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Monday, April 30, 2012

Benjamin Cole on the History of Fed Independence

        Cole is a long time commentator as many of you may know. I know him mostly as a normal commentator as Sumner's Money Illusion. I don't know if this is his first blog post over at Marcus Nunes' Faint of Heart but it's the first I've read and I got to say I'm pretty impressed. Cole gave us a bit of a history lesson and it's interesting as a source of comparison.

          http://thefaintofheart.wordpress.com/2012/04/29/unreflections-in-a-not-so-distant-mirror-when-reagan-tried-to-put-the-fed-into-the-oval-office-obama-looks-like-watered-down-milquetoast-a-guest-post-by-benjamin-cole/#comment-2780

       The Republicans-and their offical organ, the Wall Street Journal editorial page-have gone wholly "hard money" now. I mean they are writing crazy bill in Congress about going back on the gold standard-indeed in many states they are doing the same thing. In Kansas a bill passed about allowing payment in gold and silver-it of course far from truly brings back bimetallism.

      "Paul's message finally seems to be gaining traction outside Washington. Since the beginning of 2009, lawmakers in more than a dozen states, with the backing of conservative organizations like the Tenth Amendment Center and the American Principles Project, have introduced bills promoting the use of gold and silver currency for everything from buying groceries to paying taxes. Last week, Utah became the first state to enact such legislation, declaring gold and silver coins from the US mint legal tender, and creating a commission to study the efficacy of this move."

     "Other proposals, in Georgia and Iowa, would mandate that all state taxes be paid in gold and silver. In Montana, a "sound money" bill that would have required all taxes on cigarettes and tobacco products be paid in precious metals was narrowly defeated on Monday."

     "Some supporters hope the movement will succeed where Paul's efforts have fallen short—by bringing down the Federal Reserve system from the bottom up."

     "It's much more difficult to be lobbying against one bill than it is against 50 bills," says Bill Greene, a conservative activist and political consultant whose sample legislation has served as a foundation for a bill that's currently before the Georgia legislature. "As soon as one state passes a sound money bill, that state is going to reap the most benefits first. That'll open the floodgates and get the ball rolling and more and more states wanting to do it."

     
      http://www.motherjones.com/politics/2011/03/gop-new-gold-rush

       However, Benjamin shows us that the GOP wasn't always so "fiscally repsonsible."

       "Read an “old” newspaper, from the ancient pre-Internet era of December of 1984: “The Reagan Administration is considering a plan to would place the now autonomous US Federal Reserve under some form of administrative control, The US Treasury Secretary, Don Regan, said yesterday.”  That was AP wire copy, and the story went national."

     "Long forgotten today, given the near-hysteria and requisite orthodoxy on the American right that only tight money is sound policy and patriotic, is that the Reagan White House tried to skin Fed Chief Paul Volcker alive back in 1984.  And not just Volcker—they wanted to eviscerate the Federal Reserve Board, and shift control of the money supply into the Oval Office.  Inflation in 1984 had just dropped under 5 percent, and the Reaganauts wanted the Fed to print a lot more money, and keep the economy flourishing.
Secretary Regan mustered more than a few arguments. “The United States is the only country in the world that has a totally independent central bank,” he averred.  The Fed was an errant oddball institution, obsessed with fighting inflation instead of promoting growth, the Reaganauts charged.  Ergo, Volcker (originally an appointee of President Jimmy Carter) was a loose cannon on the deck of macroeconomic policy making.
Some Reagan hagiographers have tried to pooh-pooh Regan’s commentary as not truly part of the Reagan heritage, and cite Reagan’s gentlemanly public statements about Volcker as proof of the pudding.  Indeed, “Reagan, The Inflation Fighter” is a subspecies of GOP monographs, written even by people who know better, such as GOP solon and Stanford University academic John Taylor.   But the Reaganauts are engaging in Soviet-style revisionism."

     "Speaking before the National Association of Realtors in December 1984, President Reagan echoed the Regan assault on the Fed. “Let me assure you we are not pleased with the recent increases in interest rates,” said President Reagan. “And frankly there is no satisfactory reason for them.”

     Cole argues that in comparison, the Obama White House looks positively 'milquetoast." Lars Christensen argues that Reagan was wrong to jawbone the Fed in that way and compromise its precious independence. Of course the real point now is that Obama has had perfectly legitimate ways to put his imprint on Fed policy by who he nominates and most don't think that he's been very aggressive in putting his own people in there. To take again the counterexample of Reagan-of whom I was not and am not a fan-he certainly was not shy about putting conservatives into the Supreme Court shaping its ideology for years to come.

    Reagan's investment paid off in itself no doubt from the Bush-Gore decision of 2000 alone and we get more soon with the Obama healthcare law and the Ariizona immigration law before the court. Comparatively has the Obama Administration thought that they could have a similar impact on the Fed for generations to come-if Obama is re-elected he may by the time he leaves office in 2016 have appointed the entire Fed.

