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Thursday, November 18, 2010

What We Can and Cannot Afford

According to "Republicans and many blue-dog Dems," we can't afford to extend unemployment compensation, but we can afford tax cuts for the wealthy:

Why the Lame Duck Congress Must Extend Jobless Benefits For Hard-hit Families But Not Tax Cuts For the Rich, by Robert Reich: America’s long-term unemployed — an estimated 4 million or more — constitute the single newest and biggest social problem facing America. Now their unemployment benefits are about to run out, and the lame-duck Congress may not have the votes to extend them. (You can forget about the next Congress.)
The long-term unemployed can’t get work because there are still five people needing work for every job opening. ...
Republicans and many blue-dog Dems say we can’t afford another extension. But these are many of the same people who say we should extend the Bush tax cuts for the wealthy for at least another two years.
Extending the Bush tax cuts for the top 1 percent would cost an estimated $120 billion over the next two years. That’s more than another unemployment benefit extension would cost. The unemployed need the money. The rich don’t. ...

    Posted by on Thursday, November 18, 2010 at 12:42 AM in Budget Deficit, Economics, Social Insurance | Permalink  Comments (58) 


    "Herbert Scarf's 1964 Lectures: An Eyewitness Account"

    Rajiv Sethi pleads with the "fellows of the Econometric Society to nominate Duncan [Foley] for election to their ranks:

    Herbert Scarf's 1964 Lectures: An Eyewitness Account, by Rajiv Sethi: In the fourth volume of The Makers of Modern Economics is a fascinating autobiographical essay by Duncan Foley that traces the arc of his career as an economist and reflects upon developments in the discipline over the past four decades. Duncan describes his first exposure to economics at Swarthmore, his interactions with Tobin as a graduate student at Yale, the introduction in his doctoral dissertation of a concept of equity (now called envy-freeness) that does not depend on interpersonal comparisons of utility, his enormously fruitful collaboration with Miguel Sidrauski at MIT on the microfoundations of macroeconomics, his disillusionment with the rational expectations revolution, and his growing interest in heterodox economics at Stanford and subsequently at Barnard and Columbia.

    There's enough material there for several interesting posts, but here I'll confine myself to reproducing Duncan's vivid recollection of a two semester course in mathematical economics taught by Herbert Scarf in 1964 (links added):

    After the free pursuit of individual learning fostered by the Swarthmore Honors program, I found the return to traditional classroom teaching at Yale a difficult transition... I was frustrated in these courses not just by the tedium and inefficiency of the class lecture style, but by the tendency for instructors who knew a great deal about the substance and practice of their subjects to waste time rehearsing mathematical and theoretical topics they did not understand very well and often misconstrued...

    The great exception to this pattern of misdirected pedagogy was Herbert Scarf's year-long course in Mathematical Economics. Scarf knew this material as well as anyone in the world, and had the gifts of patience, clarity of exposition, and personal charisma to convey it brilliantly and effectively. Scarf's teaching was a revelation to me of what could be accomplished in the classroom, with the appropriate attention to systematic organization, consistently careful preparation, and a judicious balance of lecture and discussion to maintain contact with the level of students' understanding. My notes from this course comprise a better and more complete reference for the topics than any book that has since been published.

    The passage of time has revealed that the content of Scarf's course was just as remarkable in its depth and insight as the presentation. Remaining mostly within the realm of finite-dimensional spaces, and emphasizing duality and practical algorithms for the construction of solutions, Scarf gave a thorough tutorial on the mathematics of optimization, starting with linear programming via the simplex method and continuing through Kuhn-Tucker theory, dynamic programming, turnpike theory through Roy Radner's algorithmic approach, and integer programming. Since a huge proportion of economic models boil down to an optimization problem, this survey effectively unified and clarified an immense range of economics for the student. When Peter Diamond was working with James Mirrlees on the problem of optimal taxation (Diamond and Mirrlees, 1971a,b), for example, Scarf's approach helped me to grasp the relation between the complexity of their comparative statics results and the nonconvex structure of the constraint set (the intersection of the set of allocations that are resource and technology-feasible and those that can be supported by distorting taxes) in this problem. The study of these formal problems also convinced me that most economic theory depends on strong assumptions of convexity to assure the tractability of the resulting optimization problem, and that in situations where convexity is inherently absent or implausible it is very difficult to make much progress by traditional methods.

    Scarf's course continued with a systematic review of general equilibrium theory, starting from the separating hyperplane approach to the Second Welfare Theorem, and including Gérard Debreu's proof (1959) of existence of a competitive equilibrium, the first presentation of Scarf's algorithmic approach to the calculation of competitive equilibria (1973), the theory of the core and its asymptotic equivalence to competitive equilibrium, and Scarf's own crucial counterexamples to the stability of competitive equilibrium under tâtonnement dynamics with more than two commodities (1960). The critical lesson Scarf emphasized in this discussion was the fact that the competitive equilibrium cannot, except in special cases such as representative agent economies, be represented as the solution of a mathematical programming problem. In other words, the Walrasian system does not generally admit a potential function. As a corollary to this observation we see that the comparative statics of competitive general equilibrium theory inherently lacks the organizing structure of convex programming, so that, for example, equilibrium prices are not in general monotonic functions of endowments. These observations planted the seeds in my mind of what grew to be grave doubts about the Walrasian system. These doubts do not focus on the logical consistency of the system, but on its adequacy as a useful representation of real economic relations...

    In retrospect we can see that Scarf's course mapped out the whole development of high economic theory for the next twenty or twenty-five years. The theoretical literature of this period has largely been concerned with generalizing the concepts he taught to more sophisticated commodity spaces (such as infinite-dimensional spaces and spaces of stochastic processes), and rediscovering the general properties and limitations of competitive equilibrium theory in these contexts. This has been a source of both wonder and concern to me. I am amazed at how prescient a mind like Scarf's can be about the future development of a field, guided purely by superb mathematical instincts. But what does this imply about the theoretical fertility of economics during this period? If the core theoretical ideas that have dominated the field since were all present in the Yale classroom in 1964, it suggests that economic theory has been in a scholastic, formalistic phase of development during this period, primarily focusing on working out increasingly esoteric implications of well-established concepts.
    Duncan tells me that he still has his notes from this course and that Scarf, who recently retired from teaching, remains full of vigor.

    In subsequent posts I hope to discuss Duncan's reflections on the microfoundations of macroeconomics, his work with Sidrauski, his concern that the rational expectations revolution was a step backwards in the development of the theory, and his view that "some break with the full Walrasian system along temporary equilibrium lines is necessary as a foundation for a distinct macroeconomics." (The Hicksian concept of temporary equilibrium allows for asset market clearing in the face of heterogeneous beliefs and mutually inconsistent intertemporal plans.) These are themes that I have touched upon in previous posts and would like to revisit soon. In the meantime, let me repeat my plea to the fellows of the Econometric Society to nominate Duncan for election to their ranks.

      Posted by on Thursday, November 18, 2010 at 12:41 AM in Economics, Methodology | Permalink  Comments (8) 


      Wednesday, November 17, 2010

      links for 2010-11-17

        Posted by on Wednesday, November 17, 2010 at 10:02 PM in Economics, Links | Permalink  Comments (46) 


        "This Wasn’t the Plan We’ve Been Looking For"

        The distributional properties of Bowles-Simpson are unattractive:

        Yep, It’s Regressive, by Paul Krugman: Jon Chait takes another look at Bowles-Simpson, this time with numbers from the Tax Policy Center, and is disillusioned. As I surmised, it redistributes income upward: the bottom 80 percent of families would pay higher taxes than they did in the Clinton years, while the top 20 percent — and especially the top 5 percent — would pay less; not what you’d call shared sacrifice.
        The only twist here is that the ultra-rich, the top 0.1 percent, who get a lot of their income from dividends and capital gains, would be hit by having these gains taxed as ordinary income. Even so, they would face a smaller tax increase than the bottom 60 percent.
        This wasn’t the plan we’ve been looking for; on taxes, what on earth were they thinking?

        One third of of the deficit reduction under Bowles-Simpson is from revenue increases, and two thirds is from spending cuts. The above is about tax cuts, but the spending cuts will, in the end, likely hit lower income households harder and end up being regressive as well.

          Posted by on Wednesday, November 17, 2010 at 02:52 PM in Economics, Income Distribution, Taxes | Permalink  Comments (13) 


          Mankiw on QE2

          Greg Mankiw:

          QE2: ...I judge QE2 to be a small but risky step in the right direction.

          Update: In his post, Mankiw says:

          I do see some potential downsides.  In particular, the Fed is making its portfolio riskier.  By borrowing short and investing long, the Fed is in some ways becoming the hedge fund of last resort.  If future events require higher interest rates, the Fed will end up making losses on its portfolio.  And even if doesn't recognize these losses (by not marking to market), it could end up paying more interest on newly expanded reserves than it is earning on its newly acquired portfolio of long bonds.  Such a cash-flow deficit could potentially undermine the Fed's political independence (which is already not very popular in some circles).  Yet if the Fed tries to avoid these losses by failing to raise rates when needed, inflation could indeed become a problem down the road.  I trust the team at the Fed enough to think they will avoid that mistake.

          Economics of Contempt emails:

          Pretty absurd post on QE2 from Mankiw, don't you think? Calling the Fed the "hedge fund of last resort" is about as disingenuous as it gets. If the Fed is becoming a hedge fund, it's a hedge fund that only invests in *Treasuries*! Is Mankiw seriously worried about the risks of the Fed owning 10YR and 30YR Treasuries? I *highly* doubt it.

            Posted by on Wednesday, November 17, 2010 at 02:31 PM in Economics, Monetary Policy | Permalink  Comments (17) 


            "Record Low in US Inflation Expectations"

            Via Money Supply at the Financial Times:

            Record low in US inflation expectations, by Robin Harding: The latest Cleveland Fed estimates of inflation expectations are out:
            Expected inflation over every time horizon longer than six years is now at its record low in the period since 1982 that the series covers. Expected inflation over the next ten years is now down to 1.5 per cent.
            The Cleveland Fed index is not the last word on inflation expectations but it is certainly reason to think that those QE2 = hyperinflation fears are somewhat misplaced…

            I doubt the invisible inflation vigilantes will change their tune, but it's hard to find evidence of inflation worries in the data. If anything, markets are reassessing the Fed's ability to stop disinflation.

              Posted by on Wednesday, November 17, 2010 at 12:45 PM in Economics, Inflation | Permalink  Comments (11) 


              Interest on Reserves and Inflation

              [I originally had this as part of the post below this one on the most recent inflation data, but decided to make it a separate post.]

              There's been a lot of talk lately about the Fed's policy of paying interest on reserves with many claiming that this has caused banks to retain reserves that might have otherwise been turned into loans, and thus the policy has depressed aggregate activity. However, paying interest on reserves is a safety net for the Fed that allowed them to do QEI and QEII. If the Fed wasn't paying interest on reserves, QEI would have likely been smaller, and QEII may not have happened at all.

              First, on whether paying interest on reserves is a constraint on loan activity, the supply of loans is not the constraining factor, it's the demand. Increasing the supply of loans won't have much of an impact if firms aren't interested in making new investments. Businesses are already sitting on mountains of cash they could use for this purpose, but they aren't using the accumulated funds to make new investments and it's not clear how making more cash available will change that.

              Second, I doubt very much that a quarter of a percentage interest -- the amount the Fed pays on reserves -- is much of a disincentive to lending (market rates have fluctuated by more than a quarter of a percent without a having much of an impact on investment and consumption).

              Third, this a safety net for the Fed with respect to inflation. Paying interest on reserves gives the Fed control over reserves they wouldn't have otherwise, and control of reserves is essential in keeping inflation under control. If, as the economy begins to recover, the Fed loses control of reserves and they begin to leave the banks and turn into investment and consumption at too fast a rate, then inflation could become a problem. 

              But by changing the interest rate on reserves, the Fed can control the rate at which reserves exit banks. The incentive to loan money is the difference between what the bank can earn by loaning the money or purchasing a financial asset and what it can make by holding the money as reserves. Suppose, for example, that the Fed raises the interest rate on reserves to the market rate of interest. In that case, banks would have no incentive at all to make loans and would instead just hold the reserves.

              The tool the Fed has for removing reserves from the system is open market operations (QEI and QEII are essentially traditional open market operations, but the Fed buys long-term rather than the more traditional short-term financial assets). So why do they need another tool -- interest on reserves -- to control reserves? Removing reserves too fast through open market operations could disrupt financial markets. Paying interest on reserves gives the Fed a way to remove reserves in a more leisurely fashion while still maintaining control over inflation. They can raise the interest rate on reserves freezing them within the banking system, and then remove the reserves over time through open market operations as desired.

