Category Archive for: Economics [Return to Main]

Friday, October 20, 2017

Paul Krugman: Trump, Trade and Tantrums

"Breaking up or degrading Nafta would have the same disruptive effects that came from Nafta’s creation":

Trump, Trade and Tantrums, by Paul Krugman, NY Times: Everyone here wants to know what’s going to happen to Nafta — the North American Free Trade Agreement... Donald Trump has described Nafta as the “worst trade deal ever made.” But will he actually destroy it?
Until just a few days ago I was pretty sure that he wouldn’t. My guess was that he would negotiate some minor changes to the agreement, declare victory and move on. Markets seemed to agree...
But I’ve been revising that view in light of recent events — especially Trump’s health care temper tantrum. Breaking up Nafta would be terrible for Mexico and bad for the U.S. ... But it might be good for Trump’s fragile ego. And that’s a reason to fear the worst. ...
We now live in a North American economy built around the reality of free trade. In particular, U.S., Canadian and Mexican manufacturing are deeply enmeshed with one another. Many industrial plants were built precisely to take advantage of our economic integration, buying from or selling to other industrial plants across the borders.
As a result, breaking up or degrading Nafta would have the same disruptive effects that came from Nafta’s creation: Plants would close, jobs would disappear, communities would lose their livelihoods. And, yes, many businesses, small, large and in some cases huge, would lose many billions of dollars.
Oh, and it’s not just manufacturing. What do you think would happen to the farmers of Iowa if they lost one of the most important markets for their corn? ...
Most important, look at what Trump has been doing with his open, indeed gleeful sabotage of the U.S. health care system. Never mind the huge human costs he’s imposing; he isn’t even following any plausible political strategy, since he and his party are likely, with good reason, to be blamed for the damage. Furthermore, his actions will cost big businesses — insurers and health providers — billions; he’s even boasting about how much he has hurt their stock prices.
So we’ve now seen Trump deliberately hurt millions of people and inflict billions of losses on a major industry out of sheer spite. If he’s willing to do that on health care, why assume he won’t do the same thing on international trade policy?
Nafta, then, is at real risk. And if it does get destroyed, the only question is whether the consequences will be ugly, or extremely ugly.

Thursday, October 19, 2017

Incoming Data Supportive of December Rate Hike

Tim Duy:

Incoming Data Supportive of December Rate Hike: If we ignore inflation, then nothing is really standing in the way of a rate hike in December. Of course, given that arguably the primary job of a central bank is to meet its definition of price stability, the Fed shouldn’t really ignore inflation. Policymakers, however, would counter that they are not ignoring inflation. They are simply favoring the inflation forecast over actual inflation. And they would further argue they have good cause – with the economy chugging along, it is only a matter of time before resource constraints become evident and price pressures rise. That’s their story, and they are sticking to it. ...Continued here...

Links for 10-19-17

Wednesday, October 18, 2017

Monetary Policy in a New Era (Video) - Ben Bernanke

Links for 10-18-17

Tuesday, October 17, 2017

Rethinking Macroeconomic Policy Conference (Video): Blanchard and Summers

Monday, October 16, 2017

Paul Krugman: The G.O.P. Is No Party for Honest Men

"A strategy based entirely on lies":

The G.O.P. Is No Party for Honest Men, by Paul Krugman, NY Times: According to a new CBS News poll, almost 60 percent of the American public believes that the current Republican tax plan favors the wealthy. Some people see this number as a sign that the plan is in trouble; I see it as a sign that Republican lies are working far better than they deserve to.
For the plan does indeed favor the wealthy — overwhelmingly.... It’s shocking that as many as 40 percent of Americans don’t realize this. ...
So the question about this plan isn’t whether it favors the wealthy — it does, to an outrageous extent. The questions we should be asking instead are why Republicans are pushing this so hard, and how they can hope to get away with it. ...
So what’s behind this priority? Follow the money. Big donors are furious at missing out on the $700 billion in tax cuts that were supposed to come out of Obamacare repeal. If they don’t get big bucks out of tax “reform,” they might close their pocketbooks for the 2018 midterm elections.
Beyond that, modern conservatism is a sort of ecosystem of media outlets, think tanks, lobbying outfits and more that offers many lucrative niches — so-called wingnut welfare — for the ideologically reliable. And that means being reliable to the interests of the wealthy.
But how can an administration that pretends to be populist, to stand up for ordinary (white) working people, sell such elitist policies?
The answer is a strategy based entirely on lies. ...
Nor do I mean that there are just one or two big lies. There are many — so many I literally don’t have space to ... list them... In a long blog post ... I came up with 10 major Republican lies about tax cuts, and I’m sure I missed a few.
So, politically, can they really get away with this? A lot depends on how the news media handles it. ...
One thing we know for sure, however, is that a great majority of Republican politicians know perfectly well that their party is lying about its tax plan — and every even halfway competent economist aligned with the party definitely understands what’s going on.
What this means is that everyone who goes along with this plan, or even remains silent in the face of the campaign of mass dissimulation, is complicit — is in effect an accomplice to the most dishonest political selling job in American history.

Is The Fed Setting Itself Up To Fail In The Next Recession?

