Since Larry Summers is all the rage these days, here he is on how history will view QE:
Thursday, November 21, 2013
From Lawrence Mishel, Heidi Shierholz, and John Schmitt:
Don’t Blame the Robots: Assessing the Job Polarization Explanation of Growing Wage Inequality, by Lawrence Mishel, Heidi Shierholz, and John Schmitt, EPI–CEPR Working Paper: Executive summary Many economists contend that technology is the primary driver of the increase in wage inequality since the late 1970s, as technology-induced job skill requirements have outpaced the growing education levels of the workforce. The influential “skill-biased technological change” (SBTC) explanation claims that technology raises demand for educated workers, thus allowing them to command higher wages—which in turn increases wage inequality. A more recent SBTC explanation focuses on computerization’s role in increasing employment in both higher-wage and lower-wage occupations, resulting in “job polarization.” This paper contends that current SBTC models—such as the education-focused “canonical model” and the more recent “tasks framework” or “job polarization” approach mentioned above—do not adequately account for key wage patterns (namely, rising wage inequality) over the last three decades. Principal findings include:
1. Technological and skill deficiency explanations of wage inequality have failed to explain key wage patterns over the last three decades, including the 2000s.
The early version of the “skill-biased technological change” (SBTC) explanation of wage inequality posited a race between technology and education where education levels failed to keep up with technology-driven increases in skill requirements, resulting in relatively higher wages for more educated groups, which in turn fueled wage inequality (Katz and Murphy 1992; Autor, Katz, and Krueger 1998; and Goldin and Katz 2010). However, the scholars associated with this early, and still widely discussed, explanation highlight that it has failed to explain wage trends in the 1990s and 2000s, particularly the stability of the 50/10 wage gap (the wage gap between low- and middle-wage earners) and the deceleration of the growth of the college wage premium since the early 1990s (Autor, Katz, and Kearney 2006; Acemoglu and Autor 2012). This motivated a new technology-based explanation (formally called the “tasks framework”) focused on computerization’s impact on occupational employment trends and the resulting “job polarization”: the claim that occupational employment grew relatively strongly at the top and bottom of the wage scale but eroded in the middle (Autor, Levy, and Murnane 2003; Autor, Katz, and Kearney 2006; Acemoglu and Autor 2012; Autor 2010). We demonstrate that this newer version—the task framework, or job polarization analysis—fails to explain the key wage patterns in the 1990s it intended to explain, and provides no insights into wage patterns in the 2000s. We conclude that there is no currently available technology-based story that can adequately explain the wage trends of the last three decades.
2. History shows that middle-wage occupations have shrunk and higher-wage occupations have expanded since the 1950s. This has not driven any changed pattern of wage trends.
We demonstrate that key aspects of “job polarization” have been taking place since at least 1950. We label this “occupational upgrading” since it primarily consists of shrinkage in relative employment in middle-wage occupations and a corresponding expansion of employment in higher-wage occupations. Lower-wage occupations have remained a small (less than 15 percent) and relatively stable share of total employment since the 1950s, though they have grown in importance in the 2000s. Occupational upgrading has occurred in decades with both rising and falling wage inequality and in decades with both rising and falling median wages, indicating that occupational employment patterns, by themselves, cannot explain the salient wage trends.
3. Evidence for job polarization is weak.
We use the Current Population Survey to replicate existing findings on job polarization, which are all based on decennial census data. Job polarization is said to exist when there is a U-shaped plot in changes in occupational employment against the initial occupational wage level, indicating employment expansion among high- and low-wage occupations relative to middle-wage occupations. As shown in Figure E (explained later in the paper but introduced here), in important cases, these plots do not take the posited U-shape. More importantly, in all cases the lines traced out fit the data very poorly, obscuring large variations in employment growth across occupational wage levels.
4. There was no occupational job polarization in the 2000s.
In the 2000s, relative employment expanded in lower-wage occupations, but was flat at both the middle and the top of the occupational wage distribution. The lack of overall job polarization in the 2000s is a phenomenon visible in both the analyses of decennial census/American Community Survey data provided by proponents of the tasks framework/job polarization perspective (Autor 2010; Acemoglu and Autor 2012) and in our analysis of the Current Population Survey. Thus, the standard techniques applied to the data for the 2000s do not establish even a prima facie case for the existence of overall job polarization in the most recent decade. This leaves the job polarization story, at best, as an account of wage inequality in the 1990s. It certainly calls into question whether it should be a description of current labor market trends and the basis of current policy decisions.
5. Occupational employment trends do not drive wage patterns or wage inequality.
We demonstrate that the evidence does not support the key causal links between technology-driven changes in tasks and occupational employment patterns and wage inequality that are at the core of the tasks framework and job polarization story. Proponents of job polarization as a determinant of wage polarization have, for the most part, only provided circumstantial evidence: both trends occurred at the same time. The causal story of the tasks framework is that technology (i.e., computerization) drives changes in the demand for tasks (increasing demand at the top and bottom relative to the middle), producing corresponding changes in occupational employment (increasing relative employment in high- and low-wage occupations relative to middle-wage occupations). These changes in occupational employment patterns are said to drive changes in overall wage patterns, raising wages at the top and bottom relative to the middle. However, the intermediate step in this story must be that occupational employment trends change the occupational wage structure, raising relative wages for occupations with expanding employment shares and vice-versa. We demonstrate that there is little or no connection between decadal changes in occupational employment shares and occupational wage growth, and little or no connection between decadal changes in occupational wages and overall wages. Changes within occupations greatly dominate changes across occupations so that the much-focused-on occupational trends, by themselves, provide few insights.
6. Occupations have become less, not more, important determinants of wage patterns.
The tasks framework suggests that differences in returns to occupations are an increasingly important determinant of wage dispersion. Using the CPS, we do not find this to be the case. We find that a large and increasing share of the rise in wage inequality in recent decades (as measured by the increase in the variance of wages) occurred within detailed occupations. Furthermore, using DiNardo, Fortin, and Lemieux’s reweighting procedure, we do not find that occupations consistently explain a rising share of the change in upper tail and lower tail inequality for either men or women.
7. An expanded demand for low-wage service occupations is not a key driver of wage trends.
We are skeptical of the recent efforts of Autor and Dorn (2013) that ask the low-wage “service occupations” to carry much or all of the weight of the tasks framework. First, the small size and the slow, relatively steady growth of the service occupations suggest significant limitations of a technology-driven expansion of service occupations to be able to explain the large and contradictory changes in wage growth at the bottom of the distribution (i.e., between middle and low wages, the 50/10 wage differential), let alone movements at the middle or higher up the wage distribution. The service occupations remain a relatively small share of total employment; in 2007, they accounted for less than 13 percent of total employment, and just over half of employment in the bottom quintile of occupations ranked by wages. Moreover, these occupations have expanded only modestly in recent decades, increasing their employment share by 2.1 percentage points between 1979 and 2007, with most of the gain in the 2000s. Relative employment in all low-wage occupations, taken together, has been stable for the last three decades, representing a 21.1 percent share of total employment in 1979, 19.7 percent in 1999, and 20.0 percent in 2007.
Second, the expansion of service occupation employment has not driven their wage levels and therefore has not driven overall wage patterns. The timing of the most important changes in employment shares and wage levels in the service occupations is not compatible with conventional interpretations of the tasks framework. Essentially all of the wage growth in the service occupations over the last few decades occurred in the second half of the 1990s, when the employment share in these occupations was flat. The observed wage increases preceded almost all of the total growth in service occupations over the 1979–2007 period, which took place in the 2000s, when service occupation wages were falling (another trend that contradicts the overall claim of the explanatory power of service occupation employment trends).
8. Occupational employment trends provide only limited insights into the main dynamics of the labor market, particularly wage trends.
A more general point can and should be drawn from our findings: Occupational employment trends do not, by themselves, provide much of a read into key labor market trends because changes within occupations are dominant. Recent research and journalistic treatment of the labor market has highlighted the pattern of occupational employment growth to assess the extent of structural unemployment, the disproportionate increase in low-wage jobs, and the “coming of robots”—changes in workplace technology and the consequent impact on wage inequality. The recent academic literature on wage inequality has highlighted the role of changes in the occupational distribution of employment as the key factor. In particular, occupational employment trends have become increasingly used as indicators of job skill requirement changes, reflecting the outcome of changes in the nature of jobs and the way we produce goods and services. Our findings indicate, however, that occupational employment trends give only limited insight and leave little imprint on the evolution of the occupational wage structure, and certainly do not drive changes in the overall wage structure. We therefore urge extreme caution in drawing strong conclusions about overall labor market trends based on occupational employment trends by themselves.
I suppose I should note that I haven't read this closely enough yet to endorse every word (or not). Full paper here (scroll down).
Desperate to Taper, by Tim Duy: The minutes of the October FOMC meeting leave little doubt that the Fed increasingly desires to end the asset purchase program, enough so to contemplate tapering regardless of seeing satisfactory improvement in labor markets. It is that desire - or perhaps desperation - that puts an element of random chance into the policymaking process and keeps the expectation of near-term tapering alive despite efforts of policymakers to reassure market participants that it is all data dependent. Trouble with that story is simple - it is not only data dependent. The Fed has already admitted as much.
Policy planning and communication strategy were the hot topic of this FOMC meeting, and the discussion of the specifics of the asset purchase program began with:
During this general discussion of policy strategy and tactics, participants reviewed issues specific to the Committee's asset purchase program. They generally expected that the data would prove consistent with the Committee's outlook for ongoing improvement in labor market conditions and would thus warrant trimming the pace of purchases in coming months.
The mythical taper - just a few months away. And it will always be just a few months away given the broad weakness in the labor chart. Recall the Yellen Charts:
Unless they narrow their focus to only the unemployment rate, the argument to taper is challenged to say the least. It is even more challenged considering inflation indicators. Knowing that the data continuously refuses to cooperate, the Fed explores plan B:
However, participants also considered scenarios under which it might, at some stage, be appropriate to begin to wind down the program before an unambiguous further improvement in the outlook was apparent.
To be sure, some doves shrieked:
A couple of participants thought it premature to focus on this latter eventuality, observing that the purchase program had been effective and that more time was needed to assess the outlook for the labor market and inflation; moreover, international comparisons suggested that the Federal Reserve's balance sheet retained ample capacity relative to the scale of the U.S. economy.
It may be premature, but if they are going to go down that road, they had better have an explanation:
Nonetheless, some participants noted that, if the Committee were going to contemplate cutting purchases in the future based on criteria other than improvement in the labor market outlook, such as concerns about the efficacy or costs of further asset purchases, it would need to communicate effectively about those other criteria.
And there it is - the missing piece. We know the Fed has been looking to pull the plug on asset purchases, they just haven't explained why. Well, not exactly. Federal Reserve Chairman Ben Bernanke was more direct on the subject in his speech this week:
..though a strong majority of FOMC members believes that both the forward rate guidance and the LSAPs are helping to support the recovery, we are somewhat less certain about the magnitudes of the effects on financial conditions and the economy of changes in the pace of purchases or in the accumulated stock of assets on the Fed's balance sheet. Moreover, economists do not have as good an understanding as we would like of the factors determining term premiums; indeed, as we saw earlier this year, hard-to-predict shifts in term premiums can be a source of significant volatility in interest rates and financial conditions. LSAPs have other drawbacks not associated with forward rate guidance, including the risk of impairing the functioning of securities markets and the extra complexities for the Fed of operating with a much larger balance sheet, although I see both of these issues as manageable.
The problem with this cost and efficacy approach is that new "costs" could pop up at anytime. Definitely a policy wild card, and one the Fed is increasingly considering using.
The desire to taper also drives the frantic search for alternative modes of accommodation:
In those circumstances, it might well be appropriate to offset the effects of reduced purchases by undertaking alternative actions to provide accommodation at the same time.
One such way would be enhanced forward guidance:
As part of the planning discussion, participants also examined several possibilities for clarifying or strengthening the forward guidance for the federal funds rate, including by providing additional information about the likely path of the rate either after one of the economic thresholds in the current guidance was reached or after the funds rate target was eventually raised from its current, exceptionally low level.
There was not, however, widespread support for changing the thresholds:
A couple of participants favored simply reducing the 6-1/2 percent unemployment rate threshold, but others noted that such a change might raise concerns about the durability of the Committee's commitment to the thresholds. Participants also weighed the merits of stating that, even after the unemployment rate dropped below 6-1/2 percent, the target for the federal funds rate would not be raised so long as the inflation rate was projected to run below a given level. In general, the benefits of adding this kind of quantitative floor for inflation were viewed as uncertain and likely to be rather modest, and communicating it could present challenges, but a few participants remained favorably inclined toward it.