              To say this another way, traditionally the only way the Fed could raise the federal funds rate is through open market operations that remove reserves from the system. However, since interest on reserves is a floor for the federal funds rate (it's a floor because nobody would lend reserves at a rate less than they can earn by holding them), an increase in the rate the Fed pays on reserves will increase the federal funds rate even though the reserves are still in the system. The economy can be slowed through increases in the federal funds rate without having to remove substantial quantities of reserves all at once as would be the case if open market operations were the only tool available.

              Thus, though I don't think paying interest on reserves has much of an effect on loan activity right now, even if you believe it has, this is the price that must be paid for the ability to do QEI and QEII. If the Fed did not have this tool available, it would be much more fearful about its ability to control inflation, and much less likely to try to use unconventional policy to spur the economy.

              Update: In comments, Andy Harless correctly points out that the Fed could cut the rate it pays on reserves to zero now, but still have the authority to raise rates later as necessary to help to fight inflation.  As I noted in a reply to Andy, I agree, but the Fed does not -- I meant to, but forgot to include Bernanke's worries that cutting the rate to zero would cause problems in the federal funds market. Bernanke's argument is:

              “The rationale for not going all the way to zero has been that we want the short-term money markets, like the federal funds market, to continue to function in a reasonable way,” he said.

              “Because if rates go to zero, there will be no incentive for buying and selling federal funds — overnight money in the banking system — and if that market shuts down … it’ll be more difficult to manage short-term interest rates when the Federal Reserve begins to tighten policy at some point in the future.”

              The argument itself is a bit hard to swallow and I don't buy it, prior to the recession the rate was zero and the markets functioned fine. But from the Fed's perspective that doesn't matter -- they seem to believe that it is necessary to pay something on reserves to prevent problems in the overnight market for reserves. Thus, in the Fed's view, paying a quarter of a percent right now is a necessary part of this policy, a policy that gives them the comfort they need to employ quantitative easing. The Fed may or may not be correct about the impact on the overnight federal funds market, but it holds all the cards and as a practical matter, if you want QEII, then this is part of the bargain.

                Posted by on Wednesday, November 17, 2010 at 10:53 AM in Economics, Inflation, Monetary Policy | Permalink  Comments (28) 


                Smallest Year over Year Change in Core Inflation Since 1957

                People have been making the case that runaway inflation is just around the corner as a means of objecting to the Fed's latest plan to try to help the economy, but there's no sign of an inflation problem in the data:

                Consumer Price Index Summary, BLS: The Consumer Price Index for All Urban Consumers (CPI-U) increased 0.2 percent in October on a seasonally adjusted basis... As has frequently been the case in recent months, an increase in the energy index was the major factor in the ... increase. ...
                The index for all items less food and energy was unchanged in October, the third month in a row with no change. ... Over the last 12 months, the index for all items less food and energy has risen 0.6 percent, the smallest 12-month increase in the history of the index, which dates to 1957. ...

                The smallest 12 month increase in the history of the index and people are worried about inflation? This might be a good time to repeat this chart from the SF Fed that I've posted here in the past:

                When we look back at this episode, we are going to conclude that policymakers did too little, not too much, and what they did do mostly came too late.

                  Posted by on Wednesday, November 17, 2010 at 10:33 AM in Economics, Inflation | Permalink  Comments (11) 


                  "Pretty Good for Government Work"

                  Warren Buffett thanks the government for saving the day:

                  Pretty Good for Government Work, by Warren Buffett, Commentary, NY Times: Dear Uncle Sam,
                  ...Just over two years ago, in September 2008, our country faced an economic meltdown. ... A destructive economic force unlike any seen for generations had been unleashed.
                  Only one counterforce was available, and that was you, Uncle Sam. Yes, you are often clumsy, even inept. But when businesses and people worldwide race to get liquid, you are the only party with the resources to take the other side of the transaction. And when our citizens are losing trust by the hour in institutions they once revered, only you can restore calm. ...
                   The challenge was huge, and many people thought you were not up to it. Well, Uncle Sam, you delivered. People will second-guess your specific decisions; you can always count on that. But just as there is a fog of war, there is a fog of panic — and, overall, your actions were remarkably effective.
                  I don’t know precisely how you orchestrated these. But I did have a pretty good seat as events unfolded, and I would like to commend a few of your troops. In the darkest of days, Ben Bernanke, Hank Paulson, Tim Geithner and Sheila Bair grasped the gravity of the situation and acted with courage and dispatch. And though I never voted for George W. Bush, I give him great credit for leading, even as Congress postured and squabbled. ...
                  Delusions, whether about tulips or Internet stocks, produce bubbles. And when bubbles pop, they can generate waves of trouble... This bubble was a doozy and its pop was felt around the world.
                  So,... Uncle Sam, thanks to you and your aides. Often you are wasteful, and sometimes you are bullying. On occasion, you are downright maddening. But in this extraordinary emergency, you came through — and the world would look far different now if you had not.
                  Your grateful nephew,
                  Warren

                    Posted by on Wednesday, November 17, 2010 at 12:29 AM in Economics, Fiscal Policy, Monetary Policy | Permalink  Comments (62) 


                    Tuesday, November 16, 2010

                    links for 2010-11-16

                      Posted by on Tuesday, November 16, 2010 at 10:22 PM in Economics, Links | Permalink  Comments (39) 


                      QEII and the Yield Curve

                      Posted at MoneyWatch:

                      What is QEII?

                      QEII is explained through its effects on the yield curve.

                        Posted by on Tuesday, November 16, 2010 at 12:42 AM in Economics, Monetary Policy, MoneyWatch | Permalink  Comments (40) 


                        "How to Restore Confidence in the US Economy"

                        I'm guessing you won't like this idea very much. Roger Farmer argues that the Fed should stabilize the stock market in order to restore confidence in the economy:

                        How to restore confidence in the US economy without inflating a new asset market bubble, by Roger Farmer, Commentary, Financial Times: ...I have argued ... that more QE can create jobs and prevent a second Great Depression. But it matters how the policy is implemented. ...
                        Currently, investors hold more than a trillion dollars in excess reserves at the Fed... The problem is that investors are fleeing from risk and are demanding safe assets. The Fed is uniquely positioned to provide a safe haven for investors by buying risky securities from the public and replacing them with interest bearing deposits at the Fed.
                        What kind of risky assets should the Fed buy? Mr Bernanke plans to purchase treasury bonds..., a better plan would be to ... buy and sell stocks with the goal of reducing private sector risk. How might this be achieved? ...
                        QE is a new, unconventional monetary policy and ... there are two ways that it can be implemented. One is to buy securities in fixed amounts each month. That is what Mr Bernanke plans to do, although he proposes to buy bonds rather than stocks. The other is to buy and sell shares to stabilize fluctuations in the stock market. I propose this second strategy.
                        If the Fed were to announce that the Dow would not be allowed to drop below 11,000 over the next three months, for example, it would provide the confidence to private investors to move back into the market and spend some of the $1,000bn in excess reserves that are sitting in the banking system. But guaranteeing no downside to stocks is not, on its own, a good idea. The Fed must also limit swings on the upside. If QE simply fuels another unsustainable asset market bubble it will have made the problem worse, not better. Just as conventional monetary policy stabilizes swings in interest rates, so unconventional monetary policy must stabilize swings in asset prices.

                          Posted by on Tuesday, November 16, 2010 at 12:39 AM in Economics, Monetary Policy | Permalink  Comments (65) 


                          "Greedy Geezers?"

                          Why did seniors turn against Democrats in the midterm elections?:

                          Greedy Geezers?, by James Surowiecki: ...In the 2006 midterm election, seniors split their vote evenly between House Democrats and Republicans. This time, they went for Republicans by a twenty-one-point margin. ...
                          Why were seniors so furious with the Democrats? ... The real sticking point was health-care reform, which the elderly didn’t like from the start. ...
                          Misinformation about “death panels” and so on had something to do with seniors’ hostility. But the real reason is that it feels to them as if health-care reform will come at their expense, since ... between now and 2019 total Medicare outlays will be half a trillion dollars less than previously projected. Never mind that this number includes cost savings from more efficient care, or that the bill has a host of provisions that benefit seniors... The idea that the government might try to restrain Medicare spending was enough to turn seniors against the bill.
                          There’s a colossal irony here: the very people who currently enjoy the benefits of a subsidized, government-run insurance system are intent on keeping others from getting the same treatment. In part, this is because seniors think of Medicare as ... something that they have a right to because they paid for it, via Medicare taxes—and decry the new bill as a giveaway. This is a myth: seniors today get far more out of Medicare than they ever put in, which means that their medical care is paid for by current taxpayers... But the subsidies that seniors get aren’t fundamentally different from the ones that the Affordable Care Act will offer some thirty million Americans who don’t have insurance. Opposing the new law while reaping the benefits of Medicare is essentially saying, “I’ve got mine—good luck getting yours.”
                          Current sentiment among seniors seems like a classic example of an effect that the economist Benjamin Friedman identified in his magisterial book “The Moral Consequences of Economic Growth”: in hard times voters get more selfish. Historically,... times of stagnation have been times of reaction, with voters bent on protecting their own interests, hostile to outsiders, and less interested in social welfare. In boom times, by contrast, societies typically become more open, more inclusive, and more generous...
                          To be sure, the Obama Administration didn’t pitch health-care reform as well as it might have: its emphasis on the way the bill would “bend the cost curve” was heard by seniors as “slash Medicare.” But the Democrats’ loss of support among the elderly was more a matter of economic fundamentals than of political framing. If the economy were growing briskly, it’s unlikely that the health-care bill would have become so politically toxic. And, with Republicans now looking to roll back parts of the bill, what happens to health care in the long term may depend a lot on what happens to the economy in the short term.

                            Posted by on Tuesday, November 16, 2010 at 12:36 AM in Economics, Health Care, Politics | Permalink  Comments (50) 


                            "Quick Note on Retail Sales"

                            Tim Duy:

                            Quick Note on Retail Sales, by Tim Duy: Retail sales surprised on the upside in October. From the Wall Street Journal:

                            American consumers are showing clear signs of stepping up their spending.
                            Retail sales rose 1.2% to $373.1 billion in October, compared with September, the largest monthly jump since March and the fourth-consecutive month of increased spending.

                            How excited should we be? It seems clear that the pace of sales has kicked up in recent months:

                            Another picture telling two sides of the same recovery. The recent trend line reinforces my expectation that trend growth is not out of the question. Indeed, this would only be slightly more optimistic with the most recent Philadelphia Fed survey of forecasters, which is pointing to slightly below trend growth next year. Still, even at the heightened pace of spending, there remains a gaping hole between the old and new that is unlikely to be filled anytime soon. Lots and lots of foregone consumption.

                            Of course, the media begins speculating on what this means for the upcoming holiday season:

                            This string of stronger retail reports—together with signs that businesses continue to restock shelves in anticipation of more robust sales going forward—are stirring hopes for a good holiday shopping season. The state of consumer health will get a further checkup on Tuesday, when retail giants Wal-Mart Stores Inc. and Home Depot Inc. report earnings.

                            I am not sure exactly what constitutes a "good" holiday season. I think that means a season where demand is strong enough to limit the necessity of discounting. It appears we have already lost that battle, as the rush to discount is already well under way. Moreover, some of the enthusiasm for the report dwindles upon reading the details:

                            Monday's report pointed to particular areas of strength: Sales of autos and parts rose 5% in October, the largest jump since March. Excluding autos, which can be volatile from month to month, retail sales rose a more moderate 0.4%. Other bright spots included sales at sporting goods, hobby, book and music stores, which increased 1%. Restaurant and bar sales rose 0.3%.
                            But many consumers remain hesitant to go for big-ticket items that are usually bought using credit. Furniture sales fell 0.7%, for instance, as did sales at electronics and appliance stores.

                            Autos were clearly driving the gains. Not entirely unexpected either. Quite honestly, while prerecession sales of roughly 16 million units annually might not be sustainable, the fall to 10 million units was equally unsustainable. Pent-up demand eventually emerges, carrying auto sales higher. Stripping motor vehicles and parts from the data yields this picture:

                            Here we see something closer to what some might call the "new normal" for consumer spending. Not devastating, but lackluster in comparison to the pre-recession trends.

                            Bottom Line: In general, the retail sales report was good news, as it is another indicator that drives a stake into the heart of the double-dip story. But keep in mind that the data continues to illustrate the good cop, bad cop conflict in the economy. Policymakers should be concerned about the distance between new trends and old, lest they risk falling into the trap of diminished expectations, believing that 9% unemployment should be the new normal. Market participants, however, may simply be content with confirmation that the foundation for ongoing corporate revenue growth remains secure.