Tim Duy:


Is The Fed Setting Itself Up To Fail In The Next Recession?: The Federal Reserve remains committed to a December rate hike, persistent low inflation not withstanding. With unemployment below Fed estimates of its longer-run natural rate, most FOMC participants do not need evidence of stronger inflation to justify further rate hikes. Ongoing solid job growth will be sufficient cause for tighter policy, especially in what they perceive to be an environment of loosening financial conditions. The main risk from this scenario is that the US economy enters the next recession with diminished inflation expectations, which could further hobble central bankers already facing the prospect of returning to the effective lower bound in the next cycle. ...Continued here as a newsletter...


Links for 10-16-17

Friday, October 13, 2017

Paul Krugman: Let Them Eat Paper Towels

"The betrayal and abandonment of three and a half million of our own people":

Let Them Eat Paper Towels, by Paul Krugman, NY Times: The situation in Iowa remains horrifying. More than a third of the population has been without clean water for three weeks, and waterborne diseases appear to be spreading. Only a sixth of the population has electricity..., health care system is a shambles, and sheer hunger may be a problem in some remote areas.
Fortunately, the federal government is going all out to aid its citizens in distress..., while praising the often heroic efforts of Iowa residents to help themselves. And generous aid, he promises, will continue as long as it’s needed.
O.K., I lied. The dire situation I just described is in Puerto Rico, not Iowa (which happens to have just about the same number of U.S. citizens). And my upbeat portrayal of the federal response ... is the opposite of the truth. What we’re actually witnessing, in effect, is the betrayal and abandonment of three and a half million of our own people. ...
From the beginning, Donald Trump — who literally seems to think that he deserves praise for throwing a few rolls of paper towels into a crowd — has suggested that Puerto Rico is responsible for its own disaster, and he has systematically denigrated the efforts of its people to take care of one another. ...
Meanwhile, it took almost three weeks ... before Trump asked Congress to provide financial aid — and his request was for loans, not grants, which is mind-boggling when you bear in mind that the territory is effectively bankrupt.
And then came Thursday morning... Trump ... appeared to threaten to cut off aid from the Federal Emergency Management Agency and the military. ...
The simple fact is that millions of our fellow citizens are facing catastrophe. How can we be abandoning them...?
Much of the answer, no doubt, is ... race. Puerto Ricans would doubtless be getting better treatment if they were all of, say, Norwegian descent.
But let’s be fair: Trump is also working ... to destroy health care for millions of other Americans, many of them working-class non-Hispanic whites — the very people who voted for him... I wouldn’t go so far as to call him an equal-opportunity monster — he clearly has a special animus toward minorities — but his self-centeredness and complete lack of empathy extend quite widely.
Whatever the precise mix of motives, what’s happening in Puerto Rico is utterly shameful. And everyone who enables the regime perpetuating this shame shares part of the guilt.

Links for 10-13-17

Thursday, October 12, 2017

Rethinking Macroeconomic Policy

There is a conference on Rethinking Macroeconomic Policy "coordinated by Olivier Blanchard ...and Lawrence H. Summers..." taking place today and tomorrow (wanted to go, but couldn't).

"Academic experts and policymakers will address the challenges to macroeconomic thinking and policymaking that today’s economic environment presents–low inflation despite low unemployment, the apparent interactions of rising inequality and stagnating productivity, and the unresponsiveness of long-term interest rates to rising public debt, among others." [Conference program, papers, presentations, and conference webcast.]

Here are links to the first two papers presented at the conference. First, Olivier Blanchard and Lawrence Summers:

Rethinking Stabilization Policy. Back to the Future (Preliminary): Nearly ten years after the onset of the Great Financial Crisis, both researchers and policy makers are still assessing the policy implications of the crisis and its aftermath. Previous major crises, from the Great Depression to the stagflation of the 1970s, profoundly changed both macroeconomics and macroeconomic policy. The question is whether this crisis should and will have similar effects.
We believe it should, although we are less sure it will. Rather obviously, the crisis has forced macroeconomists to (re)discover the role and the complexity of the financial sector, and the danger of financial crises. But the lessons should go largely beyond this, and force us to question a number of cherished beliefs. Among other things, the events of the last ten years have put into question the presumption that economies are self stabilizing, have raised again the issue of whether temporary shocks can have permanent effects, and have shown the importance of non linearities.
These call for a major reappraisal of macroeconomic thinking and macroeconomic policy. As the paper is a curtain raiser for a conference that will look in more detail at the implications for specific policies, we make no attempt at being encyclopedic and feel free to pick and choose the issues which we see as most salient. ...

Ben Bernanke posted a summary of his paper on his blog at Brookings:

Temporary price-level targeting: An alternative framework for monetary policy: Low nominal interest rates, low inflation, and slow economic growth pose challenges to central bankers. In particular, with estimates of the long-run equilibrium level of the real interest rate quite low, the next recession may occur at a time when the Fed has little room to cut short-term rates. As I have written previously and recent research has explored, problems associated with the zero-lower bound (ZLB) on interest rates could be severe and enduring. While the Fed has other useful policies in its toolkit such as quantitative easing and forward guidance, I am not confident that the current monetary toolbox would prove sufficient to address a sharp downturn. I am therefore sympathetic to the view of San Francisco Fed President John Williams and others that we should be thinking now about adjusting the framework in which monetary policy is conducted, to provide more policy “space” in the future. In a paper presented at the Peterson Institute for International Economics, I propose an option for an alternative monetary framework that I call a temporary price-level target—temporary, because it would apply only at times when short-term interest rates are at or very near zero.
To explain my proposal, I’ll begin by briefly discussing two other ideas for changing the monetary framework:  raising the Fed’s inflation target above the current 2 percent level, and instituting a price-level target that would operate at all times.  (See my paper for more details.) ...