     One thing Cole is certainly right about is that the Republicans-and their official organ the WSJ editorial page-has very different monetary policy prescriptions depending who's in office:

       "If GOP contender Mitt Romney wins the White House, most likely the pressure on the Fed will dissipate—indeed, one can anticipate John Taylor as Fed chief, devising a version of the Taylor Rule that calls for steady QE (as he advocated for Japan). “Deficits don’t matter”—a Bush era mantra—may be heard again.  Seems likely, no?"


  

Frenemies Sumner and Waldman on Real Wages

       Sumner has a kind of rebuttal post to Steve Waldman's.

       http://www.themoneyillusion.com/?p=14117#comments

       Here is the original post by Steve

        http://www.interfluidity.com/v2/date/2012/04

        Sumner claims that Steve somehow confused real wages and real incomes. Here is the paragraph by Steve:

       
      "In the standard New Keynesian story, a depression is caused by the relative prices of goods and services falling out of whack. This is the basis for much of the mainstream policy consensus. The source of macroeconomic problems is sluggish adjustment of some goods and service prices, and stabilizing the price level should diminish the need for such adjustments. Macro policy can’t prevent relative prices in the real economy from needing to change sometimes. But it can prevent difficult-to-adjust prices from requiring frequent updates due to fluctuations in the overall price level. Because some important prices — the price of labor especially — are thought to be “sticky downward” (meaning they can “ratchet” upwards but can’t adjust down), targeting a positive inflation rate is recommended. The gradual, predictable movement of prices allows slow updates, preventing misalignments due to sluggish adjustment. The upward-slope permits “sticky downward” prices to fall in real terms relative to other goods and services by simply not rising with other prices. A recession, in the New Keynesian telling, occurs when this stabilization policy is not sufficient. If changes in supply and demand are so great that “sticky downward” prices must fall faster than the targeted rise in the price level, markets won’t clear. If the “sticky downward” price is workers’ wages, then it is employment markets that won’t clear, and we will experience mass joblessness. If this occurs, a cure would be to increase the targeted rate of inflation until real wages fall relative to other goods and services. When real wages fall enough, employment markets will clear again and the recession will end."

     "In the post-Keynesian story, a depression is driven by an decrease in agents’ willingness or ability to carry debt. Agents “pay for” decreased indebtedness by devoting their income to the purchase of safe assets (including especially their own outstanding debt) rather than spending on real goods and services. Unfortunately, money spent on financial asset purchases does not create income (they are asset swaps), and may not be cycled back into income for producers of real goods and services. So, in aggregate the attempt to reduce indebtedness can lead to a reduction of income that sabotages the attempt to pay down debt. This is the famous “paradox of thrift”. We simultaneously experience unemployment (reduced spending and income to real goods and service providers plus sticky wages means that people get canned) and financial distress (reduced income and fixed debt makes prior debt ever more burdensome). In this story, reducing real wages is not a solution. Real wage reductions might mitigate unemployment temporarily, but they also engender financial distress. Financial distress then causes agents to redouble their efforts to satisfy debts, reducing aggregate income and requiring further reductions in real wages ad infinitum. The only way out of a post-Keynesian depression is to increase real wages relative to the real burden of debt. In the post-Keynesian story, inflation is helpful only if real incomes hold steady, or, at very least, fall more slowly than the real value of prior debt."

       Sumner's rebuttal:

     "Keynes argued that wage and price stickiness were factors in the transmission of nominal shocks into real output changes, but also famously argued that wage cuts probably wouldn’t help, because they would simply push you deeper into deflation. But that argument has no merit if the central bank is targeting inflation or NGDP (as in Britain today.) In that case wage cuts can increase employment. Now that doesn’t mean that a fall in real wages will necessarily be correlated with higher employment—we’ve known for decades that there is no reliable cyclical relationship between real wages and the business cycle. Indeed I’ve argued that we should stop talking about inflation and real wages entirely, and instead focus on the ratio of hourly wages to NGDP. That ratio rose sharply in the US during 2009, and I’m almost certain the same happened in Britain."

      So if the CB targets inflation or NGDP then it can increase employment? As an aside, if Britian is doing NGDP today is that much of a reccomendation for it as they are now in a double dip?

      "In fact, in every single macro model ever developed (including Austrian, RBC, monetarist, Keynesian, and Marxist) expansionary policy initiatives are only successful if real incomes don’t fall, because real income is the variable you are trying to expand! Now I suppose some readers are thinking that I’m nitpicking, and that Steve obviously meant real wages, not real incomes, in that final sentence. But that won’t work either, as it would make the rest of his claim incorrect. It is real incomes that determine consumption spending, it is real incomes that determine ability to serve debt. Not real hourly wages. Even shifting to an income distribution argument won’t help; as long as the central bank targets inflation of NGDP, it’s almost impossible to tell a story of high unemployment and downward flexible wages."