                              Posted by on Tuesday, November 16, 2010 at 12:33 AM in Economics | Permalink  Comments (16) 


                              Monday, November 15, 2010

                              links for 2010-11-15

                                Posted by on Monday, November 15, 2010 at 10:01 PM in Economics, Links | Permalink  Comments (28) 


                                GOP's Pence: The Fed Should Drop Its Dual Mandate

                                This says a lot about how much Republicans care about the unemployed:

                                GOP’s Pence Calls for Fed to Drop Focus on Employment, by Sudeep Reddy: Rep. Mike Pence of Indiana, a top House Republican, said he plans to introduce legislation Tuesday to end the Federal Reserve’s dual mandate, which requires the central bank to balance both employment and inflation concerns in its monetary policy. ... On Monday, he called for striking the dual mandate to force the Fed to focus only on price stability. The Fed today, under a 1977 law, also must pursue maximum sustainable employment... “The Fed’s dual mandate policy has failed,” Pence said in a statement. “For a record 18th straight month the nation’s unemployment rate is at or above 9.4 percent. It’s time for the Fed to be solely focused on price stability and not the recently announced QE2 which will monetize our debt and trigger inflation.”

                                The unemployment rate would be even higher if the Fed had not acted but, in any case, a single mandate wouldn't alter the Fed's current course of action. If the Fed is worried about disinflation/deflation, as it should be, then QEII is what is required for price stability. Dropping the dual mandate won't change that (and the debt will be "unmonetized" when conditions return to normal and the Fed begins to remove reserves from the system to avoid inflation, so the debt monetization argument doesn't hold unless you believe the Fed will abandon its long-run inflation target -- something it has made very clear it has no intention of doing).

                                Republicans oppose fiscal policy -- including things such as extending unemployment compensation and job creation initiatives to help to overcome severe conditions (though tax cuts for the wealthy are okay) -- and they oppose monetary policy that tries to lower the unemployment rate. So, in essence, they oppose doing anything to help the unemployed during a recession.

                                Welcome to the "you're on your ownership society."

                                  Posted by on Monday, November 15, 2010 at 04:23 PM in Economics, Monetary Policy | Permalink  Comments (27) 


                                  "Republicans, Democrats, the Fed and QE2"

                                  Jeff Frankel says conservative economists should learn "some insufficiently understood history" before expressing worries about Democrats and monetary policy:

                                  The Pot Again Calls the Kettle Red: Republicans, Democrats, the Fed and QE2, by Jeff Frankel : Some conservatives are attacking current monetary policy as being too expansionary, as likely to lead to excessive inflation and debauchment of the currency. The Weekly Standard is promoting a critical letter to Fed Chairman Ben Bernanke signed by a list of conservatives, most of whom are well-known Republican economists. Apparently they are taking out newspaper ads tomorrow. If the National Journal and Wall Street Journal are right that the Republicans are trying to stake out a position that Democrats are pursuing inflationary monetary policy, they are on very shaky ground.

                                  I will leave it to others to make the most important point, how low is the risk of excessive inflation now compared to the risk of alarming Japan-style deflation, with the economy having only begun to recover from its nadir of early 2009. Or to acknowledge that QE2 — the Fed’s new round of monetary easing — is only a second best policy response to high unemployment. (Fiscal policy would be much more likely to succeed at this task, if it were not for the constraints in Congress.)

                                  I will, rather, respond to the partisan content of the National Journal’s question by pointing out some insufficiently understood history:

                                  1. Republican President Nixon successfully pushed Fed Chairman Arthur Burns into an excessively easy monetary policy in the early 1970s — leading to high inflation which the White House tried to address with wage-price controls. Nixon, of course, also devalued the dollar, and took it off gold, thereby ending the Bretton Woods system.
                                  2. Republican Presidents Ronald Reagan and George H.W. Bush repeatedly tried to push Fed Chairmen Paul Volcker and Alan Greenspan into easier monetary policy. This is documented in Bob Woodward’s 2000 book Maestro. The White House succeeded in making life unpleasant enough for inflation-slayer Volcker that he eventually asked not to be reappointed, prompting James Baker to exult “We got the son of a bitch!” (p.24).
                                  3. Democratic Presidents Jimmy Carter and Bill Clinton are the two presidents who have refrained from pushing their Fed Chairmen (Volcker and Greenspan, respectively) into easier monetary policy.
                                  4. Under Republican President G.W.Bush, monetary policy once again became excessively easy, during 2003-06, contributing substantially to the housing bubble and subsequent crash.

                                  ...Perhaps such accusations will strike some who don’t pay close attention as superficially plausible, even after all these years. But they nonetheless fly in the face of history. Another case of the pot calling the kettle “red.” Yes, I know, the usual saying is about the color black. But red is the color of deficits, overheating, … and Republicans.

                                  I document this history in “Responding to Crises,” Cato Journal 27, 2007.

                                    Posted by on Monday, November 15, 2010 at 09:50 AM in Economics, Inflation, Monetary Policy | Permalink  Comments (36) 


                                    Paul Krugman: The World as He Finds It

                                    Does Obama have the ability to take a stand, and then fight to hold his ground?:

                                    The World as He Finds It, by Paul Krugman, Commentary, NY Times: On Wednesday David Axelrod, President Obama’s top political adviser, appeared to signal that the White House was ready to cave on tax cuts — to give in to Republican demands that tax cuts be extended for the wealthy as well as the middle class. “We have to deal with the world as we find it,” he declared.
                                    The White House then tried to walk back what Mr. Axelrod had said. But it was a telling remark...
                                    In retrospect, the roots of current Democratic despond go all the way back to the way Mr. Obama ran for president. Again and again, he ... promised to transcend ... partisan divisions. ... But the real question was whether Mr. Obama could change his tune when he ran into the partisan firestorm everyone who remembered the 1990s knew was coming. He could do uplift — but could he fight?
                                    So far the answer has been no.
                                    Right at the beginning of his administration, what Mr. Obama needed to do, above all, was fight for an economic plan commensurate with the scale of the crisis. Instead, he negotiated with himself before he ever got around to negotiating with Congress, proposing a plan that was clearly, grossly inadequate — then allowed that plan to be scaled back even further without protest. And the failure to act forcefully on the economy, more than anything else, accounts for the midterm “shellacking.”
                                    Even given the economy’s troubles, however, the administration’s efforts to limit the political damage were amazingly weak. There were no catchy slogans, no clear statements of principle; the administration’s political messaging was not so much ineffective as invisible. ...
                                    And things haven’t improved since the election. Consider Mr. Obama’s recent remarks on two fronts.
                                    At the predictably unproductive G-20 summit meeting in South Korea, the president faced demands from China and Germany that the Federal Reserve stop its policy of “quantitative easing”.... What Mr. Obama should have said is that nations’ running huge trade surpluses — and in China’s case, doing so thanks to currency manipulation on a scale unprecedented in world history — have no business telling the United States that it can’t act to help its own economy.
                                    But what he actually said was “From everything I can see, this decision was not one designed to have an impact on the currency, on the dollar.” Fighting words!
                                    And then there’s the tax-cut issue. Mr. Obama could and should be hammering Republicans for trying to hold the middle class hostage to secure tax cuts for the wealthy. He could be pointing out that making the Bush tax cuts for the wealthy permanent is a huge budget issue — over the next 75 years it would cost as much as the entire Social Security shortfall. Instead, however, he is once again negotiating with himself, long before he actually gets to the table with the G.O.P.
                                    Here’s the thing: Mr. Obama still has immense power, if he chooses to use it. At home, he has the veto pen, control of the Senate and the bully pulpit. He still has substantial executive authority to act on things like mortgage relief — there are billions of dollars not yet spent, not to mention the enormous leverage the government has via its ownership of Fannie and Freddie. Abroad, he still leads the world’s greatest economic power — and one area where he surely would get bipartisan support would be taking a tougher stand on China and other international bad actors.
                                    But none of this will matter unless the president can find it within himself to use his power, to actually take a stand. And the signs aren’t good.

                                      Posted by on Monday, November 15, 2010 at 01:18 AM in Economics, Politics | Permalink  Comments (89) 


                                      Sunday, November 14, 2010

                                      links for 2010-11-14

                                        Posted by on Sunday, November 14, 2010 at 10:02 PM in Economics, Links | Permalink  Comments (31) 


                                        "The Case Against News We Can Choose"

                                        Ted Koppel misses "Walter Cronkite, Chet Huntley, David Brinkley, Frank Reynolds and Howard K. Smith" and their "relatively unbiased accounts of information that their respective news organizations believed the public needed to know":

                                        The case against news we can choose, by Ted Koppel, Commentary, Washington Post: To witness Keith Olbermann ... suspended even briefly last week for making financial contributions to Democratic political candidates seemed like a whimsical, arcane holdover from a long-gone era of television journalism... Back then, a policy against political contributions would have aimed to avoid even the appearance of partisanship. ...
                                        We live now in a cable news universe that celebrates the opinions of Olbermann, Rachel Maddow, Chris Matthews, Glenn Beck, Sean Hannity and Bill O'Reilly - ...political partisanship ... encouraged ... by their parent organizations because their brand of analysis and commentary is highly profitable.
                                        The commercial success of both Fox News and MSNBC is a source of nonpartisan sadness for me. While I can appreciate the financial logic of drowning television viewers in a flood of opinions designed to confirm their own biases, the trend is not good for the republic. ... This is to journalism what Bernie Madoff was to investment: He told his customers what they wanted to hear, and by the time they learned the truth, their money was gone. ...
                                        We celebrate truth as a virtue, but only in the abstract. What we really need in our search for truth is a commodity that used to be at the heart of good journalism: facts - along with a willingness to present those facts without fear or favor.
                                        To the degree that broadcast news was a more virtuous operation 40 years ago, it was a function of both fear and innocence. Network executives were afraid that a failure to work in the "public interest, convenience and necessity," as set forth in the Radio Act of 1927, might cause the Federal Communications Commission to suspend or even revoke their licenses. ... News was ... the loss leader that permitted NBC, CBS and ABC to justify the enormous profits made by their entertainment divisions.
                                        On the innocence side of the ledger, meanwhile, it never occurred to the network brass that news programming could be profitable. ...
                                        Much of the American public used to gather before the electronic hearth every evening, separate but together, while Walter Cronkite, Chet Huntley, David Brinkley, Frank Reynolds and Howard K. Smith offered relatively unbiased accounts of information that their respective news organizations believed the public needed to know. The ritual permitted, and perhaps encouraged, shared perceptions and even the possibility of compromise among those who disagreed.
                                        It was an imperfect, untidy little Eden of journalism where reporters were motivated to gather facts about important issues. We didn't know that we could become profit centers. No one had bitten into that apple yet.
                                        The transition of news from a public service to a profitable commodity is irreversible. Legions of new media present a vista of unrelenting competition. ...
                                        The need for clear, objective reporting in a world of rising religious fundamentalism, economic interdependence and global ecological problems is probably greater than it has ever been. But we are no longer a national audience receiving news from a handful of trusted gatekeepers; we're now a million or more clusters of consumers, harvesting information from like-minded providers. ...
                                        There is ... not much of a chance that 21st-century journalism will be adapted to conform with the old rules. Technology and the market are offering a tantalizing array of channels, each designed to fill a particular niche - sports, weather, cooking, religion - and an infinite variety of news, prepared and seasoned to reflect our taste, just the way we like it. As someone used to say in a bygone era, "That's the way it is."

                                        I have mixed feelings about this. When the networks and other media are trying to be objective but get the facts wrong, as they do, there is now a way to challenge the statements that did not exist 40 years ago when three networks had a monopoly on public discourse. If all three networks said it, then it was true. So the good part is that "facts" that really aren't facts can be challenged in a way that didn't happen 40 years ago. And there is another good part too. Sometimes there are legitimate differences in the way a set of facts can be interpreted. These differences are aired today in ways they weren't in the past when only one side of the argument might have made it onto the networks.

                                        The bad part is that actual facts can also be challenged in an attempt to divert attention and create smoke screens that obscure the truth. And it seems to me that the cost -- the deliberate attempt to undercut truth for political advantage -- has more than outweighed the benefit of being able to challenge information presented as factual when it isn't, or presented as representative of the conclusions drawn from most scientific work on an issue when the conclusions actually point in another direction.