Wednesday, October 11, 2017

Links for 10-11-17

Tuesday, October 10, 2017

Fed Watch: Kevin Warsh, Very Serious Person

Tim Duy:

Kevin Warsh, Very Serious Person, by Tim Duy: Scott Sumner is perplexed by Fed chair candidate Kevin Warsh. He reads the 2010 FOMC transcripts and finds Warsh explaining:
First, my views on policy. As I said when we met by videoconference, my views are increasingly out of step with the views of most people around this table. The path that you’re leading us to, Mr. Chairman, is not my preferred path forward. I think we are removing much of the burden from those that could actually help reach these objectives, particular the growth and employment objectives, and we are putting that onus strangely on ourselves rather than letting it rest where it should lie. We are too accepting of dangerous policies from others that have been long in the making, and we should put the burden on them.
I can think, Mr. Chairman, of a tough weekend that the Europeans had, particularly your counterpart at the ECB, in the spring or summer, when we all knew that the European Central Bank, rightly or wrongly, was going to take action. But Jean-Claude Trichet did not take action until very late that Sunday night, until the fiscal authorities did their part. He thought that if on Friday night he were to say all of the things he’d be willing to do, he’d be taking the burden off the fiscal authorities. He chose to wait. I think we would be far better off waiting. If we proceed on this path, as I suspect we will, I would still encourage you to put the burden where it rightly belongs, which is on other policymakers here in Washington, and to do so in a way that is respectful of different lines of responsibility.
Sumner is understandably scratching his head, trying to figure out what Warsh is getting at:
His reasoning process is poor and he lacks good communication skills.  He has very poor judgment when interpreting data.  I really don’t know what he’s trying to say here, but the reference to Trichet is interesting.  Trichet was trying to encourage fiscal authorities to adopt more contractionary fiscal policies, not expansionary policies.  Trichet did not want to “bail out” expansionary policies with ultra-low interest rates, and Warsh seems to be endorsing Trichet’s approach.  And given Warsh’s reputation as a conservative, and the massive deficits being run by Obama back in 2010, I find it odd that Warsh would be advocating fiscal stimulus, as Brannon suggests.  But again, the passage is so garbled that I could easily be wrong.
I don’t think Warsh was advocating for more fiscal stimulus at this meeting. Warsh is a Very Serious Person, and all Very Serious People know that deficits are bad. I believe that Warsh was at this juncture advocating a Trichet-style approach to the crisis, using the independence of the central bank to force the fiscal authorities to rein in those bad deficits, because of course everything wrong in the economy can be tied back to deficit spending. All Very Serious People know this. Of course, Trichet’s approach proved to be disastrous, which is why Sumner is rightfully puzzled when hearing a Fed governor suggest the same.
Sadly, Warsh was not the only Fed official who advocated such an approach. Warsh is apparently cut from the same cloth as the person I believe was the worst regional bank president in recent memory. Recall when the FOMC statement contained this sort of reference:
Household spending and business fixed investment advanced, and the housing sector has strengthened further, but fiscal policy is restraining economic growth.
Of course, if you bothered to know what the FOMC was saying, you knew the complaint was that they believed monetary policy had reached its limits to stimulate the economy, and that faster growth required a more stimulative monetary policy.
Then Dallas Federal Reserve President Richard Fisher either didn’t understand what the FOMC said, or deliberately misinterpreted the FOMC. In a 2013 speech, Fisher says:
Even if we at the Dallas Fed are right and the overall outlook for the economy is better than the current dashboard or the conventional prognostications of economists, there exists a formidable brake on growth. It was referred to point-blank in the last statement issued by the FOMC: “…fiscal policy is restraining economic growth.”
Fiscal policy is inhibiting the transmission of monetary policy into robust job creation…
…The propensity of members of Congress has been to spend in excess of revenues to give pleasure to their constituents and garner their affection…Until the Congress and the president provide a clear road map as to how fiscal rectitude will be implemented, this lack of credible details for limiting the debt-to-GDP ratio and reengineering fiscal policy to stimulate rather than constrain growth is creating undue uncertainty about future tax rates, future government purchases, future retiree benefits and all manner of factors that impact employment and economic growth. Meanwhile, the divisive nature and petty posturing of those who must determine the fiscal path of the nation is further undermining confidence and limiting the effectiveness of monetary policy…
…I argue that the Fed has no hope of moving the economy to full employment unless our fiscal authorities get their act together…Until then, I argue that the Fed is, at best, pushing on a string and, at worst, building up kindling for a massive shipboard fire of eventual inflation.
These aren’t the kind of people you want in charge of monetary policy. We need policymakers that understand their role is not to withhold monetary stimulus to force fiscal authorities to pursue countercyclical policy simply because Very Serious People know that deficit spending is always bad and cutting deficits is the solution to every problem. Monetary policy is about independently assessing the economy and enacting the policy necessary to maintain full employment and price stability. And oftentimes that means taking fiscal policy as an exogenous factor.
What is particularly discouraging is that neither Warsh nor Fisher appears to understand that during a recession, at a minimum automatic stabilizers themselves will swell the deficit. Taking aim at the deficit in such times is naive at best, deliberately spiteful at worst.
My concern remains that a Fed with someone like Kevin Warsh at the helm would prove to be disastrous for Wall Street and Main Street alike when the next recession hits. Neither group needs a central banker that believes a recession is an opportunity to inflict more pain.