Instead, the favored path seems to be incorporating what we have been hearing from policymakers more directly in the FOMC statement:
Several participants concluded that providing additional qualitative information on the Committee's intentions regarding the federal funds rate after the unemployment threshold was reached could be more helpful. Such guidance could indicate the range of information that the Committee would consider in evaluating when it would be appropriate to raise the federal funds rate. Alternatively, the policy statement could indicate that even after the first increase in the federal funds rate target, the Committee anticipated keeping the rate below its longer-run equilibrium value for some time, as economic headwinds were likely to diminish only slowly.
Essentially, a commitment to ignore the thresholds without changing the thresholds. Later, the Fed circled back to an oldy but a goody:
Participants also discussed a range of possible actions that could be considered if the Committee wished to signal its intention to keep short-term rates low or reinforce the forward guidance on the federal funds rate. For example, most participants thought that a reduction by the Board of Governors in the interest rate paid on excess reserves could be worth considering at some stage, although the benefits of such a step were generally seen as likely to be small except possibly as a signal of policy intentions.
Notice a theme above? Fed officials have little faith in any of their alternatives. They want to pull back from quantitative easing, fearing that the costs will turn against them soon, yet have little to offer in return. Not good - it is almost as if the Fed is beginning to believe that they are near the end of their rope.
Interestingly, one of the costs of quantitative easing seems to be the inability to exit quantitative easing. This was revealed in today's bond market sell-off after the minutes were released. Despite the Fed's repeated efforts to use forward guidance to hold down rates, despite repeated reassurances that tapering is not tightening, Treasury yields gain almost 10 basis points at the 10 year horizon on even a whisper of tapering - and this after Bernanke's dovish speech and Vice Chair Janet Yellen's (perceived) dovish Senate hearing last week. Fine tuning policy with a tool of uncertain force is something of a challenge. Sufficient faith in an alternative tool would help clear the way for tapering despite this uncertainty, but after reading these minutes, I am somewhat concerned such faith is lacking.
Bottom Line: Clear evidence of the space we have been in for months. The Fed wants to taper, and is becoming increasingly nervous they will need to pull the trigger on that option before the data allows. That means that tapering is not data dependent. That means the policy deck is stacked with at least one wild card. And that sounds like a recipe for the kind of volatility the Fed is looking to avoid.
- Shakeup at Minneapolis Fed ousts star economists - Star Tribune
- Social Security and Secular Stagnation - Paul Krugman
- Saving glut or investment dearth? - Antonio Fatas
- The Utility and Disutility of Rational Expectations - Brad DeLong
- Temporary work support and long-term joblessness - vox
- SNAP Spending Has Started Falling - CBPP
- The State of Obamacare - Paul Krugman
- The Shadow Knows (the Fed Funds Rate) - macroblog
- Orthodox economists have failed their own market test - Seumas Milne
- Fixed Effects Infatuation - Michael Roberts
- A Tripartite Mandate for Central Banks? - Tim Taylor
- Winding down Fannie and Freddie - FT.com
- Paul Ryan, Marxist - Paul Krugman
- Fed could cut interest on bank reserves, say minutes - FT.com
- Big Data: New Tricks for Econometrics - owenzidar
- Long-term unemployment may accelerate aging in men - EurekAlert
- Recessions in mid-life linked to higher cognitive decline - EurekAlert
- FOMC Minutes: rates will be low for a long long time - Calculated Risk
- The Unemployment Rate at Full Employment - NYTimes.com
- Secular Stagnation and Fiscal Policy - Angry Bear
- Is zero the new normal? - mainly macro
- No, Larry Summers, We Don’t Need More Bubbles - Clive Crook
- An Economical Business-Cycle Model - owenzidar
- Intermediary Leverage Cycles and Financial Stability - Liberty Street
- The Highly Scientific Scheme to Help the World's Poor - Wired Science
Wednesday, November 20, 2013
Rajiv Sethi (I like this idea):
We have regulation about the government having monopoly over currency, but we allow these very close substitutes, we think it's good, but maybe... it's not so good, maybe we want to have a future where we all have an ATM at the Fed instead of intermediated through a bank... and if you want a better deal, you want more interest on your money, then you can buy what is basically a bond fund that may be very liquid, but you are not guaranteed that you're going to get paid back in full.
This is an idea that's long overdue. Allowing individuals to hold accounts at the Fed would result in a payments system that is insulated from banking crises. It would make deposit insurance completely unnecessary, thus removing a key subsidy that makes debt financing of asset positions so appealing to banks. There would be no need to impose higher capital requirements... And there would be no need to require banks to offer cash mutual funds, since the accounts at the Fed would serve precisely this purpose.
But the greatest benefit of such a policy would lie elsewhere, in providing the Fed with a vastly superior monetary transmission mechanism. In a brief comment on Macroeconomic Resilience a few months ago, I proposed that an account be created at the Fed for every individual with a social security number, including minors. Any profits accruing to the Fed as a result of its open market operations could then be used to credit these accounts instead of being transferred to the Treasury. But these credits should not be immediately available for withdrawal: they should be released if and when monetary easing is called for.
The main advantage of such an approach is that it directly eases debtor balance sheets when a recession hits. It can provide a buffer to those facing financial distress, allowing payments to be made on mortgages or auto loans in the face of an unexpected loss of income. And as children transition into adulthood, they will find themselves with accumulated deposits that could be used to finance educational expenditures or a down payment on a home.
In contrast, monetary policy as currently practiced targets creditor balance sheets. Asset prices rise as interest rates are driven down. The goal is to stimulate expenditure by lowering borrowing costs, but by definition this requires individuals to take on more debt. In an over-leveraged economy struggling through a balance sheet recession, such policies can only provide temporary relief. ...
About That Unemployment Threshold...., by Tim Duy: Federal Reserve Chairman Ben Bernanke delivered an excellent speech tonight; it is well worth the read. It reminded me that at least 75% of the Federal Reserve's communications problems would disappear if Bernanke had been willing to give a speech like this every two months. It is my hope that his successor Janet Yellen will deliver such speeches on a more regular basis.
There will be excellent coverage of the speech from the usual sources. So rather than a play-by-play review, I will focus on one topic, the unemployment threshold. There has been a great deal of speculation that the Fed will reduce the unemployment threshold to 5.5%. I have thought they will need to change the threshold because, at a minimum, the 6.5% number has already lost any operational meaning. But reading Bernanke's speech makes me think that they are very hesitant to change the threshold, and will instead continue to reinforce their existing forward guidance by emphasizing the likelihood that rates will remain low long after the threshold is breached.
Bernanke very clearly did not take this opportunity to hint that a change in the threshold was imminent. Instead, twice he reinforced the existing threshold. First:
In the judgment of the Committee, the unemployment rate--which, despite some drawbacks in this regard, is probably the best single summary indicator of the state of the labor market--is sufficient for defining the threshold given by the guidance. However, after the unemployment threshold is crossed, many other indicators become relevant to a comprehensive judgment of the health of the labor market, including such measures as payroll employment, labor force participation, and the rates of hiring and separation. In particular, even after unemployment drops below 6-1/2 percent, and so long as inflation remains well behaved, the Committee can be patient in seeking assurance that the labor market is sufficiently strong before considering any increase in its target for the federal funds rate.
And then later:
When, ultimately, asset purchases do slow, it will likely be because the economy has progressed sufficiently for the Committee to rely more heavily on its rate policies, the associated forward guidance, and its substantial continued holdings of securities to maintain progress toward maximum employment and to achieve price stability. In particular, the target for the federal funds rate is likely to remain near zero for a considerable time after the asset purchases end, perhaps well after the unemployment threshold is crossed and at least until the preponderance of the data supports the beginning of the removal of policy accommodation.
Note also that in a written response to Massachusetts Democratic Senator Elizabeth Warren and Louisiana Republican Senator David Vitter, Vice Chair Janet Yellen reiterated the same point. Via Reuters:
Warren asked in her letter if it would be helpful to lower the Fed's unemployment rate threshold - something that a number of economists, and some Fed officials, argue would be a potent way to do more to encourage consumer and business spending.
Yellen did not answer the question directly, but she repeated the Fed's talking point that the threshold was not a trigger for action, and rates could stay lower for longer.
"Monetary policy is likely to remain highly accommodative long after one of the economic thresholds for the federal funds rate has been crossed," she said.
The Fed's cautious approach of thresholds reflects a very real concern about the message a change would send. Jon Hilsenrath reveals this is the topic of active debate at the Fed because shifting the unemployment target could be considered a shift in the Fed's reaction function. Not everyone on the FOMC is comfortable with such a shift.
Hilsenrath describes the first line of thought at the Fed:
One line of thought is that the jobless rate is currently understating weakness in the job market because so many people are leaving the labor force. Under this view, there is much more slack in the job market than is indicated by 7.3% unemployment because millions of Americans are sitting on the sidelines, waiting to rejoin the job search process once opportunities become available. As this thinking goes, lowering the threshold to a number like 6% would bring the threshold better in line with the realities of the job market. It would be more a technical adjustment than a change in policy meant to add new stimulus to the economy.
This tends to be how I think of the issue - the 6.5% threshold is essentially irrelevant given economic conditions will induce the Fed to keep rates low long after the labor market crosses that threshold. Changing the threshold thus just brings the Fed's statement in line with reality. As Andy Harless reminded me in comments, however, the irrelevance of the 6.5% threshold is not "obvious" to everyone. Thus arises the implication that pushing the threshold down is a shift in the Federal Rerserve's reaction function. Back to Hilsenrath:
The other line of thought is that lowering the threshold would be meant to add more stimulus to a slow-growing economy by demonstrating to the public that the Fed is committed to keeping short-term interest rates low for even longer than previously planned.
I discussed this last in an earlier post. Fed research suggests that shifting the unemployment rate threshold to 5.5% would push back the expected lift-off from the zero bound by one quarter. Not a big change (again, economic conditions would not warrant a change at the 6.5% threshold to begin with), but an easier policy nonetheless. The Fed very much needs to understand which message it wants to send before setting themselves up for what could be another communications snafu. Hence the hesitation to jump in and change the threshold. I expect the minutes will reveal this was again a topic of conversation at the last FOMC meeting.
I am beginning to believe that the Fed will resist changing the threshold as long as possible, instead relying on emphasizing the "threshold not trigger" element of the existing forward guidance. Changing the threshold itself would then be reserved to add additional accommodation, if necessary, after the tapering process begins.
The problem with this story, however, is this: What does the Federal Reserve do if they have not raised interest rates after the 6.5% threshold is breached? Doesn't the threshold then become irrelevant? Do they then jettison the threshold based guidance entirely, or instead shift the threshold to 5.5%? But why make the change at that point, when policymakers would be even less certain about the sustainability of near zero rates?
In short, this forward guidance stuff is complicated.
Bottom Line: The issue of the thresholds is a hot topic at the Fed, but there is hesitancy to pull the trigger on the option of changing the threshold. They are not yet ready to chance signaling a change in the reaction function. And given that unemployment remains well above the threshold, there is no rush to change the threshold as long as the market believes it is not a trigger. This seems to be a message Bernanke is sending in this speech.
- Monetary and Fiscal Implications of Secular Stagnation - Paul Krugman
- Race in American politics - Understanding Society
- Bubbles, interest rates and full employment - Antonio Fatas
- Shiller vs. Fama vs. the Skeptics - NYTimes.com
- Why no public fury over austerity? - mainly macro
- Communication and Monetary Policy - Ben Bernanke
- Monetary Policy and the Economic Outlook - Dennis Lockhart
- Bernanke: Rates to Stay Low 'Well After' Jobless Rate Hits 6.5% - WSJ
- Unavoidable Answer to Problem of Climate Change - NYTimes.com
- The Chinese Steamroller Is Already Sputtering - Justin Fox
- How the Safety Net Held Up in the Recession - NYTimes.com
- Trade vs development effects of trade preferences - vox
- Flatlining in the UK - MacroMania
- Is Altruism a Scarce Resource that Needs Conserving? - Tim Taylor
- Monetary Policy Will Never Be the Same - Olivier Blanchard
- Capitalism Redefined - Nick Hanauer & Eric Beinhocker
- The Trans-Pacific Partnership is the opposite of 'free trade' - Mark Weisbrot
- Optimal policy in a hybrid Old/New Keynesian model - Nick Rowe
- Do Negative Rates Call For Permanent Government Expansion? - Rortybomb
- Another Taylor Rule - Paul Krugman
- Sachs versus Krugman: Round ??? - Dean Baker
- That Star Trek economy thing - Digitopoly
- A Higher Wage Is Possible - Demos
Tuesday, November 19, 2013
I have a new column:
How Yellen Will Shape the Fed’s QE Exit Strategy: After Janet Yellen’s excellent performance before the Senate Banking Committee last Thursday, she will almost surely be confirmed as the next Fed chair.