                                        I don't have the answer to this either, but since Koppel emphasizes the bad in the new system without noting much of the good, I thought I'd at least point out that some parts of the new system are better than the old. I don't want to go back to system with three white guys on networks with a monopoly on the news tell me the "truth." More competition than that is good, the problem is that the competition leads networks to maximize entertainment rather the provision of accurate information. Thus the need, it seems to me, is to find a way to enhance the good parts the new system while minimizing the bad. Part of that, I think, will come as people adapt to the new information technology we now have -- we are still in transition and still learning how to best use the new tools. But that's unlikely to be enough, and it won't solve the problem of people only seeking out the things they want to hear, and so called news sources meeting the demand for one-sided presentations. The harder question is whether some sort of government intervention is needed to give the news media the incentive it needs to present the facts "without fear a favor." I think a case can be made that it is in the public interest to have such information available, but beyond truth in advertising rules about what can and cannot be labeled news, and subsidies of some sort to encourage movement in this direction (but how to design these?), it's hard for me to think of ways to make this happen that aren't overly restrictive. Any ideas?

                                          Posted by on Sunday, November 14, 2010 at 12:24 PM in Economics, Press | Permalink  Comments (57) 


                                          Saturday, November 13, 2010

                                          links for 2010-11-13

                                            Posted by on Saturday, November 13, 2010 at 10:01 PM in Economics, Links | Permalink  Comments (43) 


                                            Shiller: Bailouts, Reframed as 'Orderly Resolutions'

                                            I don't always agree with Robert Shiller's touchy-feely approach to economics, but he might have a point here:

                                            Bailouts, Reframed as ‘Orderly Resolutions’, by Robert Shiller, Commentary, NY Times: Distasteful as it may seem, we need to prepare for the next financial crisis, which, of course, will arrive eventually. Right now, though, people are so angry about the recent bailouts of Wall Street that the government may not be able to use the same playbook again.
                                            The criticism has emphasized the trillions of taxpayer dollars that the bailouts put at risk. But, in fact, the realized losses were minuscule when compared with the widespread suffering they averted. ... TARP may have prevented many trillions of dollars of losses in gross domestic product.
                                            Our principal hope for dealing with the next big crisis is the Dodd-Frank Act... It calls for bailouts of a sort, but has reframed them so they may look better to taxpayers. Now they will be called “orderly resolutions.” Psychologists tell us that subtle changes in framing ... can bring major changes in perception. ...
                                            In essence, Dodd-Frank is asking the F.D.I.C. to do much the same thing for a wide spectrum of financial companies as it has done with traditional banks. ...
                                            The Dodd-Frank Act acknowledges that when the F.D.I.C. moves into deals like this with financial companies, it may need some assistance. So the law creates an Orderly Liquidation Fund at the Treasury, which can issue debt for it as needed. Of course, that could be interpreted as a bailout that uses taxpayers’ money, since the debt has to be repaid somehow.
                                            But here’s the reframing: The Dodd-Frank Act specifies that the F.D.I.C. will be paid back through “assessments” on financial companies. These assessments won’t be paid immediately... The Treasury can intervene first and be repaid later.
                                            This is a classic and potentially effective reframing. Why? The payments are called “assessments,” not taxes. And the context has changed, with the burden appearing to fall squarely on Wall Street, and not on taxpayers.
                                            Of course, reframing won’t convince everyone that the government’s interventions are benign. In fact, an assessment is much the same thing as a tax... Ultimately,... this tax is really paid by the public, because those financial companies are owned by thousands upon thousands of individuals...
                                            The general taxpaying public may never figure out the true effect of ... the tax... But many people have acquired a sense of suspicion that anything that looks remotely like government largess will show up in higher taxes someday. That is part of the reason for the rise of the Tea Party movement, and was a factor in the recent midterm elections.
                                            Still, well-thought-out framing packages can work. They can help sell crucial intervention packages to people who don’t fully understand the financial system’s complexities or how government interventions prevent disasters.
                                            Unemployment ... certainly would be much higher had the government not embarked on bailouts. We have to hope that the Dodd-Frank reframing succeeds — and that taxpayer anger doesn’t scare the government away from following the law’s intent aggressively. Such timidity could allow more Lehman-type failures.
                                            The framing of the Orderly Liquidation Authority might be regarded as a form of diplomacy, needed to avoid unwanted anxieties that could prevent the Treasury and the F.D.I.C. from taking strong action to support our financial system.
                                            This is vitally important. We avoided a depression in 2008 and 2009, and we need to do so again when the next crisis arrives.

                                            I think this may miss something about the public's anger. Since the government didn't have resolution authority for banks in the shadow system, it only had two choices when faced with the collapse of a large bank like Bear Stearns or Lehman. Let the bank fail and risk a domino effect that brings the entire system down and potentially creates a depression, or bail out the systemically important bank -- including management and equity holders (investors). [Some claim the government did, in fact, have other choices, but I don't think the key players in the Fed and Treasury believed that they had the authority they needed to take over the large banks, remove management, and put them through traditional FDIC-like procedures that impose losses on investors.] By choosing to bail out the banks, they also bailed out those who created the mess. This left the appearance that the wealthy and well-connected get bailed out, while the middle and lower classes get the bill. Typical households really can't see what they gained from the bailout since, for many, the counterfactual where the system melts down without a bailout is either hard to imagine or not believed. They don't understand, for example, why the government helping them to pay off loans wouldn't have helped banks just as much as a direct bailout. "Where was my bailout?" they wonder.

                                            I am not sure that the government will have the courage to use the Orderly Liquidation Authority when the next big crisis hits. This is not something that has ever been tested, it does not prevent runs on the shadow banking system, and if regulators announce such a procedure only to see financial markets beginning to implode with worry, they may resort to a more traditional bailout despite public opposition to it. But assuming they do use the new authority, I agree it's important that the banks appear to be bailing out themselves, though I would have them prepay into a fund rather than pay it all after the fact. But I think it's even more important that, however the bailout is done, we remove the perception that the well-connected are protected by a "Greenspan-Bernanke Put" that prevents them from taking big losses whenever the system gets in trouble.

                                              Posted by on Saturday, November 13, 2010 at 11:43 AM in Economics, Financial System, Regulation | Permalink  Comments (52) 


                                              Why No Financial Transactions Tax?

                                              Why wasn't a financial transaction tax part of the Bowles-Simpson deficit reduction proposal?

                                              It would raise substantial revenue and has desirable properties in terms of cooling speculative money flows.

                                              I guess the problem is that the tax falls largely on the wrong people -- those who can afford to pay it.

                                                Posted by on Saturday, November 13, 2010 at 09:09 AM in Budget Deficit, Economics, Politics | Permalink  Comments (63) 


                                                Friday, November 12, 2010

                                                links for 2010-11-12

                                                  Posted by on Friday, November 12, 2010 at 10:01 PM in Economics, Links | Permalink  Comments (31) 


                                                  The Simpson-Bowles Deficit Reduction Plan

                                                  I have a new post at MoneyWatch:

                                                  The Simpson-Bowles Deficit Reduction Plan

                                                  My reaction is negative.

                                                    Posted by on Friday, November 12, 2010 at 12:51 PM in Budget Deficit, Economics, MoneyWatch, Politics | Permalink  Comments (60) 


                                                    Fed Watch: Will the Fed Scale Up QE2?

                                                    Tim Duy:

                                                    Will the Fed Scale Up QE2?, by Tim Duy: I often feel caught between two complementary yet seemingly contradictory narratives regarding the US economy, one that sounds very optimistic while the other, in my opinion, pessimistic. Nevertheless, I think both narratives can be embraced, at least to a certain extent. And which narrative the Federal Reserve embraces will determine the dominate monetary policy question: Will the Fed scale up quantitative easing, or scale down?

                                                    It is reasonable to conclude that the US economy possess the basis for sustained growth in the quarters ahead. Indeed, the signs of a cyclical upturn are all over the data - manufacturing, investment, retail sales, inventories, take your pick, they are generally moving in the right direction. And my take on the recent spate of data is that economic conditions firmed somewhat as we entered the fourth quarter. The ISM reports, both manufacturing and service sectors, were looking much more solid than the previous months. Initial unemployment claims have drifted downward, possibly even poised to make a sustained break below the 450k mark. And the all important employment report did surprise on the upside.

                                                    Overall, the four quarter average of GDP growth is 3.1% - perhaps a bit higher than potential (or perhaps not, given earlier productivity gains), consistent with the relatively steady path of the unemployment rate since the beginning of the year. And note private sector payrolls are rising at a monthly rate of about 112k this year, at the low end of estimates necessary to absorb the growing labor force (albeit acknowledging the potential for additional drag from the public sector). To be sure, during the past two quarters, average GDP growth slowed to an average of 1.9%, threatening to undo these patterns and prompting the Fed to step up large scale asset purchases. But the pick up in activity suggested by the ISM reports signals that growth will edge back up in the final quarter of this year.

                                                    Like others, I could find quibbles with the data. For instance, the household side of the October employment report was not exactly inspiring, suggesting that high unemployment continues to drive persons out of the labor force. And the gains on the employment side were concentrated in a handful of sectors - retail and wholesale trade, temporary employment, and health and education services accounted for 123.1k of the 159k total. I would prefer broader based increases, but will hold out hope that the temp employment gains foreshadow a more durable recovery in the months ahead.

                                                    Moreover, I believe households are setting the groundwork for sustained spending growth in the quarters ahead. Not only are savings rates well off their lows, meaning that some or even much of that adjustment is already behind us. And financial obligations have collapsed back to levels last seen prior to the 2001 recession:

                                                    Goodness, consumer credit even rose a touch in September! Moreover, steady gains in the labor market would go a long way in supporting the handoff from spending sustained on transfer payments to spending sustained on wages. The net impact might not cause a surge in consumer spending, but it would at least keep it on its recent steady upward trend.

                                                    And yes, of course, households are still fundamentally challenged relative to five years ago. Housing markets remain a mess, net worth has been shredded, etc. And these events appear to have made something of a permanent mark on consumer psychology. Witness as retailers rush to get the jump on the holiday shopping season, ratcheting up discounts amid worries that consumers remain frugal and more discerning about their spending. From the Wall Street Journal:

                                                    Retailers and manufacturers are slashing flat-screen television prices more aggressively than usual this holiday season in hopes of avoiding a pileup of inventory.
                                                    Wal-Mart Stores Inc., Best Buy Co. and Amazon.com Inc. are touting deals ahead of Black Friday to clear out older and cheaper sets before an anticipated flood of deeper price cuts in coming weeks...
                                                    ...The frenzy is being fueled by such top makers as Sony Corp. and Samsung Electronics Co., which are reducing suggested retail prices and sweetening their promotions with such extras as free Blu-ray movie players and 3-D glasses after initially overestimating the American consumer's appetite for pricey features….
                                                    ...Television makers had expected bullish sales for 2010 on the theory that Americans were slowly loosening their purse strings and becoming receptive to new, pricier technologies such as ultrathin LED screens, Internet-connected sets and 3-D TV.
                                                    But slow 3-D TV sales and a buildup of U.S. television inventories in August and September showed that Americans were still behaving frugally amid continuing high unemployment...

                                                    That said, I think it is important to recognize that the relative challenges still facing households - namely a loss of asset values and the access to credit those values provided - is more a story of why spending did not quickly revert to trend, not a reason to believe that spending cannot be maintained along its current anemic trend:

                                                    FWexctra

                                                    Overall, I believe it is reasonable to embrace a story that the economy settles into a trend near potential growth - by some measures, an optimistic outlook. Indeed, I believe this was a story the Federal Reserve was willing to embrace, and would have had it not been for the slowing evident over the past two quarters.