Links for 10-10-17

Paul Krugman: Virginia Is for Haters

"Virginia is now the most important place on the U.S. political landscape":

Virginia Is for Haters, by Paul Krugman, NY Times: ...If you want to understand why policies toward the poor are so different at the state level..., one predictor stands out: the African-American share of the population. The more blacks, the less compassion white voters feel.
The story gets even clearer if you look at the implementation of the Affordable Care Act, which allows states to expand Medicaid coverage at federal expense...
Which brings me to Virginia, which is holding crucial state elections in just four weeks. ... The state is becoming more ethnically diverse..., it supported the Democratic presidential candidate in the last three elections.
But is Virginia’s apparent moral progress an illusion? And if it is, what does that say about America as a whole?
Virginia was, of course, the site of the infamous Charlottesville march by torch-carrying white supremacists — “very fine people,” according to Donald Trump — that ended with the death of a counterprotester. More important, perhaps, is ... that despite its growing political moderation and its Democratic governor, Virginia is among the states still refusing to expand Medicaid, even though that refusal means gratuitous financial hardship for many and a significant number of people dying from lack of medical care.
How is this possible? Democratic-leaning voters are much less likely than Republican-leaning voters to cast ballots in state and local elections; as a result, a politically moderate state has a hard-right legislature. And there’s a real possibility that it may soon have a Republican governor, too.
...Ed Gillespie, the G.O.P. candidate, is trying to pull off an upset by going full-on Trumpist, doing all he can — with assistance from the tweeter in chief — to mobilize the white nationalist vote. ...
Whatever happens..., the consequences will be huge. If Gillespie pulls this off, all the worst impulses of the Trumpist G.O.P. will be empowered; you might think that things can’t get even worse, but yes, they can.
If ... Northam wins and Democrats make big inroads in the state legislature, it won’t just probably mean that hundreds of thousands of Virginians will get health insurance, and it won’t just be an omen for the 2018 midterms. It will also encourage at least some sane Republicans to break with a man they privately fear and despise (see Corker, Bob). ...
Folks, right now ... Virginia is now the most important place on the U.S. political landscape — and what happens there could decide the fate of the nation.

Suppression of the Wealth Tax: An Historical Error

Thomas Piketty:

Suppression of the wealth tax: an historical error, by Thomas Piketty: Let it be said at once: the suppression of the wealth tax (Impôt sur la Fortune or ISF) constitutes a serious moral, economic and historical mistake. This decision reveals a profound misunderstanding of the challenges to inequality posed by globalization.
Let’s go back for a moment. During the first globalization period between 1870 and 1914, a strong international movement gradually took shape which sought to promote a new type of redistribution and taxation. Based on a progressive taxation system on income, wealth and inheritance, this new model was aimed at a better distribution of productivity gains and the structural reduction of the concentration of property and economic power. It was successfully implemented in the period 1920 to 1970, partly as a result of the pressure of dramatic historical events, but equally thanks to a lengthy intellectual and political process.
We may perhaps today be witnessing the premises of a similar movement. Confronted with the rise in inequality, awareness is gaining momentum. ...

Monday, October 09, 2017

Links for 10-09-17

Friday, October 06, 2017

Paul Krugman: Will Trump Trumpify the Fed?

"The Fed, which sets monetary policy, is by far our most important economic agency":

Will Trump Trumpify the Fed?, by Paul Krugman, NY Times: By all accounts, Rex Tillerson has demoralized and degraded the State Department to the point of uselessness. Tom Price did much the same to Health and Human Services before jetting off. Scott Pruitt has moved rapidly to eliminate the “protection” aspect of the Environmental Protection Agency. And similar stories are unfolding throughout the executive branch. ...
And one question I don’t see being asked often enough is, will the same thing happen to the Federal Reserve? And if it does, how disastrous will that end up being for the world economy?
The Fed, which sets monetary policy, is by far our most important economic agency...
When the financial crisis struck in 2008, it was essential that the Fed engage in aggressive monetary expansion...
But congressional leaders fought these necessary measures every step of the way. Most notably, Paul Ryan, who gets his ideas about monetary policy from Ayn Rand novels, berated Bernanke, claiming that his policies would debase the dollar and lead to runaway inflation. ...
And it goes more or less without saying that none of the people who kept warning that the Fed would cause terrible inflation have admitted having been wrong, or learned anything from the experience.
What all this means is that if congressional Republicans play a large role in selecting the next Fed chair, they’ll insist that it be someone who has been wrong about everything for the past decade.
Kevin Warsh, a former Fed governor widely considered a favorite for the job, certainly fits the bill. He warned about inflation in the midst of global economic collapse; he argued vigorously against doing anything, monetary or other, to fight 10 percent unemployment; he warned that the United States was about to turn into Greece, Greece I tell you. And he has shown no hint of being chastened by the failure of events to play out the way he expected.
Now, I don’t know who Trump will actually pick to head the Federal Reserve. It might actually end up being someone smart, knowledgeable and honest. Hey, there’s a first time for everything.
But surely it’s possible, even probable, that the Federal Reserve, like other government agencies, is about to get Trumpified, that one of American policy’s last remaining havens of competence and expertise will soon share in the general degradation. And won’t that be fun when the next crisis hits?