Once she’s confirmed, there are several important issues the Fed must address under her leadership such as improving the Fed’s communications with the public, ensuring that the financial sector is properly regulated, taking a stance on whether the Fed should pop bubbles, deciding whether to continue forward guidance in its present form, and so on. But the most important and most immediate problem Yellen will face during her term as chair is guiding the Fed to a smooth exit from its non-conventional policies. ...[continue]...
This editorial in the Washington Post really irritated me when I read it, so this response is nice to see:
The Geezers Are Not Alright: The Washington Post editorial board wants to cut Medicare and Social Security. That has been its consistent position as long as I can remember. And what it advocates, always, are cuts in benefits, not costs..., things like a rise in the Medicare age. These are the kind of moves that are considered serious inside the Beltway. And as you might imagine, the Post has gone wild over recent suggestions that Social Security should be expanded, not cut.
But perceived seriousness is not the same as actual seriousness, which depends on the facts. We now know that raising the Medicare age is a truly terrible idea, which would create a lot of hardship while making next to no dent in the budget deficit. And the central premise of the latest editorial — that the elderly are doing fine — just isn’t true.
The Post writes:
The bill’s authors warn of a looming “retirement crisis” because of low savings rates and disappearing private-sector pensions. In fact, the poverty rate among the elderly is 9.1 percent, lower than the national rate of 15 percent — and much lower than the 21.8 percent rate among children.
This suggests that Social Security is doing a good job of fighting poverty as is and that those gains could be preserved in any attempt to trim the program.
Guys, you have to keep up here. It’s well-known that the official poverty measure is quite flawed... — and it’s especially flawed when it comes to the elderly... The Census Supplemental Poverty Measure puts senior poverty at 14.8 percent, only slightly lower than the rate for younger adults.
And some of today’s seniors are still benefiting from traditional defined-benefit retirement plans. In the future, income other than from Social Security will depend almost entirely on defined-contribution plans — basically 401(k)s. And 401(k)s are basically an experiment that failed, except for the already affluent.
Maybe you don’t believe that the failure of defined-contribution plans is a reason to expand the one major defined-benefit plan we have, aka Social Security. But don’t make that argument by claiming that all is well with America’s seniors. The geezers are not alright.
And even if the poverty rate among the elderly is tolerable as it is -- I'm not making that claim, but suppose it is -- the reason why advocates want to increase benefits is the fear that things will get worse in the future. Today's poverty rate doesn't tell us much about the "looming 'retirement crisis.'" Whether or not today's rate is in the tolerable range, should accept more poverty without trying to do something about it? Should we be happy about a large increase in the percentage that are in poverty just because we start from a tolerable figure? And what if today's figure isn't tolerable after all? In any case, this is about the rate of change in poverty among the elderly in the future, not the level now.
Jared Bernstein outlines Paul Ryan's "plan" to reduce poverty:
Paul Ryan, Poverty Warrior? Huh?: ... This AM’s WaPo printed a feature on Rep. Paul Ryan’s plans to fight poverty... Then you read page after page, trying to figure out what the dude is actually saying he’d do to lower poverty, and here’s what you’re left with: vouchers, tax credits, and volunteerism. ...
What are his accomplishments? He’s authored some of the harshest and most unrealistic budgets I’ve ever seen, and I’ve been on this beat for awhile–none of them have or are going anywhere legislatively. ...
Nor is he an accomplished legislator. ... Quick–or for that matter, take your time: name one piece of enacted legislation in which he played a significant role…I’m waiting…still waiting…
OK, time to get to work, and I’m sorry to start the day with negativity and snark. But the emperor in the empty suit has no clothes.
Ryan Poverty Plan1. Cut spending on the poor, cut taxes on the wealthy
2. Shred safety net through block granting federal programs
3. Encourage entrepreneurism, sprinkle around some vouchers and tax credits
5. Poverty falls
- The New Keynesian Case for Fiscal Policy - Paul Krugman
- Too-Big-to-Fail: The Role of Metrics - Narayana Kocherlakota
- Managing bureaucrats - vox
- Growth still is good for the poor - vox
- U.S. Inequality in Six Charts - The New Yorker
- Apocalyptic Macro: Inflation Edition - Econbrowser
- Why We Need a New Macroeconomics - Jeffrey Sachs
- Missing Data Cause of Pause in Temperature Rise - Scientific American
- Problems in the Great White North [Just Wow...MT] - Stephen Williamson
- Question Fed Policy? Sure. Audit It? No. - Paul Krugman
- Journal of Economic Perspectives, Fall 2013, Now On-line - Tim Taylor
- The Single Best Argument Against Inequality - David Callahan
- Krugman's Response to My Post - Robert's Stochastic thoughts
- A Eurozone bank restructuring agency - vox
- The Power of Two (Extra Wonkish) - Paul Krugman
- Expectations for Monetary Policy Liftoff - FRBSF
- Powerfully Wrong - Paul Krugman
- The Safety of Bioengineered Crops - Tim Taylor
- Unconventional monetary policy and tail-risk perceptions - vox
- The e-Writing Jungle Part 2 - No Hesitations
- The Problem is Policy - John Taylor
- Taylor on Monetary Policy and Inflation - EconoSpeak
Monday, November 18, 2013
David Warsh on Republican opposition to the Affordable Care Act:
One Simple Step: ... What accounts for the ferocity of the opposition to the individual mandate as a means of assuring that all citizens are medically insured? What’s at stake here, I think, is the Republican Party’s wish to be seen as the party of reform. Traditionally, conservatives in US politics have been those who seek to defend the status quo, good and bad, whatever it is, while reformers are those who promise to improve matters, one way or another. Ronald Reagan was the master of these traditional conservatives, content as he was to affirm the achievements of the New Deal and the Second World War, but ready to insist that they had gone far enough, at least for a time.
It was only after Reagan left office that young Republicans eager to occupy the White House sought to present themselves as the party of reform, House speaker Newt Gingrich with his “opportunity society,” George W. Bush with his “ownership society.” These reforms had to do mainly with curtailing or eliminating altogether measures that had been adopted in the past, the Social Security retirement system chief among them, in the name of aggregate economic efficiency and growth.
The individual health insurance mandate is an invention of those times. It was proposed twenty-five years ago by Republican strategists at the Heritage Foundation, a conservative Washington think-tank, partly as a means of dealing with the problem of those who cannot obtain or cannot afford medical insurance. Essentially, it was a public health measure, tantamount to creating a new personal responsibility to have a doctor and, presumably, listen to him or her to some degree (don’t drink those half-gallon sodas).
Massachusetts Republican governor Mitt Romney put the individual mandate into practice in 2005 as a step toward a presidential campaign. But in 2008 the Democrats wrested the reform impulse away from the Republicans and, In 2010, passed the measure themselves. The bitter mood of the present day has everything to do with whether the Democrats or the Republicans are to be viewed going forward as the party of practical reform. ...
How long will "depression rules" be in effect?
A Permanent Slump?, by Paul Krugman, Commentary, NY Times: Spend any time around monetary officials and one word you’ll hear a lot is “normalization.” ...
But what if the world we’ve been living in for the past five years is the new normal? What if depression-like conditions are on track to persist, not for another year or two, but for decades?
You might imagine that speculations along these lines are the province of a radical fringe. ... In fact,... the person making that case was none other than Larry Summers. ...
And if Mr. Summers is right, everything respectable people have been saying about economic policy is wrong, and will keep being wrong for a long time. ...
We have, he suggested, an economy whose normal condition is one of inadequate demand — of at least mild depression — and which only gets anywhere close to full employment when it is being buoyed by bubbles. ...
Why might this be happening? One answer could be slowing population growth. A growing population creates a demand for new houses, new office buildings, and so on; when growth slows, that demand drops off. ...
Another important factor may be persistent trade deficits, which emerged in the 1980s and since then have fluctuated but never gone away.
Why does all of this matter? One answer is that central bankers need to stop talking about “exit strategies.” Easy money should, and probably will, be with us for a very long time. This, in turn, means we can forget all those scare stories about government debt, which run along the lines of “It may not be a problem now, but just wait until interest rates rise.”
More broadly, if our economy has a persistent tendency toward depression, we’re going to be living under the looking-glass rules of depression economics — in which ... attempts to save more (including attempts to reduce budget deficits) make everyone worse off — for a long time.
I know that many people just hate this kind of talk. It offends their sense of rightness, indeed their sense of morality. Economics is supposed to be about making hard choices (at other people’s expense, naturally). It’s not supposed to be about persuading people to spend more.
But as Mr. Summers said, the crisis “is not over until it is over” — and economic reality is what it is. And what that reality appears to be right now is one in which depression rules will apply for a very long time.
- Valuing the Free Digital Economy - James Surowiecki
- Inequality's Roots: Beyond Technology - NYTimes.com
- The Washington Post Wants to Kick Seniors Yet Again - Beat the Press
- Europe: lack of reforms or austerity? - Antonio Fatas
- Economics explains our world – but economics degrees don’t - FT.com
- What the Washington Center for Equitable Growth Needs - Brad DeLong
- It’s Fed Versus Moody’s for ‘Most Wrong’ Crown - Simon Johnson
- Extension of Benefits for Jobless Is Set to End - NYTimes.com
- Trade unions in Europe - vox
- Rigidity of global supply chains - vox
- One Simple Step - David Warsh
- Fed considering a delay to Volcker rule - FT.com
- What To Do When You're Wrong - Paul Krugman
- Globalization and the Great Moderation - The Irish Economy
- The economic base of illiberalism - Stumbling and Mumbling
- Should fears of financial instability raise interest rates? - mainly macro
Sunday, November 17, 2013
One more quick one:
Public debt and economic growth: There is no ‘tipping point’, by Markus Eberhardt and Andrea F Presbitero: The presence of a common threshold, or ‘tipping point’ – beyond which the detrimental impact of debt on growth is significant, or significantly increases – is currently taken as given in many policy circles. In the US, although many political battles impinge on the Congressional debate over the debt ceiling and the resulting government shutdown of October 2013, this somewhat reflected a widespread belief that debt is dangerous, and that fiscal austerity represents the only way of restoring sustainable growth. In the UK, Chancellor George Osborne displayed a similar sentiment when telling his annual party conference in Manchester this year that dealing with the repercussions of the financial crisis is not over “[u]ntil we’ve fixed the addiction to debt that got this country into this mess in the first place” (emphasis added). Without a doubt, these strong convictions and ensuing actions were strongly influenced by the work of Carmen Reinhart and Ken Rogoff (2010a), who were among the first to suggest a debt-to-GDP threshold of around 90%, beyond which economic growth is seriously affected by the debt burden. ...[continue]...
I'm visiting my son Paul in Seattle today (he works at Amazon as an analyst), so just a quick post for now on two topics. First is Jim Hamilton on oil prices. He explains why the "boom in domestic drilling is bringing some real benefits to the U.S. economy. But a lower gasoline price for U.S. consumers isn't one of them":
Lower gasoline prices: "U.S. gasoline prices have fallen to their lowest level in nearly 33 months amid a boom in domestic oil drilling", the Wall Street Journal declared last week. That's a true statement, but there's more to the story.
Americans are indeed facing the lowest gasoline prices in almost three years, but not by much. ...
Second, at the risk of having a thin set of links for tomorrow, Paul Krugman's discussion of Larry Summer's recent talk on secular stagnation has generated quite a few responses:
Summer's presentation at the IMF Research Conference
Krugman's first post: Secular Stagnation, Coalmines, Bubbles, and Larry Summers
Dean Baker: Bubbles Are Not Funny
Paul Krugman: Me Too! Blogging
Gavyn Davies: The implications of secular stagnation
Jared Bernstein: Paul, Larry, Secular Stagnation, and the Impact of Negative Real Rates
- Caught in Unemployment’s Revolving Door - NYTimes.com
- Debt and growth: No ‘tipping point’ - vox
- Neo-Wicksellian indeterminacy in pictures - Nick Rowe
- Bubbles Are Not Funny - Beat the Press
- Democracy in Africa - vox
- More Freedom on the Airplane, if Nowhere Else - NYTimes.com
- What Walmart Could Learn from Henry Ford - Robert Reich
- A Talk With Lars Peter Hansen, Nobel Laureate - NYTimes.com
- Pete Peterson's 'Fix The Debt' Caught Astroturfing - Crooks and Liars
- Fix Fix Fix The Debt Debt Debt - Paul Krugman
Saturday, November 16, 2013
Paul Krugman is annoyed (each of the four points below is discussed in detail):
Secular Stagnation, Coalmines, Bubbles, and Larry Summers, by Paul Krugman: I’m pretty annoyed with Larry Summers right now. His presentation at the IMF Research Conference is, justifiably, getting a lot of attention. And here’s the thing: I’ve been thinking along the same lines, and have, I think, hinted at this analysis in various writings. But Larry’s formulation is much clearer and more forceful, and altogether better, than anything I’ve done. Curse you, Red Baron Larry Summers!