                                                    That said, the recent flow of data does little to convince me that the US economy is set to grow much faster than potential. For the sake of argument, supposed that QE2 does in fact support the economy, pushing growth back up to the 3% range in 2011 and 2012. Sales increases, profits increase, jobs increase, everyone's happy, correct? Probably not. Consider the trajectory of the output gap under such circumstances:

                                                    FW1112103

                                                    I included the path of the output gap through the 1981 recession cycle, centering both on the begining of the respective recessions. At 3% growth, the output gap will narrow to 4.5% by the end of 2012, 14 quarters after the "end" of the recession. In contrast, in the mid-1980s, it took just 7 quarters to collapse the output gap to just 1%. Perhaps more dramatic is a look back at the employment to population ratio:

                                                    Continue reading "Fed Watch: Will the Fed Scale Up QE2?" »

                                                      Posted by on Friday, November 12, 2010 at 08:54 AM in Economics, Fed Watch, Monetary Policy | Permalink  Comments (27) 


                                                      Paul Krugman: The Hijacked Commission

                                                      Why does deficit reduction mean "tax cuts for the wealthy, tax increases for the middle class"?:

                                                      The Hijacked Commission, by Paul Krugman, Commentary, NY Times: Count me among those who always believed that President Obama made a big mistake when he created the National Commission on Fiscal Responsibility and Reform — a supposedly bipartisan panel charged with coming up with solutions to the nation’s long-run fiscal problems. ...
                                                      My misgivings increased as we got a better feel for the views of the commission’s co-chairmen. It soon became clear that Erskine Bowles, the Democratic co-chairman, had a very Republican-sounding small-government agenda. Meanwhile, Alan Simpson, the Republican co-chairman, revealed the kind of honest broker he is by sending an abusive e-mail to the executive director of the National Older Women’s League in which he described Social Security as being “like a milk cow with 310 million tits.”
                                                      We’ve known for a long time, then, that nothing good would come from the commission. But on Wednesday, when the co-chairmen released a PowerPoint outlining their proposal, it was even worse than the cynics expected. ... The goals of reform, as Mr. Bowles and Mr. Simpson see them, are presented in the form of seven bullet points. “Lower Rates” is the first point; “Reduce the Deficit” is the seventh.
                                                      So how, exactly, did a deficit-cutting commission become a commission whose first priority is cutting tax rates, with deficit reduction literally at the bottom of the list?
                                                      Actually,... what the co-chairmen are proposing is a mixture of tax cuts and tax increases — tax cuts for the wealthy, tax increases for the middle class. They suggest eliminating tax breaks that, whatever you think of them, matter a lot to middle-class Americans — the deductibility of health benefits and mortgage interest — and using much of the revenue gained thereby, not to reduce the deficit, but to allow sharp reductions in both the top marginal tax rate and in the corporate tax rate.
                                                      It will take time to crunch the numbers..., but this proposal clearly represents a major transfer of income upward, from the middle class to a small minority of wealthy Americans. And what does any of this have to do with deficit reduction?
                                                      Let’s turn next to Social Security. There were rumors beforehand that the commission would recommend a rise in the retirement age, and sure enough, that’s what Mr. Bowles and Mr. Simpson do. They want the age at which Social Security becomes available to rise along with average life expectancy. Is that reasonable?
                                                      The answer is no, for a number of reasons — including the point that working until you’re 69, which may sound doable for people with desk jobs, is a lot harder for the many Americans who still do physical labor.
                                                      But beyond that, the proposal seemingly ignores a crucial point: while average life expectancy is indeed rising, it’s doing so mainly for high earners... So the Bowles-Simpson proposal is basically saying that janitors should be forced to work longer because these days corporate lawyers live to a ripe old age.
                                                      Still, can’t we say that for all its flaws, the Bowles-Simpson proposal is a serious effort to tackle the nation’s long-run fiscal problem? No, we can’t. ...
                                                      It’s no mystery what has happened on the deficit commission: as so often happens in modern Washington, a process meant to deal with real problems has been hijacked on behalf of an ideological agenda. Under the guise of facing our fiscal problems, Mr. Bowles and Mr. Simpson are trying to smuggle in the same old, same old — tax cuts for the rich and erosion of the social safety net.
                                                      Can anything be salvaged from this wreck? I doubt it. The deficit commission should be told to fold its tents and go away.

                                                        Posted by on Friday, November 12, 2010 at 12:42 AM in Budget Deficit, Economics, Politics | Permalink  Comments (66) 


                                                        Thursday, November 11, 2010

                                                        links for 2010-11-11

                                                          Posted by on Thursday, November 11, 2010 at 10:02 PM in Economics, Links | Permalink  Comments (17) 


                                                          "How Joe Lieberman Helped the Democrats Lose the Election"

                                                          I've been pretty hard on Obama lately, but Ezra Klein says we shouldn't forget the role that senators like Joe Lieberman played in hurting Democrat's chances in the election. He's right that "They deserve scrutiny too":

                                                          How Joe Lieberman helped the Democrats lose the election, by Ezra Klein: Since the election, there's been a lot of talk about what President Obama and the Democratic leadership could've done differently. ... But there's been rather less discussion of what individual legislators could've done differently. Consider, for example, Joe Lieberman. ...
                                                          Late in the negotiations over the public option, a group of five conservative Democrats and five more-liberal Democrats seemed near to an unexpectedly smart compromise: Allow adults over 55 to buy into Medicare. This idea had a couple of different virtues: For one, it opened an effective and cheap program up to a group of Americans who often have the most trouble finding affordable insurance. For another, the Congressional Budget Office has said this policy would improve Medicare's finances by bringing healthier, younger applicants into the risk pool. Oh, and it's wildly popular with liberals, who want to see Medicare offered as an option to more people, and since Medicare is already up and running, it could've been implemented rapidly.
                                                          But Lieberman killed it. It was never really clear why. He'd been invited to the meetings where the compromise was developed, but he'd skipped them. He'd supported the idea when he ran for president with Al Gore, and he'd reaffirmed that support three months prior to its emergence in the health-care debate during an interview with the editorial board of the Connecticut Post. But now that it was on the table, he seemed to be groping for reasons to oppose it. About the best he managed was that it was "duplicative," which was about as nonsensical a position as could be imagined. Nevertheless, he swore to filibuster the bill if the buy-in option was added. The proposal was duly removed.
                                                          It's easy to say that this made for worse policy. Medicare buy-in was a smart, helpful idea that should've been included in the legislation. It's harder to say whether it had a defined political cost in the election: Liberals would've been a lot happier if they'd managed to add this to the law, and maybe more of them would've turned out to vote. Seniors might've been pleased to see Medicare's finances improved, and many of the people who would've been helped by the new rule would've been, well, their children. The law could've begun delivering benefits earlier, and maybe that would've helped its popularity. Polls of doctors and the public have repeatedly shown broad support for making Medicare available to more Americans.
                                                          Put all this together and it might've saved a few seats, or perhaps it wouldn't have saved any seats at all. Or maybe it would've changed everything. At any rate, it's the sort of thing that might've made a difference, and its absence was the result of one senator's incoherent intransigence. We're pretty used to looking for what the White House did wrong, and what the congressional leadership did wrong, but in a Senate where there were 60 Democrats for a time, there are a lot of cases where the decisions of one or two individual senators made a big difference to legislative outcomes. They deserve scrutiny, too.

                                                          I was going to argue that part of the president's job is to hold the Democratic coalition together, so while legislators do deserve scrutiny and blame as appropriate, it's still at least partly Obama's fault that the coalition broke apart. But since I don't think of Joe Lieberman as a Democrat, I'm not sure I can make that argument in this case.

                                                            Posted by on Thursday, November 11, 2010 at 12:32 PM in Economics, Health Care, Politics | Permalink  Comments (30) 


                                                            Hall: Inability to Cut Rates Fuels Joblessness

                                                            Robert Hall says we need to institute monetary policies that make current purchases cheap relative to future purchases (as with inflation):

                                                            Inability to Cut Rates Fuels Joblessness, by Timothy Aeppel: American consumers borrowed and spent their way into today’s slow recovery, and the jobless rate is being held near 10% because the Federal Reserve is unable to cut interest rates below zero, says Stanford University economist Robert E. Hall.
                                                            In a paper presented Thursday at a Federal Reserve Bank of Atlanta conference, Mr. Hall calculates that loose credit earlier in this decade resulted in consumers buying 14% more long-lasting items — from cars and dishwashers to houses — than they would have if credit conditions had remained as they were in the previous decade.
                                                            The recession was marked by those overextended households cutting spending and saving more in the face of hard times. The problem now is that the normal tool used to revive consumer spending and hiring — cutting interest rates well below the inflation rate — isn’t available because rates are nearly at zero. So unemployment has remained stuck at a high level, currently 9.6%.
                                                            Mr. Hall ... concludes that the only way to get the job market growing is to institute monetary policies “that emulate the effect of low real rates — making current purchasing cheaper than future.” That should be music to the ears of many at the Fed...

                                                            That is not the only way to get the job market growing, there's also fiscal policy. It's not politically viable right now, but it is an alternative tool. Fiscal policy can mimic the incentive effect of changes in real interest rates and expected inflation through changes in taxes, and it can stimulate the economy directly by purchasing goods and services from the private sector.

                                                              Posted by on Thursday, November 11, 2010 at 12:32 PM in Economics, Fiscal Policy, Monetary Policy | Permalink  Comments (32) 


                                                              "White House Gives In On Bush Tax Cuts"

                                                              I think the administration and its allies in Congress are misplaying this (again). They don't seem to understand how to take a stand and turn the political argument in their favor:

                                                              White House Gives In On Bush Tax Cuts: President Barack Obama's top adviser suggested to The Huffington Post late Wednesday that the administration is ready to accept an across-the-board continuation of steep Bush-era tax cuts, including those for the wealthiest taxpayers.
                                                              That appears to be the only way, said David Axelrod, that middle-class taxpayers can keep their tax cuts... "We have to deal with the world as we find it," Axelrod said... "The world of what it takes to get this done."
                                                              "There are concerns," he added, that Congress will continue to kick the can down the road in the future by passing temporary extensions for the wealthy time and time again. "But I don't want to trade away security for the middle class in order to make that point." ...
                                                              Also dealing "with the world as we find it," Axelrod declined repeatedly to comment on any of the controversial debt-reduction measures suggested by the chairs of the president's own commission -- even those, such as raising the Social Security retirement age, that go against Obama campaign pledges and strike at the heart of Democratic constituencies.
                                                              He said that the White House would wait until the commission made its final recommendations on Dec. 1 before adding, "the president's commitments haven't changed."...

                                                              Obama made it seem as though this is an issue where he won't compromise, but instead of holding the line and hammering Republicans day in and day out to make it clear who is standing in the way of extending middle class tax cuts, he caves. Why should we trust the administration to negotiate on issues such as Social Security when it can't even win this political battle? When Axelrod says "the president's commitments haven't changed," shouldn't he add "though we have to deal with the world as we find it"? Saying the president's commitments haven't changed yet is not a promise they won't change in the future, and Obama's history suggests they very well might.

                                                                Posted by on Thursday, November 11, 2010 at 12:24 AM in Economics, Politics, Taxes | Permalink  Comments (194) 


                                                                Too Much Concern about the Upside Risk to Inflation

                                                                 Japan also has inflation hawks on its monetary policy committee:

                                                                Maybe economists should only have one hand, by Antonio Fatas: ...[T]he debate about whether inflation or deflation is more likely, and about whether the aggressive response of central banks is appropriate today is at the heart of some of the most basic issues in macroeconomics. ...
                                                                One example that I always find interesting is the debate that one finds in the minutes of the monetary policy meetings at the Bank of Japan. When discussing the inflation outlook in Japan in recent years, you can always find views on both sides, those who are concerned with deflation and those who are concerned with inflation picking up. Here is a paragraph from the meeting back in April 2010.
                                                                Regarding risks to prices, some members said that attention should continue to be paid to a possible decline in medium- to long-term inflation expectations. One member expressed the view that attention should also be paid to the upside risk that a surge in commodity prices due to an overheating of emerging and commodity-exporting economies could lead to a higher-than-expected rate of change in Japan's CPI.
                                                                Of course, given the last 10 years of data in Japan, it seems awkward that some are concerned with the upside risk to inflation. While one cannot completely rule out this possibility maybe erring on the other side, making the mistake of letting inflation be "too high", for a few years would be good for the Japanese economy.
                                                                Clearly the US or Europe are not in the same situation as Japan but given some of the recent commentary about inflation I wonder whether we are getting close to a debate with too many hands and too many scenarios that leads to a lack of strong actions in the right direction. One can make mistakes in both directions (too much or too little inflation) and only time will tell in which direction our mistakes go, but given what we know about inflation, inflation expectations and long-term interest rates (all of them are low, stable or falling), it seems that we are worrying too much about the potential mistake of being too aggressive when it comes to monetary policy.

                                                                  Posted by on Thursday, November 11, 2010 at 12:11 AM in Economics, Inflation, Monetary Policy | Permalink  Comments (20) 


                                                                  Wednesday, November 10, 2010

                                                                  links for 2010-11-10

                                                                    Posted by on Wednesday, November 10, 2010 at 10:02 PM in Economics, Links | Permalink  Comments (14) 


                                                                    The Fiscal Commission's "Report"

                                                                    Here are a few reactions to the The Fiscal Commission's "Report":

                                                                      Posted by on Wednesday, November 10, 2010 at 12:54 PM in Budget Deficit, Economics, Politics | Permalink  Comments (25) 


                                                                      Back to a Gold Standard?

                                                                      The NY Times Room for Debate asks:

                                                                      Back to a Gold Standard?