Links for 10-06-17

Wednesday, October 04, 2017

Hurricanes Help Boost Data While Powell Reportedly Rises to The Top of The Pack

Tim Duy:

Hurricanes Help Boost Data While Powell Reportedly Rises to The Top of The Pack, by Tim Duy: The ISM manufacturing report for September came in stronger than expected. To be sure, hurricane impacts accounted for some of the boost, particularly in supplier deliveries and prices; anecdotal responses made this clear. But it isn’t all hurricanes. Manufacturing has been gaining steam since last year. The sector continues to throw off the 2015/2016 weakness associated with the oil price decline and rise in the dollar. I often feel this improvement has been overlooked. ...Continued here...

Tuesday, October 03, 2017

Links for 10-03-17

Paul Krugman: Republicans, Trapped by Their Flimflam

"In broad outlines, the tax story is a lot like health care":

Republicans, Trapped by Their Flimflam, by Paul Krugman, NY Times: Last week the Trump administration and its congressional allies working on tax reform achieved something remarkable. They released a tax plan — or, actually, a vague sketch of a plan — that manages both to add trillions to the deficit and to raise taxes on a large fraction of the population. That takes talent.
...On taxes, as with health, leading Republicans have been lying for years. And now the fraud has caught up with the fraudsters.
The road to this tax-cut turkey began in 2010, when Paul Ryan ... unveiled the first of a series of much-hyped budget plans, all purporting to offer a blueprint for eliminating the U.S. budget deficit.
In fact, they did no such thing. They proposed major tax cuts — primarily benefiting the rich, of course — then simply asserted that no revenue would be lost ...
And what was the Ryan plan if you took out those mysterious revenue raisers and spending cuts? A plan to drastically cut taxes on the rich, savagely cut benefits for the poor and the middle class, and increase the overall deficit.
In other words, it was all a con. ...
And the con went on for years. ...
But then Republicans regained the White House, meaning that they had to come up with actual tax legislation. And this has put the con under terrible strain. ...
So they came up with what probably seemed like a clever idea: eliminate the deductibility of state and local taxes. Hey, that would mainly punish people in tax-and-spend blue states, right? Not their problem.
But this turns out to be a much bigger deal than they seemed to realize. ... According to the nonpartisan Tax Policy Center, their plan would give huge tax cuts to the top 1 percent, who would receive 79.7 percent of the benefits. But eliminating deductions would make many Americans, especially in the upper reaches of the middle class, directly worse off: ...
And this would happen even though the plan would add several trillion dollars to the deficit. Did I mention that many of those facing tax hikes vote Republican? ...
In broad outlines, the tax story is a lot like health care. In both cases, Republicans have spent years getting away with big promises backed by lies. Now, with real policy to be made, the lies won’t work anymore. And they can’t handle the truth.

Monday, October 02, 2017

Links for 10-02-17

Fed Poised To Downplay Weak Data

Tim Duy:

Fed Poised To Downplay Weak Data, by Tim Duy: Big data week ahead that ends with the employment report for September. Considering the ongoing inflation weakness, one would think the Fed would be looking for a series of very strong job reports to justify a rate hike in December. But with Fed officials largely convinced that the soft inflation numbers are transitory, a middling jobs report would likely be sufficient to keep them on track, and even a weak report if they can attribute disappointing data to the busy hurricane season. ...Continued here...

Friday, September 29, 2017

Paul Krugman: Trump’s Deadly Narcissism

"Trump truly is unfit for this or any high office":

Trump’s Deadly Narcissism, by Paul Krugman, NY Times: According to a new Quinnipiac poll, a majority of Americans believe that Donald Trump is unfit to be president. That’s pretty remarkable. But you have to wonder how much higher the number would be if people really knew what’s going on.
For the trouble with Trump isn’t just what he’s doing, but what he isn’t. In his mind, it’s all about him — and while he’s stroking his fragile ego, basic functions of government are being neglected or worse.
Let’s talk about two stories that might seem separate: the deadly neglect of Puerto Rico, and the ongoing sabotage of American health care. What these stories have in common is that millions of Americans are going to suffer, and hundreds if not thousands die, because Trump and his officials are too self-centered to do their jobs.
Start with the disaster in Puerto Rico and the neighboring U.S. Virgin Islands.
When Hurricane Maria struck ... it knocked out power to the whole of Puerto Rico, and it will be months before the electricity comes back. Lack of power can be deadly..., but what’s even worse is that ... much of the population still lacks access to drinkable water. How many will die because hospitals can’t function, or because of diseases spread by unsafe water? Nobody knows. ...
So have we seen the kind of full-court, all-out relief effort such a catastrophe demands? No. ...
Trump spent days after Maria’s strike tweeting about football players. When he finally got around to saying something about Puerto Rico, it was to blame the territory for its own problems.
The impression one gets is of a massively self-centered individual who can’t bring himself to focus on other people’s needs, even when that’s the core of his job.
And then there’s health care.
Obamacare repeal has failed again, for the simple reason that Graham-Cassidy, like all the other G.O.P. proposals, was a piece of meanspirited junk. But while the Affordable Care Act survives, the Trump administration is openly trying to sabotage the law’s functioning. ...
Why are the Trumpists doing this? ... A.C.A. sabotage is best seen not as a strategy, but as a tantrum. We can’t repeal Obamacare? Well, then, we’ll screw it up. It’s not about achieving any clear goal, but about salving the president’s damaged self-esteem.
In short, Trump truly is unfit for this or any high office. And the damage caused by his unfitness will just keep growing.