OK, with professional jealousy out of the way, let me try to enlarge on Larry’s theme.
1. When prudence is folly ...
2. An economy that needs bubbles? ...
3. Secular stagnation? ...
4. Destructive virtue ...
I could go on, but by now I hope you’ve gotten the point. What Larry did at the IMF wasn’t just give an interesting speech. He laid down what amounts to a very radical manifesto. And I very much fear that he may be right.
- Market, State, Bureaucracy - Brad DeLong
- Accounting for the great divergence - vox
- EU Inflation Rate Falls to Four-Year Low - WSJ.com
- Weaponized Keynesianism, Historical Edition - Paul Krugman
- Fed Deflation in One Picture - The Big Picture
- Multinational firms and business cycles - vox
- Forecasting Implications of the Recent Decline in Inflation - FRB Cleveland
- The individual market “fix” and Obamacare - Incidental Economist
- Unavoidable Realities of Insurance: Health Care Edition - Tim Taylor
- Summers on His Decision-Making Process for the Auto Bailout - Justin Fox
- Gender stereotypes and childcare - vox
- Global Imbalances - Brad DeLong
Friday, November 15, 2013
I've argued for some time that we need new measures of systemic risk in financial markets -- we won't know if we can find reliable measures or not until we try -- so as it says below, recent "efforts to develop measures of systemic risk are encouraging":
Actually, Economists Can Predict Financial Crises, by Mark Buchanan, Commentary, Bloomberg: ... In recent years, an inconsistency has emerged in the economics profession. Many, including some Nobel Prize winners, maintain that crises are by their very nature unpredictable. At the same time, others -- aided by engineers, physicists, ecologists and computer scientists -- are developing ways to detect and quantify systemic risks, including measures that regulators could use to identify imbalances or vulnerabilities that might result in a crisis. ...
The challenge for economists is to find those indicators that can provide regulators with reliable early warnings of trouble. ...
Work is racing ahead. In the U.S., the newly formed Office of Financial Research has published various papers on topics such as stress tests and data gaps -- including one that reviews a list of some 31 proposed systemic-risk measures. The economists John Geanakoplos and Lasse Pedersen have offered specific proposals on measuring the extent to which markets are driven by leverage, which tends to make the whole system more fragile.
One problem has been “physics envy” -- a longing for certainty and for beautiful, timeless equations that can wrap up economic reality in some final way. Economics is actually more like biology, with perpetual change and evolution at its core. This means we’ll have to go on discovering new ways to identify useful clues about emerging problems as finance changes and investors jump into new products and strategies. Perpetual adaptation is part of living in a complex world.
The efforts to develop measures of systemic risk are encouraging. ...
Across all nine presidential administrations, infant mortality rates were below trend when the President was a Democrat and above trend when the President was a Republican.
This was true for overall, neonatal, and postneonatal mortality, with effects larger for postneonatal compared to neonatal mortality rates.
Regression estimates show that, relative to trend, Republican administrations were characterized by infant mortality rates that were, on average, three percent higher than Democratic administrations.
In proportional terms, effect size is similar for US whites and blacks. US black rates are more than twice as high as white, implying substantially larger absolute effects for blacks.
A new paper titled, “US Infant Mortality and the President’s Party“. I like my title better.
The abstract also says:
Conclusions: We found a robust, quantitatively important association between net of trend US infant mortality rates and the party affiliation of the president. There may be overlooked ways by which macro-dynamics of policy impact micro-dynamics of physiology, suggesting the political system is a component of the underlying mechanism generating health inequality in the United States.
Is the euro holding Europe together or pulling it apart?:
The Money Trap, by Paul Krugman, Commentary, NY Times: ... Not long ago, European officials were declaring that the Continent had turned the corner... But now ... the specter of deflation looms over much of Europe ... and last week the E.C.B. cut interest rates..., but the E.C.B.’s action will surely make, at best, a marginal difference. Still, it was a move in the right direction.
Yet the move was hugely controversial... And the controversy took an ominous form, at least for anyone who remembers Europe’s terrible history. For arguments over European monetary policy aren’t just a battle of ideas; increasingly, they sound like a battle of nations, too.
For example, who voted against the rate cut? Both German members of the E.C.B. board, joined by the leaders of the Dutch and Austrian central banks. Who, outside the E.C.B., was harshest in criticizing the action? German economists, who made a point not just of attacking the substance of the bank’s action but of emphasizing the nationality of Mario Draghi, the bank’s president, who is Italian. ...
What’s scary here is the way this is turning into the Teutons versus the Latins, with the euro — which was supposed to bring Europe together — pulling it apart instead.
What’s going on? Some of it is national stereotyping: the German public is eternally vigilant against the prospect that those lazy southern Europeans are going to make off with its hard-earned money. But there’s also a real issue here. Germans just hate inflation, but if the E.C.B. succeeds in getting average European inflation back up to around 2 percent, it will push inflation in Germany — which is booming even as other European nations suffer Depression-like levels of unemployment — substantially higher than that, maybe to 3 percent or more.
This may sound bad, but it’s how the euro is supposed to work. In fact, it’s the way it has to work. If you’re going to share a currency with other countries, sometimes you’re going to have above-average inflation. ...
The truly sad thing is that, as I said, the euro was supposed to bring Europe together, in ways both substantive and symbolic. It was supposed to encourage closer economic ties, even as it fostered a sense of shared identity. What we’re getting instead, however, is a climate of anger and disdain on the part of both creditors and debtors. And the end is still nowhere in sight.
- Wall Street Isn’t Worth It - Crooked Timber
- Alan Greenspan’s ‘Map and the Territory’ - Greg Mankiw
- It's Opposite Day in the Senate - NYTimes.com
- Europe's Remarkable Achievement - Paul Krugman
- Inflation expectations and the missing disinflation - vox
- The Fed shouldn’t be held hostage to Benghazi - Washington Post
- Is published economics research credible? - Market Design
- Hailing China's Third Plenum - Brookings Institution
- Outsourcing Chores: The Economic Impact - NYTimes.com
- Blogs review: Revisiting the case for rational expectations - Bruegel
- A Neuroscientist's Radical Theory of Consciousness - WiredCareer
- Training For The Unemployed Suffocated By Sequestration - Think Progress
- Fed’s Plosser: Wrong to Use Monetary Policy to Target Job Market - WSJ
- Fed’s Plosser: Mild Deflation Not Necessarily a Bad Thing - WSJ
- On understanding and spinning your own New Keynesian model - Nick Rowe
- Is the Idea of Redistribution Coherent? - Next New Deal
- Ron Paul's Misunderstanding of the CPI - David Henderson
- Andrew Huszar: Confessions of a Quantitative Easer - MacroMania
- Deleveraging Decelerates, Household Balances Increase - Liberty Street
- Punish Companies That Pillage - NYTimes.com
- Assessing leverage through flow data - vox
- Thoughts about the Future of Print - Tim Taylor
- Unconventional monetary policy - The Economist
- Quantitative easing, not as we know it - The Economist
- Machine learning branches out - MIT News
- A Limited Central Bank - Philadelphia Fed
Thursday, November 14, 2013
At MoneyWatch, a very basic explanation of how the Fed changes interest rates to stimulate or slow the economy:
In addition to discussing traditional policy, there's also a brief discussion of quantitative easing and how it works.
Having the Backbone to Set Minimum Standards for Health Insurance: Democrats are showing once again they have the backbones of banana slugs.
The Affordable Care Act was meant to hold insurers to a higher standards. So it stands to reason that some insurers will have to cancel their lousy sub-standard policies.
But spineless Democrats (including my old boss Bill Clinton) are caving in to the Republican-fueled outrage that the President “misled” Americans into thinking they could keep their old lousy policies — and are now urging the White House to forget the new standards and let people keep what they had before.
And some congressional Republicans are all too eager to join them, and allow insurers to offer whatever crap they were offering before...
Busy with the conference, so I'll toss this out to you: any comments on this post from Tyler Cowen?:
What are some of the biggest problems with a guaranteed annual income?: Maybe this isn’t the biggest problem, but it’s been my worry as of late. Must a guaranteed income truly be unconditional? Might there be circumstances when we would want to pay some individuals more than others? Many critics for instance worry that a guaranteed income would excessively reduce the incentive to work. So it might be proposed that the payment be somewhat higher if low income individuals go get a job. That also will make the system more financially sustainable. But wait — that’s the Earned Income Tax Credit, albeit with modifications.
Might we also wish to pay more to some individuals with disabilities, perhaps say to help them afford expensive wheelchairs? Maybe so. But wait — that’s called disability insurance (modified, again) and it is run through the Social Security Administration.
As long as we are moving toward more cash transfers, why don’t we substitute cash transfers for some or all of Medicare and Medicaid health insurance coverage benefits, especially for lower-value ailments? But then we are paying more cash to the sick individuals. That doesn’t have to be a mistake, but it does mean that an initially simple, “dogmatic” payment scheme now has multiplied into a rather complex form of social welfare assistance, contingent on just about every relevant factor one might care to cite.
You can see the issue. ...[continue]...
I am here today and tomorrow:
November 14–15, 2013 · Federal Reserve Bank of Dallas
(By invitation only)
Federal Reserve Bank of Dallas, IMF Research Department and Journal of Money, Credit and Banking
The Great Recession interrupted a long boom in real house prices in many countries. In the U.S., the collapse in house prices and residential construction, the surge in mortgage delinquencies and foreclosures, as well as the dramatic tightening in mortgage standards and fall in household leverage played a major role in the recent financial crisis. Similar factors have affected a number of other countries. These developments have prompted a great deal of new research on housing and mortgage markets, macroeconomic models with housing credit channels, and macro-prudential regulation and macroeconomic stability.
To inform researchers and policymakers of these efforts and to foster future advances, the Federal Reserve Bank of Dallas, the IMF Research Department and the Journal of Money, Credit, and Banking are sponsoring a two-day conference to provide a venue for original theoretical and empirical studies on the macroeconomics of housing, focusing on the lessons learned from the crisis and outstanding issues that remain to be addressed.
Thursday, November 14, 2013 8:15 a.m. Registration and Continental Breakfast 8:45 a.m. Welcome Remarks
Helen Holcomb, Federal Reserve Bank of Dallas
Stijn Claessens, International Monetary Fund
Paper Session 1
Chair: Anthony Murphy, Federal Reserve Bank of Dallas
Optimal Monetary Policy Rules and House Prices: The Role of Financial Frictions
Alessandro Notarpietro*, Bank of Italy
Stefano Siviero, Bank of Italy
Zheng Liu, Federal Reserve Bank of San Francisco
House Price Booms, Current Account Deficits and Low Interest Rates
Andrea Ferrero*, Oxford University
Edward Leamer, University of California, Los Angeles
Paper Session 2
Chair: Thorsten Beck, Cass Business School and Tilburg University
Capital Inflows and the U.S. Housing Boom
Filipa Sá*, King’s College, London
Tomasz Wieladek, Bank of England
Pedro Gete, Georgetown University
Macroprudential Policies and Housing Prices—A New Database and Empirical Evidence for Central, Eastern and Southeastern Europe
Enrica Detragiache, International Monetary Fund
Jérôme Vandenbussche*, International Monetary Fund
Ursula Vogel, Deutsche Bundesbank
Stefan Gerlach, Central Bank of Ireland
Luncheon and Keynote Address 1 David Miles, Bank of England
Panel 1: Lessons Learned and Implications for Policy
Chair: John Duca, Federal Reserve Bank of Dallas
Allan Crawford, Bank of Canada
Philipp Hartmann, European Central Bank
Dwight Jaffee, University of California, Berkeley
Susan Wachter, University of Pennsylvania
Paper Session 3
Chair: Prakash Loungani, International Monetary Fund
Capital Inflows, Housing Prices and the Macroeconomy: Evidence from Advanced and Emerging Market Economies
Ambrogio Cesa-Bianchi, Bank of England
Luis Céspedes, Adolfo Ibáñez University, Chile
Alessandro Rebucci*, Johns Hopkins University
Ken Kuttner, Williams College
Explaining House Price Dynamics: Isolating the Role of Non-Fundamentals
Thao Le, National University of Singapore
David Ling*, University of Florida
Joseph Ooi, National University of Singapore
Kevin Lansing, Federal Reserve Bank of San Francisco
Conference Reception and Dinner
Friday, November 15, 2013
Paper Session 4
Chair: Rabah Arezki, International Monetary Fund
Supply Restrictions, Subprime Lending and Regional U.S. Housing Prices
Andre Kallålk Anundsen, University of Oslo
Christian Heebøll*, University of Copenhagen
Andra Ghent, Arizona State University
Timing of Homeownership, Credit Constraint and House Price Expectation
Sumit Agarwal, National University of Singapore
Luojia Hu*, Federal Reserve Bank of Chicago
Xing Huang, Michigan State University
Discussant: Daniel Fetter, Wellesley College
Robert Shiller, Yale University
Panel 2: Housing and Macroeconomics
Chair: Sony Kapoor, Re-Define and London School of Economics
Edward Leamer, University of California, Los Angeles
John Muellbauer, University of Oxford
Amir Sufi, University of Chicago
Stijn Claessens, International Monetary Fund
Paper Session 5
Chair: Robert DeYoung, University of Kansas and Journal of Money, Credit and Banking
Joint Dynamics of House Prices and Foreclosures
Yavuz Arslan, Central Bank of the Republic of Turkey
Bulent Guler*, Indiana University
Temel Taskin, Central Bank of the Republic of Turkey
Paul Willen, Federal Reserve Bank of Boston
The Impact of Housing Markets on Consumer Debt: Credit Report Evidence from 1999 to 2012
Meta Brown*, Federal Reserve Bank of New York
Sarah Stein, Federal Reserve Bank of New York
Basit Zafir, Federal Reserve Bank of New York
Karen Pence, Federal Reserve Board
Missing Piece in the Communication Strategy, by Tim Duy: Minneapolis Federal Reserve President Narayana Kocherlakota's recent speech made clear that a full understanding of the cost/benefit trade-off for quantitative easing is a missing piece in the communication strategy. Frustratingly, he didn't try to fill it, which leaves me hoping the incoming Chair Janet Yellen will do so in tomorrow's Senate confirmation hearings. That, however, is not likely to happen, as she will likely restrain her comments such that we learn little we don't already know.