                                                                      My response is here. There are other responses from Douglas Irwin, Jeffrey Frankel, Simon Johnson, James Hamilton, and Russ Roberts

                                                                        Posted by on Wednesday, November 10, 2010 at 09:34 AM in Economics, International Finance | Permalink  Comments (35) 


                                                                        "The Exact Opposite of What the Economy Needs"

                                                                        The Republicans are working hard to bring us credible ideas for deficit reduction:

                                                                        Killing Expired Program Won’t Save Money, CBPP: Yesterday, the Republican Study Committee issued a press release announcing one of its first ideas for tackling spending: eliminating the TANF Emergency Fund, which the RSC says would save $25 billion over the next decade “by restoring welfare reform.”  There are so many problems with this proposal that it’s hard to know where to begin.   Here are the facts:

                                                                        • The TANF Emergency Fund no longer exists.  It expired on September 30.  You can’t achieve savings by ending a program that has already ended.
                                                                        • Nobody has ever proposed spending $25 billion on the fund.  Earlier this year the House passed a bill to extend it for one year, at a cost of $2.5 billion — one-tenth of the savings that the RSC claims.
                                                                        • The TANF Emergency Fund is welfare reform.  In fact, the fund represents welfare reform at its best:  it has enabled states to expand work-focused programs within TANF despite high unemployment and a weak economy.  Using the fund, states placed about 250,000 low-income parents and youth in subsidized jobs, mostly in the private sector.

                                                                        As we’ve explained before, the RSC’s claim that the TANF Emergency Fund “incentivizes states to increase their welfare caseloads” is simply wrong. States didn’t have to increase their caseloads to qualify for money from the fund. ... In addition, people receiving TANF assistance funded through the Emergency Fund had to meet the same stringent work requirements imposed on other TANF recipients. They had 12 weeks to find a job — an extremely difficult task in today’s labor market...

                                                                        The TANF Emergency Fund reduced unemployment in communities across the nation that were hard hit by the recession, and it brought businesses, non-profits, and government agencies together to provide jobs for people who were eager to work to support their families. When it ended on September 30th, tens of thousands of people lost their jobs — and more will lose their jobs by the end of the year as states scale back or close down their subsidized jobs programs. That, of course, is the exact opposite of what the economy needs right now.

                                                                        Is it any surprise that misleading claims are used to make "restoring welfare reform" one of the first targets?

                                                                          Posted by on Wednesday, November 10, 2010 at 03:15 AM in Budget Deficit, Economics, Politics | Permalink  Comments (21) 


                                                                          Glaeser: Don't Privatize Fannie and Freddie

                                                                          Ed Glaeser:

                                                                          When Privatization Increases Public Spending, by Ed Glaeser: ...Most of the time, privatization does indeed reduce government expenditures. ... But Fannie and Freddie are the rare exceptions where the taxpayer is safer with them in government hands rather than private hands.
                                                                          Fannie Mae has been a private entity since 1968. Since then, the federal government has proven itself unable to allow let it or Freddie Mac default. ... Given the trillions in mortgage-backed securities that are securitized by these enterprises, once a crisis occurs, the government faces the option of a bailout or risking financial Armageddon. Unsurprisingly, it chooses bailouts.
                                                                          I sympathize with those who would like to end any prospect of a federal backstop for these enterprises, but we don’t have that option. ... And trying to would effectively tie the hands of future Treasury secretaries and chairmen of Federal Reserve. If the federal government is going to bail out Fannie and Freddie anyway, the fiscally responsible thing to do is to keep them in government hands.
                                                                          Then the government can write strict rules that limit their behavior. They can be forced to charge high fees for guaranteeing mortgages. They can be tightly restricted in the types of mortgages they insure. If they remain government entities, the leaders of the House can play a large role in designing a structure that won’t cost future taxpayers billions.
                                                                          All of that control disappears when the entities become private. They will be able to experiment with new products and cut their fees to expand market share. They will be able to hold billions, or trillions, of dollars in their retained mortgage portfolios. They will be able to go back to exerting enormous political influence.
                                                                          If an entity is going to be able to gamble with taxpayer dollars, then we are far safer if that entity is a slow-moving government bureaucracy than rather than a nimble, profit-seeking company. ...
                                                                          I also respect those who argue that Freddie and Fannie should just disappear. Other mortgage markets work perfectly well without such government entities. But it seems dangerous to go cold turkey on government mortgage insurance in our weak economy. ...
                                                                          The government-controlled version of Freddie and Fannie seem likely to disappear over time — if lawmakers make sure they charges fees high enough to cover their costs. The great advantage of a slow transition to privatization through private competition is that the government will find it far easier not to bail out any new, purely private entrants in the market. ...

                                                                          Once all the mortage insurance firms are private again, why won't they be bailed out in a crisis?

                                                                            Posted by on Wednesday, November 10, 2010 at 03:14 AM in Economics, Housing | Permalink  Comments (11) 


                                                                            Tuesday, November 09, 2010

                                                                            links for 2010-11-09

                                                                              Posted by on Tuesday, November 9, 2010 at 10:02 PM in Economics, Links | Permalink  Comments (14) 


                                                                              The GOP Victory and Macroeconomic Policy

                                                                              I have a new column:

                                                                              GOP Victory May End Government Economic Intervention: One of the oldest, most controversial issues in economics is how active government should be in managing the economy. Views on this have varied greatly through the ages, and we are in the middle of yet another large change in attitudes about the proper role of government. ...

                                                                              I hope I'm wrong about this, and I think there's a decent chance that I am.

                                                                                Posted by on Tuesday, November 9, 2010 at 09:27 AM in Economics, Fiscal Policy, Fiscal Times, Monetary Policy, Politics | Permalink  Comments (63) 


                                                                                Eichengreen: Is America Catching the “British Disease?”

                                                                                Barry Eichengreen argues that we may be headed for the same fate as Britain:

                                                                                Is America Catching the “British Disease?”, by Barry Eichengreen, Commentary, Project Syndicate: In the United States, the scent of decline is in the air. Imperial overreach, political polarization, and a costly financial crisis are weighing on the economy. Some pundits now worry that America is about to succumb to the “British disease.”

                                                                                Doomed to slow growth, the US of today, like the exhausted Britain that emerged from World War II, will be forced to curtail its international commitments. This will create space for rising powers like China, but it will also expose the world to a period of heightened geopolitical uncertainty.

                                                                                In thinking about these prospects, it is important to understand the nature of the British disease. It was not simply that America and Germany grew faster than Britain after 1870. After all, it is entirely natural for late-developing countries to grow rapidly, as is true of China today. The problem was Britain’s failure in the late nineteenth century to take its economy to the next level. ...[continue]...

                                                                                  Posted by on Tuesday, November 9, 2010 at 08:50 AM in Economics, Politics | Permalink  Comments (40) 


                                                                                  A "Platform for the Bipartisan Technocrats of the Center"

                                                                                  Brad DeLong:

                                                                                  Here is the platform for the bipartisan technocrats of the center:

                                                                                  • Ten-Year PAYGO: a 2/3 supermajority in both houses commitment to ten-year PAYGO starting now, and a pledge by every president and presidential candidate that they will veto all bills that do not meet ten-year PAYGO standards. Everything Congress passes must be projected to reduce the outstanding national debt within ten years.
                                                                                  • "Starting now" means starting now: no middle-class tax cut this month or next month without a pay-for within ten years. Taking current law rather than current policy as our baseline and requiring PAYGO for everything gets our 25-year fiscal gap down to 1.2% of GDP (as opposed to 4.8% of GDP) and gets our 50-year fiscal gap down to 0.8% of GDP (as opposed to 6.9% of GDP). Our long-run deficit problem is overwhelmingly due to things that Congress is about to do, not things that Congress has done.
                                                                                  • Carbon tax: a 1.0% of GDP carbon tax is the best policy to provide American businesses with the incentives they need to invent the clean energy technologies of the future. Half of it should be channeled into the Social Security Trust Fund to improve its solvency. Half should be used to help close our remaining operating fiscal gap.
                                                                                  • Pick-your-poison: Additional stand-by tax increases and stand-by spending cuts to close the remaining 0.3% of GDP long-run fiscal gap.
                                                                                  • Private add-on Social Security accounts: At their option, all Americans can add up to 2% of their Social Security wages to a private Social Security account run through the U.S. government's Thrift Savings Program. Private contributions will be matched two-for-one by the federal government out of carbon tax revenue
                                                                                  • Recovery: when every fired local, state, and federal worker takes a private sector job down as well and when the U.S. government can borrow at today's absurdly-low terms, it is criminal stupidity not to pull government spending forward into the present and push taxes back into the future (all within the ten-year PAYGO rule, of course). Since the macroeconomic situation is worse now than it was ever projected to get when the first Recovery Act was passed and since the U.S. government can borrow on better terms now than it could at the time of the first Recovery Act, it is time for a second Recovery Act--fifty percent federal government purchases and aid to the states, fifty percent tax cuts--somewhat larger than the first was.
                                                                                  • Certainty: The principal sources of uncertainty in American economics right now are three: we don't know how the long-run fiscal gap will be closed (but we think it will be), we don't know how our health-care system will be reformed and transformed (but we know it will be), and we don't know what our policy toward global warming will be in a generation (but we know that we will have one). The best things the government could do to diminish uncertainty would be to: (1) commit immediately to the full implementation of the version of RomneyCare-plus-cuts-in-Medicare-and-taxes-on-gold-plated-health-plans that was this year's PPACA, (2) commit immediately to a long-run climate policy in the form of a carbon tax coupled with research incentives for future energy technologies, and (3) commit immediately to a plan to cover the long-term fiscal gap.

                                                                                  That's a seven-point plan. That's a seven-point plan that everybody centrist and deficit-hawkish in the reality-based community should be willing to commit to today.

                                                                                    Posted by on Tuesday, November 9, 2010 at 01:37 AM in Economics, Policy, Politics | Permalink  Comments (78) 


                                                                                    Monday, November 08, 2010

                                                                                    links for 2010-11-08

                                                                                      Posted by on Monday, November 8, 2010 at 10:02 PM in Economics, Links | Permalink  Comments (42) 


                                                                                      FRBSF: Is Structural Unemployment on the Rise?

                                                                                      This Economic Letter from Rob Valletta and Katherine Kuang of the San Francisco Fed argues that the unemployment problem is mostly cyclical. Thus, contrary to assertions from some analysts that the unemployment problem "cannot be ameliorated through conventional monetary and fiscal policy," there's plenty of room for monetary and fiscal policy to help struggling labor markets. So what are we waiting for?:

                                                                                      Is Structural Unemployment on the Rise?, by Rob Valletta and Katherine Kuang, FRBSF Economic Letter: An increase in U.S. aggregate labor demand reflected in rising job vacancies has not been accompanied by a similar decline in the unemployment rate. Some analysts maintain that unemployed workers lack the skills to fill available jobs, a mismatch that contributes to an elevated level of structural unemployment. However, analysis of data on employment growth and jobless rates across industries, occupations, and states suggests only a limited increase in structural unemployment, indicating that cyclical factors account for most of the rise in the unemployment rate.
                                                                                      Labor demand has been growing in the United States, reflected in a modest increase in private payroll employment this year and a more substantial increase in private-sector job vacancies over the past 12 months. Despite these signs of improvement, the unemployment rate has declined only slightly. Some analysts have raised the specter of a fundamental mismatch between the supply of labor in terms of workers’ skills and demand for labor in terms of employers’ skill requirements. Such a mismatch between available workers and available jobs could increase the level of structural unemployment. To the extent that structural unemployment is actually rising, the phenomenon poses a dilemma for policymakers. It cannot be ameliorated through conventional monetary and fiscal policy. And it implies an increase in the lowest unemployment rate associated with stable inflation, often identified by the acronym NAIRU, which stands for the non-accelerating inflation rate of unemployment.
                                                                                      This Economic Letter examines evidence for increased structural unemployment and a higher NAIRU (see Valletta and Cleary 2008 for additional background discussion). Our analysis suggests a small rise of about 1¼ percentage points in both structural unemployment and the NAIRU, increases that are likely to be transitory, not permanent.