Links for 09-29-17

Thursday, September 28, 2017

"Inflation Weakness Is Temporary"

Tim Duy:

“Inflation Weakness Is Temporary,” by Tim Duy: Federal Reserve Chair Janet Yellen made clear two things this week. First, that her and her colleagues are somewhat confounded by the inflation data. And second, that confusion does not yet deter them from their plan for gradual rate hikes. December is still on. ...Continued in newsletter form here...

Links for 09-28-17

Tuesday, September 26, 2017

Dueling Federal Reserve Presidents

Tim Duy:


Dueling Federal Reserve Presidents, by Tim Duy: The battle over that final rate hike of 2017 continues as some policymakers find it increasingly difficult to ignore weak inflation numbers in recent months. Such concerns, however, do not appear likely to take center stage in December. Indeed, the Fed looks fairly committed to a rate hike at that meeting. But the consensus on that meeting and beyond is being held together by forecasts of a rebound of inflation next year. It will be hard to maintain that consensus if inflation numbers don’t soon give more hope to those forecasts. ...Continued here in new, experimental newsletter format...


Links for 09-26-17

Monday, September 25, 2017

Paul Krugman: Trapped by Their Own Lies

"health care isn’t the only issue on which lies are coming back to bite the liars":

Trapped by Their Own Lies, by Paul Krugman, NY Times: ...Republicans have spent years routinely lying for the sake of political advantage. And now — not just on health care, but across the board — they are trapped by their own lies, forced into trying to enact policies they know won’t work.
...“You know, I could maybe give you 10 reasons why this bill shouldn’t be considered,” said Senator Chuck Grassley of Iowa. “But,” he continued, “Republicans have campaigned on this,” meaning repeal-and-replace, and had to fulfill their promise.
But repealing the Affordable Care Act wasn’t the only thing Republicans promised; they also promised to replace it with something better and cheaper ... without creating any new problems. ...
Yet Republicans never had any idea how to fulfill that promise ... without taking insurance away from tens of millions..., they were lying about health care all along.
And the base, both the grass roots and the big money, believed the lies. Hence the trap in which Republicans find themselves.
The thing is, health care isn’t the only issue on which lies are coming back to bite the liars. ...
The next big item on the G.O.P. agenda is taxes. ... But Republicans ... have ... spent years posing as the party of fiscal responsibility, and they have no idea how to cut taxes without blowing up the deficit.
As with health care, the party has masked its lack of good ideas with lies... But as with health care, these lies will be revealed once actual legislation is unveiled. ...
So tax policy, like health care, will be hobbled by a legacy of lies.
Wait, there’s more.
Foreign policy ... lies have put the Trump administration in a box over things like the Iran nuclear deal: Canceling the deal would create huge problems, yet not canceling it would amount to an admission that the criticisms were dishonest.
And soon the G.O.P. may even start to pay a price for lying about climate change. As hurricanes get ever more severe — just as climate scientists predicted — climate denial is looking increasingly out of touch. Yet donors and the base would react with fury to any admission that the threat is real, after all.
The bottom line is that the bill for cynicism seems to be coming due. For years, flat-out lies about policy served Republicans well, helping them win back control of Congress and, eventually, the White House. But those same lies now leave them unable to govern.

Links for 09-25-17

Sunday, September 24, 2017

Has The Fed Abandoned Its Reaction Function?

Tim Duy:

Has The Fed Abandoned Its Reaction Function?, by Tim Duy: The immediate policy outcomes of the FOMC meeting were largely as expected. Central bankers left interest rates unchanged while announcing that the reduction of the balance sheet will begin in October as earlier outlined in June. The real action was in the Summary of Economic Projections. Policymakers continue to anticipate one more rate hike this year and three next. This policy stance looks inconsistent with the downward revisions to projections of inflation and the neutral rate; under the Fed’s earlier reaction function, the combination of the two would drive down rate projections. Arguably, policy is thus no longer as data dependent as the Fed would like us to believe. That or the reaction function has changed. ... Continued here in new, experimental newsletter format...

Friday, September 22, 2017

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Paul Krugman: Cruelty, Incompetence and Lies

"the evasions and lies we’re seeing on this bill have been standard G.O.P. operating procedure for years":

Cruelty, Incompetence and Lies, by Paul Krugman: Graham-Cassidy, the health bill the Senate may vote on next week, is stunningly cruel. It’s also incompetently drafted: The bill’s sponsors clearly had no idea what they were doing... Furthermore, their efforts to sell the bill involve obvious, blatant lies.
Nonetheless, the bill could pass. And that says a lot about today’s Republican Party, none of it good. ...
Did Graham-Cassidy’s sponsors know what they were doing when putting this bill together? Almost surely not, or they wouldn’t have produced something that everyone, and I mean everyone, who knows anything about health care warns would cause chaos.
It’s not just progressives: The American Medical Association, the insurance industry and Blue Cross/Blue Shield have all warned that markets would be destabilized and millions would lose coverage. ...
Lindsey Graham, Bill Cassidy, and the bill’s other sponsors have responded to these critiques the old-fashioned way — with lies.
Both Cassidy and Graham insist that their bill would continue to protect Americans with pre-existing conditions — a claim that will come as news to the A.M.A., Blue Cross and everyone else who has read the bill...
Cassidy has also circulated a spreadsheet that purports to show most states actually getting increased funding under his bill. ... Independent analyses find that most states would, in fact, experience serious cuts... — and everyone would face huge cuts after 2027.
So we’re looking at an incompetently drafted bill that would hurt millions of people, whose sponsors are trying to sell it with transparently false claims. How is it that this bill might nonetheless pass the Senate?
One answer is that Republicans are desperate to destroy President Barack Obama’s legacy ... no matter how many American lives they ruin...
Another answer is that most Republican legislators neither know nor care about policy substance. ... Vox asked a number of G.O.P. senators to explain what Graham-Cassidy does; the answers ranged from incoherence to belligerence to belligerent incoherence.
I’d add that the evasions and lies we’re seeing on this bill have been standard G.O.P. operating procedure for years. ... Graham-Cassidy isn’t an aberration; it’s more like the distilled essence of everything wrong with modern Republicans.
Will this awful bill become law? I have no idea. But even if the handful of Republican senators who retain some conscience block it — we’re looking at you, John McCain — the underlying sickness of the G.O.P. will remain.
It’s sort of a pre-existing condition, and it’s poisoning America.