Kocherlakota describes a goal-oriented approach to monetary policy that he believes was essential to ending the period of high inflation in the 1970's and 80's:
Faced with this challenging issue, the FOMC followed what I would term goal-oriented monetary policy. This approach had two parts. First, the Committee formulated and communicated a clear goal: It intended to bring inflation down as quickly as possible. Second, on an ongoing basis, the Committee did whatever it took to achieve that goal, even if those actions had short-term economic costs.
What this means for policy in the current context:
The Committee has to stick to its formulated approach—that is, it must do whatever it takes to achieve its communicated goal...
...Doing whatever it takes in the next few years will mean something different. It will mean that the FOMC is willing to continue to use the unconventional monetary policy tools that it has employed in the past few years. Indeed, it will mean that the FOMC is willing to use any of its congressionally authorized tools to achieve the goal of higher employment, no matter how unconventional those tools might be.
Confusion arises when one realizes the Fed does not intent to use all of its available tools to meet its goals. In particular, there is no inclination to expand the pace of asset purchases, and is instead every inclination to end the program. They are looking forward to normalizing policy by shifting the focus to forward guidance on interest rates. From Atlanta Federal Reserve President Dennis Lockhart:
In the toolkit the FOMC has at its disposal, there is a sense in which asset purchases and low policy rates are complementary. Asset purchases and forward guidance on interest rates are complements in the sense that they are both designed to put downward pressure on longer-term interest rates...
...But there is also a sense in which these tools are substitutes. By substitutes I mean that guidance pointing to a sustained low policy rate and asset purchases are discrete tools that can be deployed independently or in varying combinations. They can be thought of as a particular policy tool mix chosen to fit the circumstances at this particular phase of the recovery...
...Going forward, it may be appropriate to adjust the policy tool mix. That will depend on circumstances and the economic diagnosis of the moment.
The challenge has been convincing financial markets that tapering is not tightening or a signal to future tightening. Why has this been a challenge? Presumably because the Fed has not done a good job as explaining the need for a change in the policy mix. Back to Kocherlakota:
The Federal Open Market Committee is currently buying $85 billion of long-term assets per month. Recently, there has been an ongoing public conversation about the possibility that the FOMC might reduce its current flow of long-term asset purchases over the next year. The FOMC’s asset purchases push down long-term interest rates, and encourage consumers to spend and businesses to invest. Hence, reducing the flow of purchases in the near term would be a drag on the already slow rate of progress of the economy toward the Committee’s goals. From the perspective of a goal-oriented approach, the timing of this conversation seems puzzling.
The tapering discussion appears ill-advised given that unemployment remains unacceptably high and inflation remains unacceptably low. Indeed, given the Fed's own forecasts, there is little reason to tempt fate by changing the policy mix in any way that could be interpreted as a prelude to tighter policy. Kocherlakota, however, points out the Fed's escape clause:
I find that the FOMC’s statement, released after its recent meeting, provides a useful way to understand this otherwise puzzling conversation. Long-term asset purchases are still a relatively novel tool, and central banks continue to learn about their costs and benefits. For this reason, the FOMC statement emphasizes that its decisions about asset purchases are based not only on the Committee’s economic outlook, but also on its assessment of the costs and efficacy of this unconventional policy tool. The requisite calculus is necessarily a delicate one.
The tapering debate is centered largely on the issues of "stronger and sustainable" labor market data and "progress" toward goals. With these criteria in mind, it seems difficult to justify tapering, yet we continue to expect tapering because policy makers keep emphasizing the need to change the mix of policy. Hence confusion over the intentions of the monetary policy makers. And Kocherlakota sees the fundamental source of the confusion:
Unfortunately, the recent public conversation about reducing the flow of asset purchases typically places little or no emphasis on these costs and efficacy considerations. As a result, the dialogue risks creating the perception that the Committee is not following a goal-oriented approach to monetary policy. Such a perception can create doubts and uncertainty about the criteria underlying Committee decisions. We can see the imprint of those doubts and uncertainty in the heightened level of bond market volatility over the past few months. I believe that the Committee could reduce this volatility by greatly enhancing its communication on the role of cost and efficacy considerations in its deliberations about the evolution of asset purchases.
We seem to be missing an explicit discussion of the cost/benefit tradeoff. We think it has something to do with financial stability issues, policy exit issues, political implications of an ever expanding balance sheet, etc. But we have no clear metrics to evaluate these issues; all we really know is that policymakers are sufficiently uncomfortable with the asset purchase program that they are looking to end it.
One would think that Kocherlakota, having elevated the issue to something that demands a response, would then seize on the opportunity to explain the "cost and efficacy considerations" in play. No such luck, as he instead pushes forward to other communication changes, such as lowering the unemployment threshold, and the possibility of reducing interest on reserves as tools by which the Federal Reserve could pursue its goal oriented strategy.
Thus even arch-dove Kocherlakota, it seems, has lost interest in asset purchases, yet, almost maddenly, fails to explain why the cost/benefit calculus has turned against continued asset purchases. It is as if he knows the answer, but is simply not willing to say it without official FOMC guidance. There seems to be a lack of transparency here. The Fed simply is not fully explaining the standards by which it is evaluating the asset purchase program. It is kind of like subjecting financial market participants to "double-secret probation" regarding the path and timing of tapering.
Bottom Line: The Fed is clearly signalling they want to change the policy mix. They are not clearly signalling why. Kocherlakota effectively makes clear that the "why" has to do with the cost/benefit calculus surrounding asset purchases. I would very much like Yellen to explain that calculus in her Senate hearing, and wish someone would ask the question directly. Probably not gonna happen.
- Now for some jaw droppingly bad analysis … - Digitopoly
- Keynesian Economics and the Journals - Paul Krugman
- Social Security Is Especially Important to Minorities - CBPP
- Teaching and Learning about the Federal Reserve - Ben Bernanke
- Yellen to Back Stimulus Plan in Remarks to Senators - NYTimes.com
- How to be a New and an Old Keynesian at the same time - mainly macro
- Europe's (Low) Inflation Problem - Paul Krugman
- Sizing Up the Fiscal Future - NYTimes.com
- Winners and Losers From Stimulus - NYTimes.com
- Bernanke the Teacher, Talking to Teachers - NYTimes.com
- Why Sinn was wrong to write this FT article - Antonio Fatas
- Why does Fiscal Stimulus Work? - Angry Bear
- Statement - Janet Yellen
- The Crazy Lower Bound - Paul Krugman
- Having the Backbone to Set Minimum Standards - Robert Reich
- German Economists Join Country’s Chorus of Critics - NYTimes.com
- On the Design of Macroprudential Policies - Liberty Street Economics
- Eurozone Morality Plays- mainly macro
Wednesday, November 13, 2013
Thorstein Veblen's critique of the American system of business, by Dan Little: Thorstein Veblen was certainly a heterodox observer of modern capitalism. He was trained in the late nineteenth-century iteration of neoclassical economics, but he was more impressed by the irrationality of what he observed than the optimizing rationality that is postulated by the neoclassicals. He was also an intelligent observer and analyst of contemporary economic and sociological trends — not in theory but in the concrete forms that turn-of-the-century capitalism was taking in the United States and Europe. It is interesting, therefore, to examine his analysis of the business firm in The Theory of Business Enterprise, published in 1904. (I examined his critique of American universities in The Higher Learning in America in an earlier post.)
Here is how he describes his approach to the topic of American business:In respect to its point of departure, the following inquiry into the nature, causes, utility, and further drift of business enterprise differs from other discussions of the same general range of facts. Any unfamiliar conclusions are due to this choice of a point of view, rather than to any peculiarity in the facts, articles of theory, or method of argument employed. The point of view is that given by the business man's work, -- the aims, motives, and means that condition current business traffic. This choice of a point of view is itself given by the current economic situation, in that the situation plainly is primarily a business situation. (Preface)
Veblen is sometimes credited with being one of the originators of institutional economics. This is due, in large part, to his effort to discover some of the institutional dynamics created for the modern industrial system by the incentives and constraints created for the owners and managers of firms.
One of the central impressions that emerges from reading The Theory of Business Enterprise is this: the modern American industrial economy is a coordinated system that requires many things to happen in sync with each other; but the owners of the components of this system often have strategic interests that lead them to take actions leading to de-synchronization and short-term crisis. There is a serious conflict of interest that exists between the interests of the owner and the needs of the system -- and the public's interests are primarily served by a smoothly functioning system. So owners are in conflict with the broader interests of the public.
So who is the primary actor, the "business man", in Veblen's account, and what are his or her motives?The business man, especially the business man of wide and authoritative discretion, has become a controlling force in industry, because, through the mechanism of investments and markets, he controls the plants and processes, and these set the pace and determine the direction of movement for the rest. (Chap. 1)
The motive of business is pecuniary gain, the method is essentially purchase and sale. The aim and usual outcome is an accumulation of wealth. Men whose aim is not increase of possessions do not go into business, particularly not on an independent footing. (Chapter 3)So the owners and managers of businesses have a great deal of power in organizing and coordinating economic activity, and their goal is to maximize individual financial gain. Does this work to further the interests of society as a whole? Veblen does not adopt Adam Smith's notion that the pursuit of self-interest leads naturally to the expansion of the common good, and that the hidden hand guides this economy towards optimal outcomes and uses of available resources:The outcome of this management of industrial affairs through pecuniary transactions, therefore, has been to dissociate the interests of those men who exercise the discretion from the interests of the community.... Broadly, this class of business men, in so far as they have no ulterior strategic ends to serve, have an interest in making the disturbances of the system large and frequent, since it is in the conjunctures of change that their gain emerges.... It is, as a business proposition, a matter of indifference to the man of large affairs whether the disturbances which his transactions set up in the industrial system help or hinder the system at large. (7%)
Here Veblen seems to be making an interesting and unorthodox point: that the strategic actions of the owners of capital in a modern economy are oriented towards disequilibrium as often as they are towards equilibrium. The comment seems uncannily apt with regard to the financial crisis of 2008.The end of his endeavors is, not simply to effect an industrially advantageous consolidation, but to effect it under such circumstances of ownership as will give him control of large business forces or bring him the largest possible gain. (8%)
Veblen appears to have in mind the consolidations and strategic actions involved in the railroad industry at the turn of the century. But this comment also has resonance with respect to the past two decades of recent history in the software industry, with companies jockeying for advantage on the desktop of users for their operating systems and applications.