                                                                                      Continue reading "FRBSF: Is Structural Unemployment on the Rise?" »

                                                                                        Posted by on Monday, November 8, 2010 at 12:51 PM in Economics, Unemployment | Permalink  Comments (13) 


                                                                                        Rodrik: Don't Count on Global Governance

                                                                                        Dani Rodrik argues that global institutions are not always the best answer to global problems. He favors domestic policies that limit the spillovers from other countries arguing that "This option may seem protectionist, but it could ultimately ensure a more durable globalization":

                                                                                        Don’t Count on Global Governance, by Dani Rodrik, Commentary, Project Syndicate: ...The absence of global institutions – acting as lender of last resort or serving up coordinated fiscal stimulus – aggravated the crisis and delayed the recovery. And now, go-it alone fiscal, monetary, and exchange-rate policies are spilling across national borders, threatening currency wars and protectionism.
                                                                                        How we deal with these challenges is the greatest economic question of our time. One approach, favored by technocrats and most policymakers – at least until domestic politics intrudes – is to seek solace in ever-greater global governance. Global problems, after all, require global solutions, which means strengthening international organizations like the International Monetary Fund,... the G-20, and negotiating stricter international codes and standards (as has occurred with capital-adequacy requirements, for example).
                                                                                        Another approach is to recognize that global governance is bound to remain incomplete, and to moderate the side-effects through a more cautious form of economic globalization. This strategy entails throwing some sand in the wheels of the global economy in order to expand room for domestic policy and limit the impact of adverse spillovers from other countries’ actions. This option may seem protectionist, but it could ultimately ensure a more durable globalization.
                                                                                        Many of the world economy’s troubles today originate from our unwillingness to recognize that domestic policy objectives will ultimately trump global responsibilities...
                                                                                        Economists teach the virtues of open trade because it benefits us... Exposing the domestic economy to global markets ... brings its own rewards. A world economy made up of countries that pursue their own national interests will perhaps not be hyper-globalized, but it will, by and large, be an open one.
                                                                                        Certainly, the global economy needs some traffic rules where there are clear cross-border spillovers. But the balance between national prerogatives and international rules must make a virtue of political reality. If we veer too far toward global governance, we will end up with meaningless rules that beg to be flouted.

                                                                                        Just a quick, on the run comment: Financial regulation is one area where I think global institutions are needed, and there is also a need for a global lender of last resort.

                                                                                          Posted by on Monday, November 8, 2010 at 10:45 AM in Economics, International Trade | Permalink  Comments (3) 


                                                                                          Paul Krugman: Doing It Again

                                                                                          The "inflationistas" are standing in the way of policy that might help the unemployed:

                                                                                          Doing It Again, by Paul Krugman, Commentary, NY Times: Eight years ago Ben Bernanke ... spoke at a conference honoring Milton Friedman. He closed his talk by addressing Friedman’s famous claim that the Fed was responsible for the Great Depression, because it failed to do what was necessary to save the economy.
                                                                                          “You’re right,” said Mr. Bernanke, “we did it. We’re very sorry. But thanks to you, we won’t do it again.” Famous last words. For we are, in fact, doing it again. ...
                                                                                          We’ve already seen this happen with fiscal policy: fearing opposition in Congress, the Obama administration offered an inadequate plan, only to see the plan weakened further in the Senate. In the end, the small rise in federal spending was effectively offset by cuts at the state and local level, so that there was no real stimulus to the economy.
                                                                                          Now the same thing is happening to monetary policy. The case for a more expansionary policy ... is overwhelming. Unemployment is disastrously high, while U.S. inflation data ... almost perfectly match the early stages of Japan’s relentless slide into corrosive deflation. ...
                                                                                          Yet the Pain Caucus —... those who have opposed every effort to break out of our economic trap — is going wild.
                                                                                          This time, much of the noise is coming from foreign governments ... complaining vociferously that the Fed’s actions have weakened the dollar. All I can say ... is that the hypocrisy is so thick you could cut it with a knife.
                                                                                          After all, you have China, which is engaged in currency manipulation ... unprecedented in world history — and hurting the rest of the world by doing so — attacking America for trying to put its own house in order. You have Germany, whose economy is kept afloat by a huge trade surplus, criticizing America for running trade deficits — then lashing out at a policy that might, by weakening the dollar, actually do something to reduce those deficits.
                                                                                          As a practical matter, however, this foreign criticism doesn’t matter much. The real damage is being done by our domestic inflationistas — the people who have spent every step of our march toward Japan-style deflation warning about runaway inflation just around the corner... — and they may already have succeeded in emasculating the Fed’s new policy.
                                                                                          For the big concern about quantitative easing isn’t that it will do too much; it is that it will accomplish too little. Reasonable estimates suggest that the Fed’s new policy is unlikely to reduce interest rates enough to make more than a modest dent in unemployment. The only way the Fed might accomplish more is by ... leading people to believe that we will have somewhat above-normal inflation over the next few years, which would reduce the incentive to sit on cash. ...
                                                                                          But in the same remarks in which he defended his new policy, Mr. Bernanke — clearly trying to appease the inflationistas — vowed not to change the Fed’s price target: “I have rejected any notion that we are going to try to raise inflation to a super-normal level in order to have effects on the economy.”
                                                                                          And there goes the best hope that the Fed’s plan might actually work.
                                                                                          Think of it this way: Mr. Bernanke is getting the Obama treatment, and making the Obama response. He’s facing intense, knee-jerk opposition to his efforts to rescue the economy. In an effort to mute that criticism, he’s scaling back his plans in such a way as to guarantee that they’ll fail.
                                                                                          And the almost 15 million unemployed American workers, half of whom have been jobless for 21 weeks or more, will pay the price, as the slump goes on and on.

                                                                                            Posted by on Monday, November 8, 2010 at 12:51 AM in Economics, Inflation, Monetary Policy | Permalink  Comments (78) 


                                                                                            Sunday, November 07, 2010

                                                                                            links for 2010-11-07

                                                                                              Posted by on Sunday, November 7, 2010 at 10:04 PM in Economics, Links | Permalink  Comments (23) 


                                                                                              Williamson Yet Again

                                                                                              Steven Williamson replies again. He says things like:

                                                                                              I don't know what "aggregate demand" is.

                                                                                              I'll let him figure that out on his own, so let me deal with another part of his reply. He says this graph shows why we should fear inflation:

                                                                                              Presumably Mark would characterize the current state of the economy as "depressed." And, the fact is that reserves are leaving banks in the form of currency as we can see in this chart.

                                                                                               

                                                                                              Note in particular that reserves have recently been leaving banks at a more rapid rate. It's possible that we would get more inflation even without QE2.

                                                                                              Ah, I see, the surge in 2008 is why we are having such a problem with inflation today! Oh wait.

                                                                                              It would be nice if he would take logs so that the "surge" is not misrepresented visually. And it would also be nice if he presented the entire series so we can see if there is, in fact, a surge relative to the historical average:

                                                                                              Logcurr
                                                                                              I'll let you decide if there has been a sudden surge in the growth rate of currency. It does appear to be a bit higher relative to the bubble years, but not relative to the entire history.

                                                                                              But what does an increase in currency holdings tell us anyway? People sitting on cash is no different than banks sitting on excess reserves. Are they spending the money right away or holding it for long periods of time? It matters.

                                                                                              In any case, the charts above show currency in circulation. But Wiliamson says that "Inflation is everywhere and always a monetary phenomenon." So what has been happening to (the log of) M2 (the monetarists' favorite measure of money -- he does call himself a New Monetarist after all)? Not much:

                                                                                              M2

                                                                                              There was a little bit of a surge (remember all that inflation when it happened?), but M2 appears to be mostly back to trend. Maybe a second round of QE can change that?

                                                                                              And what do we know from other evidence on this question? Let me turn it over to Williamson's bestest buddy in the whole world, Paul Krugman (the monetary base is the sum of currency in circulation plus bank reserves):

                                                                                              Here’s a chart of growth rates of the monetary base and of M2, Friedman’s preferred monetary aggregate:
                                                                                              DESCRIPTION
                                                                                              Bank of Japan
                                                                                              So, after 2000 the Bank of Japan engineered a huge increase in the monetary base; this was the original quantitative easing. And it didn’t even translate into a surge in the money supply!

                                                                                              And we are all aware of the severe problems Japan has faced with inflation as a result of its quantitative easing policy.

                                                                                              Just for completeness, here is the same graph with the growth in currency in circulation shown just underneath it for comparison (taken from the Bank of Japan web site):

                                                                                              DESCRIPTION
                                                                                              Curr
                                                                                              Currency in Circulation - Bank of Japan

                                                                                              Japan had surges in currency too, but they did not translate into an outbreak of inflation.

                                                                                              Finally, I found this to be an interesting argument that the presence of excess reserves has nothing to do with the lack of demand for bank loans:

                                                                                              If the opportunities are there, the banks will lend.

                                                                                              Well, yes, but that begs the question of whether the opportunities are, in fact, there. I also like the contention that calling Bernanke a "wuss" is not "disparaging Bernanke's character." Yes, saying Bernanke is lying to himself or the rest of us when he claims, as he has repeatedly over the last week, that he will not let inflation get out of control is not a comment of his character, but whatever.

                                                                                              Despite Williamson's wishes to the contrary, there's no evidence here that inflation is just around the corner, or even down the street.

                                                                                              Update: Williamson replies yet again. I have interspersed my own comments [in brackets to keep them separate]:

                                                                                              Thoma - Last Comment: Thoma is back again with this. Replies as follows:
                                                                                              Ah, I see, the surge in 2008 is why we are having such a problem with inflation today!

                                                                                              He's talking about the surge in currency in circulation in 2008. Yes, exactly. This is why I'm not an old-fashioned quantity theorist. What has to be going on here is a large increase in the world demand for US currency during the financial crisis. All the more reason to be worried about inflation, as the crisis-driven demand goes away.

                                                                                              [The Fed has no way to remove currency or bank reserves from the system once the crisis is over and the economy starts recovering? This relies on the idea that the Fed won't be aggressive in fighting inflation, which in turn relies upon Williamson's contention about Bernanke's character. More on this below.]

                                                                                              what has been happening to (the log of) M2 (the monetarists' favorite measure of money -- he does call himself a New Monetarist after all)?

                                                                                              No, New Monetarists don't care about broader monetary aggregates. Neil Wallace taught us that.

                                                                                              [So his preferred monetary aggregate for predicting inflation is currency in circulation? I find that a bit strange. If it's not his preferred monetary aggregate, then what is it and why didn't he present that as evidence instead of the graph on currency in circulation? Perhaps because it doesn't make the case he wanted to make?]

                                                                                              I also like the contention that calling Bernanke a "wuss" is not "disparaging Bernanke's character."

                                                                                              This seems a bit strange. I'm not sure how Mark comes by all this respect for authority. In this context, I think it's healthy to be skeptical about what these central bankers are telling us. They have a penchant for secrecy, and I don't think we should take everything they say at face value, or necessarily trust them. We've given them an important job, and I think they are taking some big risks. If they screw up, we'll all suffer for it.

                                                                                              [It's possible to question authority without using the word "wuss" or turning it into a character issue, so his reply misses the mark. But this has nothing to do with questioning authority -- I have no problem with that -- and it's not about the particular words that are used. He's trying to turn this into a complaint about language when the underlying issue is that Williamson used a supposed character defect to justify his claim that we should be worried about inflation. He chose to hang his hat largely on Bernanke's character rather than try to make the case with economics, but seems unwilling to own up to this (even above, his main argument is that Bernanke and other Fed officials could be intentionally lying to us so we shouldn't trust them). I am not a big fan of Bernanke for reasons that precede his tenure at the Fed, and we should be skeptical and ask questions, but I think I would at least admit it when I attacked his character as a means of buttressing relatively weak economic arguments and to justify my arguments about inflation. Maybe he's right about Bernanke's character, maybe not, but as I said before nobody should mistake what Williamson is doing for economics. It's just as easy to use the character issue to argue that Bernanke will tighten too soon rather than too late, and debating Bernanke's inner soul gets us nowhere.]

                                                                                              [I'll end by simply noting that while I was pleased to see his first post today acknowledge the inconsistency in his original argument that I pointed out, he still hasn't answered one of the questions I asked, how inflation occurs in a recession when the unemployment rate is 10%. This was something he said we should be very worried about but how, exactly, does this occur? He said this was his last comment, so I guess we'll never know.]

                                                                                              Just for completeness, here is the same graph with the growth in currency (taken from the Bank of Japan web site) just underneath for comparison:

                                                                                                Posted by on Sunday, November 7, 2010 at 06:03 PM in Economics, Inflation, Monetary Policy | Permalink  Comments (13) 


                                                                                                GOP: No Compromise on Tax Cuts

                                                                                                Dear president Obama and Democrats in general. This is how you take a stand:

                                                                                                GOP: There'll be no compromise on tax cuts, McClatchy: Republican leaders in both the House and the Senate said Sunday there would be no compromise with Democrats on whether to extend Bush-era tax cuts for the nation's wealthiest taxpayers.
                                                                                                President Barack Obama has said he wants to extend the tax cuts for taxpayers with a combined annual income of less than $250,000, but that the cuts should be eliminated for people making more than that. He's suggested there might be room for compromise in discussions with Republicans on other tax issues.
                                                                                                But both Rep. Eric Cantor, R-Va., who's expected to become the majority leader in the House when the new Congress is sworn in next year, and Senate Minority Leader Mitch McConnell said on Sunday news programs that they'd insist on an extension of the tax cuts for wealthy. ...
                                                                                                Cantor said Republicans plan to make spending cuts a priority when they take control of the House in January. "We're going to embark on a regular diet of spending cut bills being brought to the floor weekly," he said. ...