Wednesday, September 20, 2017

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FOMC statement

No change in the target range for the federal funds rate, balance sheet unwinding to begin in October:

Federal Reserve issues FOMC statement: Information received since the Federal Open Market Committee met in July indicates that the labor market has continued to strengthen and that economic activity has been rising moderately so far this year. Job gains have remained solid in recent months, and the unemployment rate has stayed low. Household spending has been expanding at a moderate rate, and growth in business fixed investment has picked up in recent quarters. On a 12-month basis, overall inflation and the measure excluding food and energy prices have declined this year and are running below 2 percent. Market-based measures of inflation compensation remain low; survey-based measures of longer-term inflation expectations are little changed, on balance.
Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. Hurricanes Harvey, Irma, and Maria have devastated many communities, inflicting severe hardship. Storm-related disruptions and rebuilding will affect economic activity in the near term, but past experience suggests that the storms are unlikely to materially alter the course of the national economy over the medium term. Consequently, the Committee continues to expect that, with gradual adjustments in the stance of monetary policy, economic activity will expand at a moderate pace, and labor market conditions will strengthen somewhat further. Higher prices for gasoline and some other items in the aftermath of the hurricanes will likely boost inflation temporarily; apart from that effect, inflation on a 12-month basis is expected to remain somewhat below 2 percent in the near term but to stabilize around the Committee's 2 percent objective over the medium term. Near-term risks to the economic outlook appear roughly balanced, but the Committee is monitoring inflation developments closely.
In view of realized and expected labor market conditions and inflation, the Committee decided to maintain the target range for the federal funds rate at 1 to 1-1/4 percent. The stance of monetary policy remains accommodative, thereby supporting some further strengthening in labor market conditions and a sustained return to 2 percent inflation.
In determining the timing and size of future adjustments to the target range for the federal funds rate, the Committee will assess realized and expected economic conditions relative to its objectives of maximum employment and 2 percent inflation. This assessment will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and international developments. The Committee will carefully monitor actual and expected inflation developments relative to its symmetric inflation goal. The Committee expects that economic conditions will evolve in a manner that will warrant gradual increases in the federal funds rate; the federal funds rate is likely to remain, for some time, below levels that are expected to prevail in the longer run. However, the actual path of the federal funds rate will depend on the economic outlook as informed by incoming data.
In October, the Committee will initiate the balance sheet normalization program described in the June 2017 Addendum to the Committee's Policy Normalization Principles and Plans.
Voting for the FOMC monetary policy action were: Janet L. Yellen, Chair; William C. Dudley, Vice Chairman; Lael Brainard; Charles L. Evans; Stanley Fischer; Patrick Harker; Robert S. Kaplan; Neel Kashkari; and Jerome H. Powell.

Tuesday, September 19, 2017

Pessimism and the ZLB

Links for 09-19-17

Fed Would Surprise Markets If It Stays Hawkish

Tim Duy:

Fed Would Surprise Markets If It Stays Hawkish, by Tim Duy: The Federal Reserve meeting this week will likely end with unchanged policy rates and the initiation of balance-sheet normalization. Market participants widely expect these outcomes, so they will come as no surprise. The real action in this meeting will come from the Fed’s description of the economy, the quarterly economic projections and Chair Janet Yellen’s press conference. The totality of the commentary should lean dovish as the Fed expresses concerns about the inflation outlook. The surprise would be a Fed that still leans more heavily toward the hawkish side of policy spectrum. ...[Continued at Bloomberg Prophets]...

Monday, September 18, 2017

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Paul Krugman: Complacency Could Kill Health Care

"there is a real chance that Graham-Cassidy ... will ... become law, because not enough people are taking it seriously":