Another incentive that owners of industries have, according to Veblen, is to insulate themselves from competition -- to create partial or complete monopolies in the fields they occupy. And Veblen looks at advertising as one of the tools that businesses use to secure a partial monopoly.The endeavor of all such enterprises that look to a permanent continuance of their business is to establish as much of a monopoly as may be. (12%)
So Veblen's organizing view of modern industry (circa 1900, anyway) is that it is dispositionally inclined towards being anti-competitive -- to finding means of sheltering its production methods and prices from competition from other firms.
In the end Veblen does not believe that these practices turn the balance sheet negative against this form of economic organization. But he believes that the wastefulness associated with these strategic efforts at short-term advantage with regard to competitors is only compensated for due to the pressure that this system creates on the direct producers -- workers, engineers, architects, and service providers -- to be as productive during their working hours as possible. Owners and managers have an incentive to destabilize their competitors; but they also have an interest in optimizing their own uses of resources.While it is in the nature of things unavoidable that the management of industry by modern business methods should involve a large misdirection of effort and a very large waste of goods and services, it is also true that the aims and ideals to which this manner of economic life gives effect act forcibly to offset all this incidental futility. These pecuniary aims and ideals have a very great effect, for instance, in making men work hard and unremittingly, so that on this ground alone the business system probably compensates for any wastes involved in its working. There seems, therefore, to be no tenable ground for thinking that the working of the modern business system involves a curtailment of the community's livelihood. It makes up for its wastefulness by the added strain which it throws upon those engaged in the productive work. (14%)
One reason I particularly enjoy re-reading thinkers like Veblen is that they do a good job of challenging our current assumptions. Veblen was looking at a functioning economy with important similarities to our own, consisting of visibly distinct groups of actors (owners, engineers, workers, advertising execs, ...), and he was in a position to notice some of the dysfunctional features of this system that are still with us today but that are no longer so visible.
(Here is an earlier post about Charles Perrow's treatment of corporations during much the same time period; link.)
Are "educational disparities are a main driver of economic inequality"?:
Rethinking the Rise of Inequality, by Eduardo Porter, NY Times: In a poll conducted last month by the College Board and National Journal: ... “It is absolutely clear that educational wage differentials have not driven wage inequality over the last 15 years,” said Lawrence Mishel, who heads the Economic Policy Institute, a liberal-leaning center for economic policy analysis. “Wage inequality has grown a lot over the last 15 years and the educational wage premium has changed little.”
The standard analysis of the interplay between technology and education, developed by economists like Lawrence Katz and Claudia Goldin..., and David Autor..., suggests that improvements in technology — coupled with a college graduation rate that slowed sharply in the 1980s — have been principal drivers of the nation’s widening income gap, leaving workers with less education behind.
But critics like Mr. Mishel point out that this theory has important blind spots. For instance, why have wages for college graduates stagnated over the last decade, even as innovation continues at a breathtaking pace? ...
Most notably, the skills-and-tech story leaves aside one of the most perplexing and important dynamics of the last 30 years: the rise of the 1 percent, a tiny sliver of the population that last year took in almost a dollar out of every $4 generated by the American economy. ...
Mr. Mishel’s preferred explanation of inequality’s rise is institutional: a shrinking minimum wage cut into the earnings of the nation’s least-skilled workers while falling trade barriers, deregulation and the decline of labor unions eroded the income of the middle class. The rise of the top 1 percent, he believes, is mostly about executive pay and the growing footprint of finance. ...
My view is that both the technology and institutional forces are at work, and the question is not which of the two explains growing inequality -- they are not mutually exclusive -- but rather how much each contributed to the growing disparity.
I found a similar result long, long ago in a Journal of Econometrics paper:
Pushing on a string: US monetary policy is less powerful during recessions, by Silvana Tenreyro, Gregory Thwaites, Vox EU: Most industrialized countries have been trying to cut public borrowing without impeding recovery from the Great Recession. Central banks have attempted to square this circle by loosening monetary policy. For example, UK finance minister George Osborne has stated that “theory and evidence suggest that tight fiscal policy and loose monetary policy is the right macroeconomic mix” for countries with excessive private and public debt (Mansion House speech 2012).
A number of recent studies have found that fiscal policy is particularly powerful in recessions – tax hikes and spending cuts harm growth more when the economy is already weak (Auerbach and Gorodnichenko 2012, Jordà and Taylor 2013). But if monetary policy is still effective, these big negative effects could in principle be offset by lower interest rates. In our new paper (Tenreyro and Thwaites 2013) we find that, at least in the US, this is not the case: official interest rates have no discernible effect on the economy during recessions. This means a crucial ingredient – the ability to stimulate a recession-hit economy by cutting policy rates – may be missing from the prevailing policy mix. ...
- Germany's Lack of Reciprocity - Paul Krugman
- Social Scientists Hit Back at NSF Grant Rules - Scientific American
- Stop Penalizing Poor College Students - NYTimes.com
- Rethinking the Rise of Inequality - NYTimes.com
- Rate-design wars - The Berkeley Blog
- The fiscal effects of immigration to the UK - vox
- Finding Out Where Janet Yellen Stands - Kevin Warsh
- Low Wage Workers Weren’t Always Left Behind - WSJ
- Fed’s Kocherlakota: Expectations of Fed Taper Are ‘Puzzling’ - WSJ
- Thin, active invisibility cloak demonstrated for first time - EurekAlert
- The End of Asset Purchases: Is That the Big Question? - macroblog
- Rebalancing, China, United States, Economy - FRBSF Economic Letter
- Surprise! I (sort of) Agree with Olli Rehn! - Gloomy European Economist
- Why the unemployment rate isn't always key - OregonLive.com
- Why it matters who regulates Wall Street - Heidi Moore
- Olli Rehn’s charm offensive - Eurointelligence
- The 40-Year Slump - Harold Myerson
- Poverty, Government and Social Class - NYTimes.com
- Regulating Consumer Financial Products - owenzidar
- Iceland’s capital controls - vox
- A new path for growth - MIT News
- Revisiting sovereign bankruptcy - vox
- Africa's Growth: Not Just Minerals - Tim Taylor
- A deficit of deficit credibility - FT Alphaville
- Larry Summers, 14.462, and Wealth Illusions - askblog
- Are bankers wasting a good crisis - Magic, maths and money
Tuesday, November 12, 2013
Alan Blinder defends Obamacare:
Despite a Botched Rollout, the Health-Care Law Is Worth It, by Alan S. Blinder, Commentary, WSJ: The botched rollout of ... "ObamaCare") has been an unmitigated disaster. Choose your favorite adjective: horrible, embarrassing, inexcusable. They all fit.
But a badly designed website doesn't signify a badly designed policy. The goals, principles and major design features of the ACA are barely affected by the government's health-exchange website catastrophe. If you liked the basic ideas before, you still should. ...
Unfortunately, that simple message may not penetrate the public consciousness. ... Remember, in politics, spin is often more important than reality. ... If we could get people to turn their attention from PR to policy—a big if—they would see that little has changed. The three central elements of ObamaCare are insurance reform, getting (most of) the uninsured covered, and containing the upward spiral in medical-care costs. Each remains in place. ...
Considering all these problems, is the game worth the candle? Absolutely—because the status quo ante was so unacceptable. America cannot be a humane society if we leave 15% of our population uninsured. America cannot be an efficient society if we spend 50% to 100% more of our incomes on health care than other countries, and yet don't get better health outcomes. We can't let a botched website get in the way of goals that big.
Endogenous Aggregate Supply: A recent Federal Reserve paper makes the case that potential GDP is to some extent endogenous to aggregate demand shocks...
One example of this phenomenon would be workers who had up-to-date skills and were productive, but lost their job because of the Great Recession. Over time, their skills became obsolete and they went from being cyclically unemployed to structurally unemployed. What started as an aggregate demand problem slowly became an aggregate supply one. It is therefore important to respond to aggregate demand shocks quickly and thoroughly to prevent this from happening.
I believe another example of this endogenous aggregate supply response is the decline of expected productivity growth. ... This is a big deal since a decline in expected productivity growth means firms will come to expect lower returns on capital expenditures and households will come to expect lower future income growth. Firms and households will cut spending accordingly. But this expected decline in aggregate supply growth is probably an overreaction. It is hard to believe that all the productivity advances from technology and the opening up of the global economy permanently disappeared because of the Great Recession. Rather, I see it as an endogenous aggregate supply response that should largely self-correct as the economy returns to full employment.1
... The Fed paper behind this is getting a lot of attention, but it is important to note that Mark Thoma made the same point almost a year and half earlier. He does a good job illustrating the idea with the following figure. Here, Y*SR is short-run endogenous aggregate supply, while Y*LR is the long-run or full potential amount of aggregate supply:
Here is how Thoma describes it:Up until the point where the line splits into three pieces, assume the economy is in long-run equilibrium with output at the natural rate...Then, for some reason, aggregate demand falls leading the economy into a recession. As AD falls, people are laid off, equipment is stored, factories are shuttered, and so on and the economy's capacity to produce falls in the short-run as shown by the blue line on the diagram.But this is a temporary, not a permanent situation. Eventually people will be put back to work, trucks in parking lots will be back on the road, factories will reopen -- you get the picture -- and productive capacity will grow as the economy recovers. I believe many people are treating what is ultimately a temporary fall in capacity as a permanent change, and they are making the wrong policy recommendations as a result.In fact, there's no reason to think productive capacity can't return to its long-run trend just as fast or faster than output can recover. If so, then it would be a mistake to do as many are doing presently and treat the blue short-run y* line as a constraint for policy, conclude that the gap is small and hence there's nothing for policy to do. Capacity will recover...
In terms of our earlier examples, this understanding means the now structurally unemployed individuals will find it far easier to retool and get back into the labor force if the economy is humming at full employment. And the existing productivity gains will be better appreciated in a robust economy, thereby raising long-run expected growth. ...
The Inequality of Climate Change, by Annie Lowrey, NY Times: ... “No nation will be immune to the impacts of climate change,” said a major World Bank report on the issue last year. “However, the distribution of impacts is likely to be inherently unequal and tilted against many of the world’s poorest regions, which have the least economic, institutional, scientific and technical capacity to cope and adapt.”
That is the firmly established view of numerous national governments, development and aid groups and the United Nations as well. ...
The reason is twofold. First..., poorer lower-latitude regions are expected to face desertification and more-intense storms. The increase in the sea level might be 15 to 20 percent higher in the tropics than the global average, meaning flooding for coastal cities in regions like southern Asia. Droughts are also expected to increase significantly in lower-latitude areas, including in Africa and the Middle East. (The United States and Australia might also be hard hit...) Moreover, in many countries, the vulnerable poor might cluster in areas where climate change might have a disproportionate impact, like flood zones and dry rural areas. ...
The second, more significant reason is that the poorer the country, the harder it might be for it to respond to a changing climate. ...
For that reason, many poorer countries hold rich countries like the United States responsible for climate change, and want them to help pay for its effects. ...
“Poverty reduction and climate change are linked,” said Dr. Jim Yong Kim, the president of the World Bank... He concluded: “If we don’t confront climate change, we won’t end poverty.”
- Endogenous Aggregate Supply - David Beckworth
- Europe's Macro Muddle (Wonkish) - Paul Krugman
- QE in Japan: Past and Present - MacroMania
- Despite a Botched Rollout, the Health-Care Law Is Worth It - Alan Blinder
- Forward Causal Inference and Reverse Causal Questions - Gelman and Imbens
- Challenging times in academia - vox
- Journal quality and citations - vox
- The ECB and the Germans - Eurointelligence
- Why U.S. Economic Growth is Getting Harder - Tim Taylor
- Slowing the growth of U.S. debt [don't agree...] - Martin Feldstein
- How much does the ECBs rate cut really matter? - Jonathon Hazell
- Can crop rotations cure dead zones? - Greed, Green & Grains
Monday, November 11, 2013
Izabella Kaminska at FT Alphaville:
Greenspan’s dilemma revived, by Izabella Kaminska: Deficit continues to be a dirty word in the US..., whilst the idea that the US is an unsustainable deficit spender increasingly propagates in mainstream circles.
But, as Ethan Harris at Bank of America Merrill Lynch shows on Monday, nothing could be further from the truth. In reality the US deficit is contracting at a relatively speedy rate... And, bar the employment situation..., all of this comes in the context of an ever more quickly reviving economy...
Which leaves the following as the most notable point being made by Harris, in reference to the natural unemployment rate (NAIRU):
If inflation persists below 1.5%, we would expect the interest rate forecast to drop further. We also expect the FOMC to cut its unemployment rate guidepost for hiking rates from 6.5% to 5.5% or lower. Ultimately, the Fed may decide to “overshoot” the inflation-neutral NAIRU to force inflation back up to target.