                                                                                                Shall we start a pool on how long it will be before Democrats cave under the organized pressure from the GOP and its supporters in the media and give in to both tax cuts for the wealthy and the budget cuts needed to pay for them?

                                                                                                  Posted by on Sunday, November 7, 2010 at 03:43 PM in Budget Deficit, Economics, Politics, Taxes | Permalink  Comments (29) 


                                                                                                  The Resetting of Clocks and Monetary Neutrality

                                                                                                  This is mostly for Nick Rowe who says:

                                                                                                  ...Why does money have real effects? It's just bits of paper. It's not real. We are still stuck on David Hume's puzzle. If we double the number of bits of paper each one should be worth half as much. It should be a purely nominal change. Nothing real should change. If we switch from meauring turkeys in pounds to measuring them in kilograms, the price per unit weight should be divided by 2.2, but the same turkey should cost exactly the same in pounds or kilograms, and we should buy exactly the same number of turkeys as before.

                                                                                                  Metrification was a nominal change that had negiligible real effects, as far as I know. Daylight Savings Time is a nominal change that has real effects. Some monetary changes, like currency reforms where we knock a couple of zeroes off the old currency and call it the new currency, are like metrification, where nothing real changes. And maybe all monetary changes are like metrification in the long run. But some monetary changes are like Daylight savings Time, and have real effects, at least in the short run.

                                                                                                  If we understood Daylight Savings Time better, and how it works, we might understand monetary policy better. ...

                                                                                                  This is a bit on the wonkish side, but here's an example along these lines from David Romer's graduate macro text (pgs. 295-296):

                                                                                                  An analogy may help to make clear how the combination of menu costs with either real rigidity or insensitivity of the profit function (or both) can lead to considerable nominal stickiness: monetary disturbances may have real effects for the same reasons that the switch to daylight saving time does.[16] The resetting of clocks is a purely nominal change -- it simply alters the labels assigned to different times of day. But the change is associated with changes in real schedules -- that is, the times of various activities relative to the sun. And there is no doubt that the switch to daylight saving time is the cause of the changes in real schedules.
                                                                                                  If there were literally no cost to changing nominal schedules and communicating this information to others, daylight saving time would just cause everyone to do this and would have no effect on real schedules. Thus for daylight saving time to change real schedules, there must be some cost to changing nominal schedules. These costs are analogous to the menu costs of changing prices; and like the menu costs, they do not appear to be large. The reason that these small costs cause the switch to have real effects is that individuals and businesses are generally much more concerned about their schedules relative to one another's than about their schedules relative to the sun. Thus, given that others do not change their scheduled hours, each individual does not wish to incur the cost of changing his or hers. This is analogous to the effects of real rigidity in the price-setting case. Finally, the less concerned that individuals are about precisely what their schedules are. the less willing they are to incur the cost of changing them; this is analogous to the insensitivity of the profit function in the price-setting case.

                                                                                                  The question Romer is trying to answer is how it is possible for small menu costs (i.e. small costs of changing prices) to have large effects on the real economy.

                                                                                                  I used to get mad at losing an hour of daylight and having it get dark before 5:00 pm, and for many, many years I refused to change my clock (I also hate changing it back in spring and losing an hours sleep). I still had to adjust my schedule to everyone else's so it didn't do much good, but somehow leaving my clocks an hour off made it a tiny bit better. I was surprised at how fast I was able to adjust each fall to the clock being wrong by an hour, though there were several instances when people in my office would get quite confused and panic after looking at the clock and thinking it was an hour later than it actually was. I found that amusing, they found it weird, and I did eventually turn the office clock so that visitors couldn't see it. These days, most of my clocks adjust automatically and I don't bother to change them back, but last year there were a couple of non-self adjusting clocks that I never got around to changing. I doubt I'll bother to change them this year either.

                                                                                                    Posted by on Sunday, November 7, 2010 at 02:34 PM in Economics, Monetary Policy | Permalink  Comments (10) 


                                                                                                    Williamson Responds to "Grumpy Thoma"

                                                                                                    I was kind of grumpy. Here's Steven Williamson's response to my post:

                                                                                                    Grumpy Thoma, by Steven Williamson: Apparently Mark Thoma didn't like my last piece on QE2. I've had a fairly peaceful time here for a while. Thankfully my fellow bloggers have not been paying much attention to me, and my readers are typically thoughtful and helpful in the comment box.

                                                                                                    Now, as my mother (rest her soul) would have said, "Mark, did you get out of the wrong side of the bed this morning?" Hopefully my mother is not reading Thoma's blog, wherever she is, or she would think I had turned into a nasty piece of work.

                                                                                                    Thoma was right about a couple of things, though. First, I did not lay out all the details of my arguments. Most of those are in previous posts, and obviously I can't assume everyone is reading all these things. Second, there is an inconsistency in there.

                                                                                                    First, the details. What causes inflation? I'm with Milton Friedman on this one. Inflation is everywhere and always a monetary phenomenon. I'm not with Milton Friedman in the sense that I don't think the demand for an asset is anything like the demand for potatoes. Trying to find stable demand functions for monetary quantities is a waste of time. Think of the price level as being the terms on which the private sector is willing to hold the stock of outside money - currency and reserves. The Fed determines the total stock of outside money, and the private sector determines how that total gets split up between currency and reserves. What makes the price level go up? That would be anything that increases the supply of outside money relative to the demand.

                                                                                                    Now, what is QE2 about? Under the current circumstances, with a large stock of excess reserves held in the financial system, it seems clear that a conventional exchange of reserves for T-bills cannot matter at all in the present. The Fed swaps one interest-bearing short-term asset for another, and nothing much should happen, short of some minor effects due to the somewhat different roles played by T-bills and reserves in the financial system. On the other hand, swapping reserves for long-maturity Treasuries, as in the QE2 plan, is a different story. We're now swapping a short-term interest-bearing asset for a long-term one. But what will the effects be? Unfortunately there is no good theory to tell us. To the extent that this matters in the present, for example by moving asset prices in the way that Bernanke seems to expect, this depends on some kind of financial market segmentation. Private financial intermediaries cannot be capable of undoing what the Fed is about to do.

                                                                                                    Now, what I discussed in the previous paragraph is just about the current effects of the QE2 open market operations. What about the medium-term effects? There are two important points to note here about QE2. The first is that, while interest-bearing reserves, when they are held by banks, look essentially like T-bills, they have one feature that is very different from T-bills. This is that they can be converted one-for-one into currency. For a bank, a reserve account is a transactions account, and currency can be withdrawn from that account in the same way that you withdraw cash from the ATM. Thus, in contrast to T-bills, interest-bearing reserves can be converted into an asset that can be used in retail transactions.

                                                                                                    Therefore, the more reserves that the Fed floods the financial system with, the more potential there is for inflation. As the economy recovers, other assets will become more attractive to banks relative to reserves, the demand for outside money will fall, and the price level must rise. Further, there could simply be a net increase in the supply of outside money relative to the demand at the outset of the QE2 operation. What I have in mind here is that, in spite of the fact that a QE2 open market operation simply swaps one consolidated-government liability for another, there may be some friction that implies that, on net, banks will not want to hold the extra reserves at market prices. Surely this is part of what the Fed has in mind. They think that long bond yields will fall. However, part of the adjustment should be an increase in the price level as well.

                                                                                                    Now, if the inflation rate starts to rise, what happens then? There are three forces here that are going to make inflation control difficult. First, QE2 will have lengthened the maturity of the Fed's asset portfolio, so that the Fed has a lot more to lose from an increase in short-term interest rates. To tighten, the Fed will have to increase the interest rate on reserves (thus increasing all short rates), which results in a capital loss on its portfolio that will be larger the longer the average maturity of the Fed's assets. If the Fed continues to hold those assets, its income will fall, and if it sells the assets it will be selling them at a loss. If the Fed does not tighten, then inflation rises. None of these outcomes is very appealing. The second force at play is that Bernanke in particular thinks that monetary policy matters for real activity in a big way, and he will be very reluctant to tighten as he will think that he risks another recession. Third, and I may be wrong about this, but I think Bernanke is probably a wuss. He does not want to bear the short term pain associated with people screaming at him if tightening occurs.

                                                                                                    Finally, on the inconsistency, I said here, by implication, that I did not think that QE2 would have much in the way of real effects. But I also said that it is costly to bring inflation down. Seems a little goofy, right? Some people think they understand nonneutralities of money well, but I don't feel like I do. Keynesians (new and old) have not convinced me that sticky wages and prices imply that a monetary expansion gives aggregate output a big kick in a positive direction. Some people, including me, made a case that market segmentation could imply a substantial redistributive effect of monetary policy, but this seemed to matter more for asset prices and allocation than for aggregate activity. New Monetarist ideas may give us short-run nonneutralities of money associated with asset trading and liquidity, and with credit market activity, but we haven't worked all of that out. Given what we know, my forecast is that the net real effects of QE2 will be insignificant. Now, what if inflation takes off, Bernanke is not a wuss, and substantial monetary tightening occurs? Do we have to suffer a lot to bring inflation down, or not? The "Volcker recession" was severe, but in the early 1980s inflation came down over a relatively short period from about 15% to 5%. There were plenty of people at the time who thought that the consequences of tightening would be much more severe. Possibly with the benefit of our 1970s and 1980s experience we can manage this inflation better. Who knows?

                                                                                                    I'm happy to see that he acknowledges the inconsistency I pointed out, but I don't think this fully answers one of my questions. Saying that inflation is always and everywhere a monetary phenomena, and that prices depend upon the amount of outside money in the system, doesn't answer the question about how we get inflation before aggregate demand kicks up. That is, how do we get inflation in the scenario in his previous post where inflation begins increasing to worrisome levels even if there is an unemployment rate of 10% and aggregate demand remains depressed? As Williamson acknowledges, money that piles up in the banks as excess reserves does not increase inflation, it's only "potential" inflation. Exactly how the excess reserves leave banks in a depressed economy is not explained other than through reference to some vague friction that says banks won't want to hold reserves. But who will buy the reserves they no longer want to hold? The story above assumes that banks can loan money if they want, that there is plenty of demand if banks are willing to meet it, but is that really the case right now? Is the supply of credit the main constraining factor or is it the demand? And how much will that demand change if long-term rates fall by a small amount through quantitative easing? I understand the statement that "the more reserves that the Fed floods the financial system with, the more potential there is for inflation. As the economy recovers, other assets will become more attractive to banks relative to reserves, the demand for outside money will fall, and the price level must rise." This statement is conditional upon the economy recovering. But I still don't see how excess reserves are converted into real investments in plants and equipment on a significant scale, or converted into other components of aggregate demand, in a stagnating economy. Perhaps this can be clarified (I'm not saying this can't happen, there are historical instances of high inflation in stagnating economies, but the the mechanism Williamson has in mind and why the mechanism should be operable in this case is not yet clear.)

                                                                                                    Finally, if claiming someone is a "wuss" is a key component of your argument, I suppose that's fine, but we shouldn't pretend that an opinion about someone's character is based upon any sort economic reasoning. It's a convenient opinion/assumption that helps Williamson's story about why we should worry about inflation hold together, but it runs contrary to what Bernanke has said he will do. It's just as easy to assert that Bernanke is very, very concerned about Fed credibility at this point, that he will therefore keep his word, and that he may even begin tightening too soon (and I don't think worries about losses on its portfolio will affect the Fed's decision much if at all). He may be too much of a "wuss" to risk inflation and the Fed's credibility, and his statement that "We're not in the business of trying to create inflation" lends credence to this view. Thus, making assertions about Bernanke's personality to support an argument doesn't get us anywhere useful, one can assert whatever is convenient for the argument at hand. In any case, an inflation problem from a booming economy would be welcome right now -- it's a problem I wish we had -- and if and when that occurs, I remain convinced the Fed has the tools and the will to keep the problem under control.

                                                                                                      Posted by on Sunday, November 7, 2010 at 10:37 AM in Economics, Monetary Policy | Permalink  Comments (13)