Complacency Could Kill Health Care, by Paul Krugman, NY Times: ...last year far too many people were complacent; they assumed that Trump couldn’t possibly become president, so they felt free to engage in trivial pursuits. Then they woke up to find that the inconceivable had happened.
Is something similar about to go down with health care?
Republican attempts to destroy Obamacare have repeatedly failed, and for very good reason. Their attacks on the Affordable Care Act were always based on lies, and they have never come up with a decent alternative. ...
The sponsors of the Graham-Cassidy bill now working its way toward a Senate vote claim to be offering a moderate approach that preserves the good things about Obamacare. In other words, they are maintaining the G.O.P. norm of lying both about the content of Obamacare and about what would replace it.
In reality, Graham-Cassidy is the opposite of moderate. It contains, in exaggerated and almost caricature form, all the elements that made previous Republican proposals so cruel and destructive. ... It would eliminate the individual mandate, undermine if not effectively eliminate protection for people with pre-existing conditions, and slash funding for subsidies and Medicaid. There are a few additional twists, but they’re all bad...
Yet there is a real chance that Graham-Cassidy ... will nonetheless become law, because not enough people are taking it seriously. ...
The main reason Republican leaders couldn’t do that on previous health bills was public outrage and activism. Letters and phone calls, demonstrators and crowds at town halls, made it clear that many Americans were aware of the stakes, and that politicians who voted to take health care away from millions would be held accountable.
Now, however, the news cycle has moved on, taking public attention with it. Many progressives have already begun taking Obamacare’s achievements for granted, and are moving on from protest against right-wing schemes to dreams of single-payer. Unfortunately, that’s exactly the kind of environment in which swing senators, no longer in the spotlight, might be bribed or bullied into voting for a truly terrible bill.
The good news is that for technical reasons of parliamentary procedure, Graham-Cassidy has to pass by the end of this month, or not at all. The bad news is that such passage is a real possibility.
So if you care about preserving the huge gains the A.C.A. has brought, make your voice heard. Otherwise we may wake up to another terrible morning after.

Indeterminacy, the Belief Function and Reinventing IS-LM

Roger Farmer:

Indeterminacy, the Belief Function and Reinventing IS-LM: This is my final post featuring research presented at the conference on Applications of Behavioural Economics and Multiple Equilibrium Models to Macroeconomics Policy Conference held at the Bank of England on July 3rd and 4th 2017.
Today I will talk about the work of two of my graduate students and co-authors, Giovanni Nicolò and Konstantin Platonov. Both of them gave presentations at the conference. ...
Giovanni’s research is on the empirics of models with multiple equilibria and sunspots. ...
The final conference paper that I will discuss in this series, “Animal Spirits in a Monetary Economy”, was co-authored by myself and Konstantin Platonov. Konstantin presented our paper at the conference and we wrote about our work for VOX here.
I have been critical of the IS-LM model in several of my posts. My paper with Konstantin  fixes some of the more salient problems of IS-LM by reintroducing two key ideas from Keynes. 1. The confidence fairy is real. 2. If confidence remains depressed, high unemployment can exist forever.  Our Vox piece presents the key findings of the paper in simple language. ...

Sunday, September 17, 2017

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Friday, September 15, 2017

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Paul Krugman: Politicians, Promises, and Getting Real

Paul Krugman:

Politicians, Promises, and Getting Real, by Paul Krugman, NY Times: On Wednesday Donald Trump demanded that Congress move quickly to enact his tax reform plan. But so far he has not, in fact, offered any such plan...
Meanwhile, 17 Senate Democrats ... have signed on to Bernie Sanders’s call for expanding Medicare to cover the whole population. So far, however, Sanders hasn’t produced either an estimate of how much that would cost or a specific proposal about how to pay for it.
I don’t mean to suggest that these cases are comparable: The distinctive Trumpian mix of ignorance and fraudulence has no counterpart among Democrats. Still, both stories raise the question of how much ... policy clarity matters for politicians’ ability to win elections and ... govern.
About elections: The fact that Trump is in the White House suggests that politicians can get away with telling voters just about anything that sounds good. ...
On the other hand, the ignominious failure of Trumpcare shows that reality sometimes does matter. ... Once the public realized that tens of millions would lose coverage..., there was a huge backlash...
The story of tax reform ... is starting to look a bit similar. ...
In fact, Trump himself seems to be experiencing cognitive dissonance. “The rich will not be gaining at all with this plan,” he declared Wednesday. ... Is he oblivious, lying, or both? ...
The contrast between what he’s claiming and anything Republicans in Congress will be willing to support is so great as to practically invite ridicule and another popular backlash. ...
But is the push for single-payer health care taking Democrats down a similar path?
Unlike just about everything Trump and company are proposing, Medicare for all is a substantively good idea. Yet actually making it happen would probably mean ... a serious political backlash. For one..., it would require a substantial increase in taxes. For another, it would mean telling scores of millions of Americans who get health coverage though their employers, and are generally satisfied..., that they need to give it up and accept something different. ...
Democrats could eventually find themselves facing a Trumpcare-type debacle, unable either to implement their unrealistic vision or to let it go.
The point is that while unrealistic promises may not hurt you in elections, they can become a big problem when you try to govern. Having a vision for the future is good, but being real about the difficulties is also good. Democrats, take heed.

Fed May Have Too Much Faith in Inflation Forecasts

Tim Duy:

Fed May Have Too Much Faith in Inflation Forecasts, by Tim Duy: Despite a low unemployment rate, inflation slowed this year, confounding central bankers who set in motion a tightening cycle on the expectation of firming prices. This leaves the Federal Reserve stuck in a quandary. Either transitory factors restrain inflation only temporarily, or perhaps expectations sink below the Fed’s 2 percent target. If the former, the central bank can continue along the current path of gradual rate hikes. The majority of monetary policy makers lean in this direction. But if the latter, sticking to the current plan risks excessive slowing and even recession. It is the type of policy mistake we should fear in the mature stages of a business cycle... ...[Continued at Bloomberg Prophets]...

Thursday, September 14, 2017

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Tuesday, September 12, 2017

Links for 09-012-17