This in itself could become ever more crucial in the months to come. In short, it echoes exactly the same sort of dilemma Alan Greenspan faced all the way back in 1996. Do you raise rates despite little obvious inflationary pressure and risk stagnating growth? Or do you give the notion of a “new economy” — the idea that technological change is fuelling a boom in productivity and alleviating inflationary pressures — the benefit of the doubt?
Janet Yellen, it must be said, is uniquely positioned to make that call if she is confirmed. Not only was she there the first time around, she may have had more input on Greenspan’s ultimate decision than many remember. Call it something akin to mea culpa dotcom crash hindsight. ...
Andrew Gelman and Guido Imbens posted this at the NBER to try to get the attention of economists:
Why ask Why? Forward Causal Inference and Reverse Causal Questions, by Andrew Gelman and Guido Imbens, NBER Working Paper No. 19614, November 2013 NBER: The statistical and econometrics literature on causality is more focused on "effects of causes" than on "causes of effects." That is, in the standard approach it is natural to study the effect of a treatment, but it is not in general possible to define the causes of any particular outcome. This has led some researchers to dismiss the search for causes as "cocktail party chatter" that is outside the realm of science. We argue here that the search for causes can be understood within traditional statistical frameworks as a part of model checking and hypothesis generation. We argue that it can make sense to ask questions about the causes of effects, but the answers to these questions will be in terms of effects of causes.
The end of the most recent entry by David Warsh at Economic Principals:
... Evidence is accumulating that Obama is simply not a good manager of the immensely complicate government over which he presides. (An unnamed White House aide solemnly avers to the Post team that the president ended every meeting with his health care staff with the admonition, “All that is well and good, but if the Web site doesn’t work, nothing else matters”) but a good manager would not just say it, but would also make it so. His hand-picked point-person to oversee implementation was Nancy-Ann DeParle, a veteran manager of Medicare and Medicaid both in Tennessee and then in Washington during the Clinton years. In retrospect, the tip-off might have been when DeParle left the White House last August for a job in private equity. It is an angle yet to be explored.
But evidence is accumulating, too, of a long-simmering guerilla campaign by Clinton loyalists and other Democratic rivals to paint Obama as an indecisive leader and incompetent manager, as a means of creating a narrative for 2016 in which the next Democratic nominee runs against Obama’s shortcomings as well as whoever becomes the Republican nominee. A campaign to compare and contrast the styles of the Bill Clinton and Obama presidencies means that hardly anything that is said about either one can be taken at face value.
Republicans, meanwhile, are heartened by the re-election victory of New Jersey Gov. Chris Christie. It is worth remembering that that individual mandate was originally a Republican idea for extending coverage to those who were previously insured – only one part of the nation’s enormous health care problems. As MIT’s Gruber says, “It was only after president Obama put his name to it that it became the devil’s work.”
The GOP’s improvisational campaign against Obamacare is even nuttier than the long “Whitewater scandal” campaign that led to Bill Clinton’s impeachment – and even more counterproductive. It is hard to imagine a successful Republican candidate for the presidency who doesn’t somehow take back ownership of the individual mandate and promise to make it work. It will indeed be a governor who accomplishes that – more than a few years off.
Fiscal scolds -- the same people who have been wrong about the virtues of austerity -- have made France their next target:
The Plot Against France, by Paul Krugman, Commentary, NY Times: On Friday Standard & Poor’s ... downgraded France. The move made headlines, with many reports suggesting that France is in crisis. But markets yawned...
So what’s going on here? The answer is that ... there really are a lot of people trying to bad-mouth the place —... one clear demonstration that ... fiscal scolds don’t really care about deficits. Instead, they’re using debt fears to advance an ideological agenda. ...
Given such rhetoric, one comes to French data expecting to see the worst. What you find instead is a country experiencing economic difficulties — who isn’t? — but in general performing as well as or better than most of its neighbors...
Meanwhile, French fiscal prospects look distinctly nonalarming. The budget deficit has fallen sharply since 2010... By the numbers, then, it’s hard to see why France deserves any particular opprobrium. So again, what’s going on?
Here’s a clue: Two months ago Olli Rehn, Europe’s commissioner for economic and monetary affairs — and one of the prime movers behind harsh austerity policies — dismissed France’s seemingly exemplary fiscal policy. Why? Because it was based on tax increases rather than spending cuts — and tax hikes, he declared, would “destroy growth and handicap the creation of jobs.”
In other words, never mind what I said about fiscal discipline, you’re supposed to be dismantling the safety net. S.& P.’s explanation of its downgrade, though less clearly stated, amounted to the same thing... Again, never mind the budget numbers, where are the tax cuts and deregulation?
You might think that Mr. Rehn and S.& P. were basing their demands on solid evidence... But they weren’t..., research at the I.M.F. suggests that when you’re trying to reduce deficits in a recession, the opposite is true: temporary tax hikes do much less damage than spending cuts.
Oh,... when people start talking about the wonders of “structural reform,” take it with a large heaping of salt. It’s mainly a code phrase for deregulation — and the evidence on the virtues of deregulation is decidedly mixed. ...
If all this sounds familiar to American readers, it should. U.S. fiscal scolds turn out, almost invariably, to be much more interested in slashing Medicare and Social Security than they are in actually cutting deficits. Europe’s austerians are now revealing themselves to be pretty much the same. France has committed the unforgivable sin of being fiscally responsible without inflicting pain on the poor and unlucky. And it must be punished.
Sunday, November 10, 2013
Calculated Risk has good news:
State and local government austerity is over, by Bill McBride : ... This "good news" is ... a significant change from state and local governments being a headwind for the economy to becoming a slight tailwind.
Here are two graphs that show the aggregate austerity is over. The first graph shows the contribution to percent change in GDP for residential investment and state and local governments since 2005.
The blue bars are for residential investment (RI), and RI was a significant drag on GDP for several years. Now RI has been adding added to GDP growth.
The red bars are the contribution from state and local governments. ... Now state and local governments have added to GDP for two consecutive quarters, and I expect state and local governments to continue to make small positive contributions to GDP going forward. ...
[The second graph shows that in] 2013, state and local government employment is up 74 thousand through October. ...
I think most of the recession related state and local government layoffs are over, and it appears state and local government employment has bottomed. Of course Federal government layoffs are ongoing, but it appears state and local government austerity is over (in the aggregate).
- Mario and the Austerians - Paul Krugman
- Firm-bank relationships - vox
- Corporate governance and bank capitalisation - vox
- Rational Vs Adaptive Exectations - Angry Bear
- We still are our jobs, but no longer by choice - Bonnie Kavoussi
- Medium term exchange rates and current accounts - mainly macro
- The Co-Villains Behind Obesity’s Rise - NYTimes.com
- More Notes On France-Bashing - Paul Krugman
- Private deleveraging in the Eurozone - vox
- Crises: Yesterday and Today - Fourteenth Jacques Polak Conference
- Non-Crisis France - Paul Krugman
Saturday, November 09, 2013
Ben Bernanke on how the bank panic of 2007 is similar to the panic of 1907:
The Crisis as a Classic Financial Panic, by Chairman Ben S. Bernanke: I am very pleased to participate in this event in honor of Stanley Fischer. Stan was my teacher in graduate school, and he has been both a role model and a frequent adviser ever since. An expert on financial crises, Stan has written prolifically on the subject and has also served on the front lines, so to speak--notably, in his role as the first deputy managing director of the International Monetary Fund during the emerging market crises of the 1990s. Stan also helped to fight hyperinflation in Israel in the 1980s and, as the governor of that nation's central bank, deftly managed monetary policy to mitigate the effects of the recent crisis on the Israeli economy. Subsequently, as Israeli housing prices ran upward, Stan became an advocate and early adopter of macroprudential policies to preserve financial stability.
Stan frequently counseled his students to take a historical perspective, which is good advice in general, but particularly helpful for understanding financial crises, which have been around a very long time. Indeed, as I have noted elsewhere, I think the recent global crisis is best understood as a classic financial panic transposed into the novel institutional context of the 21st century financial system.1 An appreciation of the parallels between recent and historical events greatly influenced how I and many of my colleagues around the world responded to the crisis.
Besides being the fifth anniversary of the most intense phase of the recent crisis, this year also marks the centennial of the founding of the Federal Reserve.2 It's particularly appropriate to recall, therefore, that the Federal Reserve was itself created in response to a severe financial panic, the Panic of 1907. This panic led to the creation of the National Monetary Commission, whose 1911 report was a major impetus to the Federal Reserve Act, signed into law by President Woodrow Wilson on December 23, 1913. Because the Panic of 1907 fit the archetype of a classic financial panic in many ways, it's worth discussing its similarities and differences with the recent crisis.3
Like many other financial panics, including the most recent one, the Panic of 1907 took place while the economy was weakening; according to the National Bureau of Economic Research, a recession had begun in May 1907.4 Also, as was characteristic of pre-Federal Reserve panics, money markets were tight when the panic struck in October, reflecting the strong seasonal demand for credit associated with the harvesting and shipment of crops. The immediate trigger of the panic was a failed effort by a group of speculators to corner the stock of the United Copper Company. The main perpetrators of the failed scheme, F. Augustus Heinze and C.F. Morse, had extensive connections with a number of leading financial institutions in New York City. When the news of the failed speculation broke, depositor fears about the health of those institutions led to a series of runs on banks, including a bank at which Heinze served as president. To try to restore confidence, the New York Clearinghouse, a private consortium of banks, reviewed the books of the banks under pressure, declared them solvent, and offered conditional support--one of the conditions being that Heinze and his board step down. These steps were largely successful in stopping runs on the New York banks.
But even as the banks stabilized, concerns intensified about the financial health of a number of so-called trust companies--financial institutions that were less heavily regulated than national or state banks and which were not members of the Clearinghouse. As the runs on the trust companies worsened, the companies needed cash to meet the demand for withdrawals. In the absence of a central bank, New York's leading financiers, led by J.P. Morgan, considered providing liquidity. However, Morgan and his colleagues decided that they did not have sufficient information to judge the solvency of the affected institutions, so they declined to lend. Overwhelmed by a run, the Knickerbocker Trust Company failed on October 22, undermining public confidence in the remaining trust companies.
To satisfy their depositors' demands for cash, the trust companies began to sell or liquidate assets, including loans made to finance stock purchases. The selloff of shares and other assets, in what today we would call a fire sale, precipitated a sharp decline in the stock market and widespread disruptions in other financial markets. Increasingly concerned, Morgan and other financiers (including the future governor of the Federal Reserve Bank of New York, Benjamin Strong) led a coordinated response that included the provision of liquidity through the Clearinghouse and the imposition of temporary limits on depositor withdrawals, including withdrawals by correspondent banks in the interior of the country. These efforts eventually calmed the panic. By then, however, the U.S. financial system had been severely disrupted, and the economy contracted through the middle of 1908.
The recent crisis echoed many aspects of the 1907 panic. Like most crises, the recent episode had an identifiable trigger--in this case, the growing realization by market participants that subprime mortgages and certain other credits were seriously deficient in their underwriting and disclosures. As the economy slowed and housing prices declined, diverse financial institutions, including many of the largest and most internationally active firms, suffered credit losses that were clearly large but also hard for outsiders to assess. Pervasive uncertainty about the size and incidence of losses in turn led to sharp withdrawals of short-term funding from a wide range of institutions; these funding pressures precipitated fire sales, which contributed to sharp declines in asset prices and further losses. Institutional changes over the past century were reflected in differences in the types of funding that ran: In 1907, in the absence of deposit insurance, retail deposits were much more prone to run, whereas in 2008, most withdrawals were of uninsured wholesale funding, in the form of commercial paper, repurchase agreements, and securities lending. Interestingly, a steep decline in interbank lending, a form of wholesale funding, was important in both episodes. Also interesting is that the 1907 panic involved institutions--the trust companies--that faced relatively less regulation, which probably contributed to their rapid growth in the years leading up to the panic. In analogous fashion, in the recent crisis, much of the panic occurred outside the perimeter of traditional bank regulation, in the so-called shadow banking sector.5
The responses to the panics of 1907 and 2008 also provide instructive comparisons. In both cases, the provision of liquidity in the early stages was crucial. In 1907 the United States had no central bank, so the availability of liquidity depended on the discretion of firms and private individuals, like Morgan. In the more recent crisis, the Federal Reserve fulfilled the role of liquidity provider, consistent with the classic prescriptions of Walter Bagehot.6 The Fed lent not only to banks, but, seeking to stem the panic in wholesale funding markets, it also extended its lender-of-last-resort facilities to support nonbank institutions, such as investment banks and money market funds, and key financial markets, such as those for commercial paper and asset-backed securities.
