keeping all those reserves from flying out into the economy. What is keeping prices low is the enormous gap between potential supply and aggregate demand in the economy, even today.
Catherine Keener and Sally Hawkins
Charlie Kaufman’s FX pilot gains a Catherine Keener and a Sally Hawkins
(Plus John Hawkes and Michael Cera.)
Person of Interest
AV club reviews Person Of Interest: “Root Path”
One is always tempted to think of the plot as a metaphor. The Machine is the good potential of social organization and Open Source sharing. Its nemesis is Samaritan which will be used for social control and ultimately serving itself. Surveillance state. Patent trolls. Rent-seeking.
Vigilance may have good points about drone strikes, the surveillance state and legal black hole of enemy combatants, i.e. the absence of democratic checks and balances, but as Shaw says it's the way they go about it.
The Butlerian Jihad.
But it does seem like a "hinge moment" in history. Open Source versus the One Percent.
One is always tempted to think of the plot as a metaphor. The Machine is the good potential of social organization and Open Source sharing. Its nemesis is Samaritan which will be used for social control and ultimately serving itself. Surveillance state. Patent trolls. Rent-seeking.
Vigilance may have good points about drone strikes, the surveillance state and legal black hole of enemy combatants, i.e. the absence of democratic checks and balances, but as Shaw says it's the way they go about it.
The Butlerian Jihad.
But it does seem like a "hinge moment" in history. Open Source versus the One Percent.
Tuesday, March 18, 2014
Yellen
Before the Fed Meeting: Inflation Hawks, Draw in Your Talons! by Jared Bernstein
I’m confident one can trust the Yellen-led Fed to largely tune out the building chorus telling them to pre-emptively tighten because somewhere, somehow, there’s some inflation out there.
That doesn’t mean they’re all inflation doves—remember, Yellen was bugging Greenspan to tighten in the mid-1990s (thankfully, he didn’t take her advice as the economy hit full employment and price pressures failed to appear). It just means that in weighting their dual goals, based on the data, they should still be up-weighting full employment over price stability. Output gaps remain a much larger challenge than price pressures.
Leverage
One of my favorite shows, Leverage, was probably underrated like Firefly but like Firefly lives on in syndication. I've seen Aldis Hodge in A Good Day to Die Hard, The East and Walking Dead. Mark Sheppard has been on White Collar and Supernatural. Rick Hoffman from Suits was on Leverage as was Saul Rubinek who has been in many shows like Warehouse 13, Person of Interest and Psych. Tom Skerritt played Nate Ford's dad (and was on White Collar). Goran Visnjic. Bruce Davison. Clancy Brown. Jeri Ryan had a recurring part. John Billingsley. James Frain. Adam Baldwin from Firefly was in a couple episodes. John Schneider was in an episode as a baddie as was Luke Perry. Paul Blackthorne from Arrow. Richard Kind was in a couple. Will Wheaton and Richard Chamberlain had recurring parts also. D.B. Sweeney was in an episode. Cary Elwes was in an episode and also on Psych. Giancarlo Esposito was in Leverage and of course went on to Breaking Bad.
Along with Leverage and Firefly, I'm a cult fan of Arrested Development and Party Down.
Fans rally for favorite shows, but is it worth it? by Meghan Lewit
Of course, fan power still has its limits. As was oft-discussed in the wake of the Mars Kickstarter launch, it’s the studio and creators who stand to benefit financially from the film, while supporters will have to be satisfied with the T-shirts, stickers, and signed posters they received as rewards for contributing (along with the movie itself, of course). But detractors who reasonably question the wisdom of people sending their hard-earned dollars to Warner Bros. tend to overlook the illogical, myopic love that beats in the heart of every long-suffering fan. As Captain Malcolm Reynolds says of his ship at the end of Serenity (which could just as easily be applied to the franchise’s scrappy fans): “You can learn all the math in the ’verse, but you take a boat in the air that you don’t love, she’ll shake you off just as sure as the turning of the worlds. Love keeps her in the air when oughta fall down, tells you she’s hurtin’ ’fore she keens. Makes her a home.”
Sunday, March 16, 2014
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