In both episodes, though, liquidity provision was only the first step. Full stabilization requires the restoration of public confidence. Three basic tools for restoring confidence are temporary public or private guarantees, measures to strengthen financial institutions' balance sheets, and public disclosure of the conditions of financial firms. At least to some extent, Morgan and the New York Clearinghouse used these tools in 1907, giving assistance to troubled firms and providing assurances to the public about the conditions of individual banks. All three tools were used extensively in the recent crisis: In the United States, guarantees included the Federal Deposit Insurance Corporation's (FDIC) guarantees of bank debt, the Treasury Department's guarantee of money market funds, and the private guarantees offered by stronger firms that acquired weaker ones. Public and private capital injections strengthened bank balance sheets. Finally, the bank stress tests that the Federal Reserve led in the spring of 2009 and the publication of the stress-test findings helped restore confidence in the U.S. banking system. Collectively, these measures helped end the acute phase of the financial crisis, although, five years later, the economic consequences are still with us.
Once the fire is out, public attention turns to the question of how to better fireproof the system. Here, the context and the responses differed between 1907 and the recent crisis. As I mentioned, following the 1907 crisis, reform efforts led to the founding of the Federal Reserve, which was charged both with helping to prevent panics and, by providing an "elastic currency," with smoothing seasonal interest rate fluctuations. In contrast, reforms since 2008 have focused on critical regulatory gaps revealed by the crisis. Notably, oversight of the shadow banking system is being strengthened through the designation, by the new Financial Stability Oversight Council, of nonbank systemically important financial institutions (SIFIs) for consolidated supervision by the Federal Reserve, and measures are being undertaken to address the potential instability of wholesale funding, including reforms to money market funds and the triparty repo market.7
As we try to make the financial system safer, we must inevitably confront the problem of moral hazard. The actions taken by central banks and other authorities to stabilize a panic in the short run can work against stability in the long run, if investors and firms infer from those actions that they will never bear the full consequences of excessive risk-taking. As Stan Fischer reminded us following the international crises of the late 1990s, the problem of moral hazard has no perfect solution, but steps can be taken to limit it.8 First, regulatory and supervisory reforms, such as higher capital and liquidity standards or restriction on certain activities, can directly limit risk-taking. Second, through the use of appropriate carrots and sticks, regulators can enlist the private sector in monitoring risk-taking. For example, the Federal Reserve's Comprehensive Capital Analysis and Review (CCAR) process, the descendant of the bank stress tests of 2009, requires not only that large financial institutions have sufficient capital to weather extreme shocks, but also that they demonstrate that their internal risk-management systems are effective.9 In addition, the results of the stress-test portion of CCAR are publicly disclosed, providing investors and analysts information they need to assess banks' financial strength.
Of course, market discipline can only limit moral hazard to the extent that debt and equity holders believe that, in the event of distress, they will bear costs. In the crisis, the absence of an adequate resolution process for dealing with a failing SIFI left policymakers with only the terrible choices of a bailout or allowing a potentially destabilizing collapse. The Dodd-Frank Act, under the orderly liquidation authority in Title II, created an alternative resolution mechanism for SIFIs that takes into account both the need, for moral hazard reasons, to impose costs on the creditors of failing firms and the need to protect financial stability; the FDIC, with the cooperation of the Federal Reserve, has been hard at work fleshing out this authority.10 A credible resolution mechanism for systemically important firms will be important for reducing uncertainty, enhancing market discipline, and reducing moral hazard.
Our continuing challenge is to make financial crises far less likely and, if they happen, far less costly. The task is complicated by the reality that every financial panic has its own unique features that depend on a particular historical context and the details of the institutional setting. But, as Stan Fischer has done with unusual skill throughout his career, one can, by stripping away the idiosyncratic aspects of individual crises, hope to reveal the common elements. In 1907, no one had ever heard of an asset-backed security, and a single private individual could command the resources needed to bail out the banking system; and yet, fundamentally, the Panic of 1907 and the Panic of 2008 were instances of the same phenomenon, as I have discussed today. The challenge for policymakers is to identify and isolate the common factors of crises, thereby allowing us to prevent crises when possible and to respond effectively when not.
1. See Ben S. Bernanke (2012), "Some Reflections on the Crisis and the Policy Response," speech delivered at "Rethinking Finance," a conference sponsored by the Russell Sage Foundation and Century Foundation, New York, April 13. For the classic discussion of financial panics and the appropriate central bank response, see Walter Bagehot ( 1897), Lombard Street: A Description of the Money Market (New York: Charles Scribner's Sons).
2. Information on the centennial of the Federal Reserve System is available at www.federalreserve.gov/aboutthefed/centennial/about.htm.
3. The Panic of 1907 is discussed in a number of sources, including O.M.W. Sprague (1910), A History of Crises under the National Banking System (PDF), National Monetary Commission (Washington: U.S. Government Printing Office), and, with a focus on its monetary consequences, Milton Friedman and Anna Jacobson Schwartz (1963), A Monetary History of the United States, 1867-1960 (Princeton, N.J.: Princeton University Press). An accessible discussion of the episode, from which this speech draws heavily, can be found in Jon R. Moen and Ellis W. Tallman (1990), "Lessons from the Panic of 1907 (PDF)," Federal Reserve Bank of Atlanta, Economic Review, May/June, pp. 2-13.
4. See Charles W. Calomiris and Gary Gorton (1991), "The Origins of Banking Panics: Models, Facts, and Bank Regulation," in R. Glenn Hubbard, ed., Financial Markets and Financial Crises (Chicago: University of Chicago Press), pp. 109-74.
5. As discussed in Bernanke, "Some Reflections on the Crisis" (see note 1), shadow banking, as usually defined, comprises a diverse set of institutions and markets that, collectively, carry out traditional banking functions--but do so outside, or in ways only loosely linked to, the traditional system of regulated depository institutions. Examples of important components of the shadow banking system include securitization vehicles, asset-backed commercial paper conduits, money market funds, markets for repurchase agreements, investment banks, and mortgage companies.
6. See Bagehot, Lombard Street, in note 1.
7. For a more comprehensive discussion of recent changes in the regulatory framework, see Daniel K. Tarullo (2013), " Evaluating Progress in Regulatory Reforms to Promote Financial Stability," speech delivered at the Peterson Institute for International Economics, Washington, May 3.
8. See Stanley Fischer (1999), "On the Need for an International Lender of Last Resort," Journal of Economic Perspectives, vol. 13 (Fall), pp. 85-104.
9. For example, see Board of Governors of the Federal Reserve System (2013), Capital Planning at Large Bank Holding Companies: Supervisory Expectations and Range of Current Practice (PDF) (Washington: Board of Governors, August).
10. For a more detailed discussion, see Daniel K. Tarullo (2013), "Toward Building a More Effective Resolution Regime: Progress and Challenges," speech delivered at "Planning for the Orderly Resolution of a Global Systemically Important Bank," a conference sponsored by the Federal Reserve Board and the Federal Reserve Bank of Richmond, Washington, October 18.
Perhaps I missed something, but one thing that seems to be missing here is that one benefit of unemployment insurance is that it allows workers to find better matches for their skills. But if, as this research finds, unemployment insurance reduces search intensity, this benefit would be reduced:
How much unemployment insurance do we need?, by Rafael Lalive, Camille Landais, Josef Zweimüller, Vox EU: In response to the Great Recession, unemployment insurance has been extended in many countries, but there is controversy over whether such extensions are optimal. Unemployment insurance entails direct fiscal costs, and encourages job seekers to prolong their search. The familiar benefit of unemployment insurance is that it allows the jobless to maintain their consumption. However, by reducing the search effort of other workers, it also improves a given worker’s chance of finding a job. Unemployment insurance extensions appear less costly when these search externalities are considered.
The global crisis that erupted in 2008 has put millions of workers out of a job. The US, for instance, experienced a dramatic increase in unemployment from around 4% to more than 10% during the Great Recession. Unemployment remained stubbornly high even when the economy began to recover.
Governments throughout the world have responded by making their unemployment insurance systems more generous (OECD 2012). Some observers argue that US unemployment would have returned much faster to normal levels if the US had not expanded the duration of benefit payments from 26 to 99 weeks. Were unemployment insurance extensions too generous? What is the optimal level of unemployment insurance? How much money should job seekers receive and for how long?
Optimal unemployment insurance
In theory, economists have a simple answer to these questions. Unemployment insurance should be set optimally, i.e. such that adding a dollar to unemployment insurance generosity produces as much benefit as it costs (Baily 1978). But how does one go about finding the right amount of unemployment insurance in practice? Actual policy needs to be based on sound evidence. Chetty (2008) discusses a new approach to finding the optimal amount of unemployment insurance. The key idea of his ‘sufficient statistics’ approach is to combine credible evidence on the benefits and costs of more generous insurance with a plausible theoretical framework to back out the optimal level of unemployment insurance.
But, what is the evidence regarding the costs and benefits of unemployment insurance extensions? The costs of more generous unemployment insurance are the total costs to taxpayers. The total costs have two components – direct and additional.
- The direct costs are those paid to job seekers who exhaust their regular benefits.
- Additional costs arise because more generous benefits induce job losers to stay longer on unemployment insurance benefits or enter unemployment more frequently.
Interestingly, a growing number of studies give us well-identified measures of the costs at the individual level. Card and Levine (2000) for instance find that adding 13 weeks of benefit payments will prolong job search by about one week in the US. Lalive and Zweimüller (2004) find a very similar impact for Austria. Lalive, van Ours, and Zweimüller (2006) discuss the costs of raising the benefit level compared to adding weeks of benefits, and find that increasing benefit levels is less costly than prolonging benefit duration.
Economists have spent less effort in estimating the benefits of unemployment insurance.
- Unemployment insurance benefits individuals if it helps to better smooth consumption between employment and unemployment.
Gruber (1997) finds that job seekers experience a drop in consumption of 6% compared to when they were still employed. His estimates suggest that the drop in consumption would have been almost four times larger (22%) without unemployment insurance. This study therefore shows that unemployment insurance does what it is designed to do – insure people.
Unemployment insurance and search externalities
However, unemployment insurance generosity does not only affect individual workers’ search effort, it may also affect the competition for jobs. The idea is simple:
- When generous unemployment insurance induces all other workers to search less intensively, it become easier for me to find a new job.
This means that optimal unemployment insurance needs to account for search externalities. Existing studies on the effects of extending unemployment benefits do not take these externalities into account. If these externalities are empirically relevant, then micro studies miss an important part of the picture.
Landais, Michaillat & Saez (2013) provide a theoretical analysis of optimal unemployment insurance in the presence of search externalities. They set up a search and matching model which shows that stronger search externalities increase the socially-desirable generosity of unemployment insurance. An important implication of this result is that unemployment insurance should be more generous during recessions – when jobs are scarce and externalities are strong. Conversely, unemployment insurance should be less generous during booms when jobs are plentiful and externalities are weak.
Empirical evidence for search externalities
Are search externalities really empirically relevant? Lalive, Landais and Zweimüller (2013) provide evidence for search externalities in a quasi-experimental setting. ...
Interestingly, recent studies conclude that the US benefit extension programmes of the Great Recession increased unemployment significantly, but by less than half a percentage point (Rothstein 2011, Farber and Valletta 2013). This evidence suggests that the unemployment insurance extensions in the US were less costly than previously thought.
Paul Krugman says to watch this tribute to Stan Fischer:
And here's PK's talk on Currency Regimes, Capital Flows, and Crises:
- The Dark Side of Mathematics - Magic, maths and money
- How much unemployment insurance do we need? - vox
- The Crisis as a Classic Financial Panic - Ben Bernanke
- Has the U.S. Economy Been Permanently Damaged? - John Cassidy
- Pragmatists, Ideologues, and Inequality in America - Robert Reich
- Financial Networks and Contagion - Carola Binder
- The Capital-Flow Conundrum - Brookings Institution
- The Stock Market Crash - VECM's & Structural Breaks - Dave Giles
- What’s Going On With the U.S. Labor Force? - WSJ
- Reducing the Federal Prison Population - Tim Taylor
- Technology transfer for Chinese markets - vox
- On (rational) expectations - Chris Dillow
- ECB Thinking Explained - Paul Krugman
- Ideological Ratings - Paul Krugman
- Chinese competition policy - vox
- Naive vs rational expectations is a (partly) false dichotomy - Nick Rowe
- Economic history: What can we learn from the Depression? - The Economist
- Crisis Chronicles: The South Sea Bubble of 1720 - Liberty Street
- New vs. Old Keynesian Stimulus - John Cochrane
Friday, November 08, 2013
I have a post at CBS MoneyWatch:
[Traveling today, so not sure how much I'll be able to post...]