       I like that flourish-'every single marco model ever developed" including Marxism and RBC-to get those two into the same sentence is impressive. What is the importance of this distinction though of real income vs real wages vs. real hourly wages? Whatever it is it means that we could have a delcine in real wages and an increase in employment according to Scott. Presuming a CB that is either IT or NGDP. So is he saying 'let's cut some wages' or even 'lets cut some hourly wages?' He says no:

      "NGDP. So in policy terms I’m right with my “frenemy” Steve Waldman. I just don’t think the real wage patterns observed in the UK tell us anything about the relative validity of New or Post–Keynesian models."

      Well gee! If he's going to get all mushy like that and talk of "frenemies" how can you hate on the guy? I don't hate Scott, I have learned a lot in the course of reading his blog and-mostly-like him on a personal level. However, I respect him enough not to entirely trust him.

      Maybe Morgan Warstler is party to blame for this-he puts lots of words in Sumner's mouth to teh effect that this is a brilliant game of co-option for Scott. It may be. I never rule that thesis out. Even here I have reason to at least question his claim not to want to lower real wages in light of what he said just last week:

        "I believe that more NGDP right now would modestly lower the unemployment rate, which would cause Congress to shorten the maximum number of weeks people can collect unemployment insurance, which would lower the natural rate of unemployment."

        http://diaryofarepublicanhater.blogspot.com/2012/04/scott-sumner-on-case-for-ngdp.html

         http://www.themoneyillusion.com/?p=14092

         See what I mean? I mean based on the quotes above from Sumner what do you think his real policy preference is with regard to wages? What is clear is that he thinks that the minimum wage hike of 2007 was terribly excessive-here in NY state the state is currently debating whether to raise the state minimum wage above the federal of $7.25 to $8.50. The reasoning as Assemblyman Sheldon Silver of Manhattan tells is is because the current $7.25 wage is "very, very acute in its restrictions."

        There has been a recent debate on inflation-Krugman argues that we need more, Dan Kervick at least has reservations-for him it's important to distinguish between types of inflation. Sumner's benefits from inflation are at least questionable. For one thing even if more people are nominally employed it doesn't help much if it's for $5 an hour-the minimum wage before the 2007 hike that Sumner sees as extravagant.
        

    

     

MMT and MM: The Bone of Contention

       As I wrote about yesterday, Scott Waldman considers MMT and MM-depsite what both schools may think-to be more frenemies than pure enemies. Of course to get philosophical "there's a thin line between love and hate."

     http://diaryofarepublicanhater.blogspot.com/2012/04/market-monetarism-and-mmt-frenemies.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+DiaryOfARepublicanHater+%28Diary+of+a+Republican+Hater%29

      There clearly are some parallels. Both seek stability through aggregate spending. The MMT JG actually occupies a very similar place to NGDP for the Market Monetarists. Both schools were featured in a recent Economist article as new heterodox schools. Really the more you think about it there is a good deal of similarity.

    Incidentally I think real kudos go for Steve in pointing a lot of this out. The MMers and MMTers mostly don't seen any family resemblance. I do think there are also as well as the similarities significant difference that we will look at now, but Steve does a good job of showing similarities as well which is important-it's kind of a reality check. While I appreciate a lot of the MMTers insight I will admit they don't always have the smartest political sense-in terms of their bedside manner in recruiting. They kind of look at themselves as the New Galileos up against the Flat Earthers but being called a Flat Earther even when you are genuinely open to further understanding doesn't exactly charm the pants off of people.

     Steve is therefore a welcome departure form this-I don't know that he's strictly an MMTer, but maybe more like myself, something of a Fellow Traveller. For my part I don't answer to the MMT name at least not yet but I think I would to Post Keynesian.

     So where do the two schools differ? Obviously while both seek to anchor aggregate spending-Sumner's NGDP-they do it in very different ways. The Market Monetarists see it being done all through the Fed through the primary mechanism of the "expectations channel." The MMTers on the other hand see it being driven by fiscal policy, specifically by paying the unemployed a low steady wage for government provided employment.

    However this takes us to where the really difference is. Or at least one major one. The question of the transmission mechanism. Sumner has said that there's no one transmission mechanism and trying to insist on naming one is too hard and not necessary.

     This does not please the MMTers at all, or indeed would it please any of what Sumner and Nick Rowe rather derisively refer to as "hydraulic Keynesians."

     http://www.themoneyillusion.com/?p=11555

      "The biggest problem in this whole discussion is explaining game-theoretic concepts to hydraulic Keynesians, whose balance sheets and income statements (stocks and flows) don’t contain any reference to expectations, and so just cannot grasp the significance of things like targets and credible threats and how they work."

      "My Chuck Norris metaphor was an attempt to help them understand this. But they keep trying to see where Chuck appears on the current balance sheet and income statements. So they still don’t get it.
New Keynesians, of course, are very different from the old hydraulic Keynesians of the 1950s and 1960’s. (And not all Keynesians were hydraulic even then)."

      Yes. Nick's famous Chuck Norris explanation.    

       http://worthwhile.typepad.com/worthwhile_canadian_initi/2011/10/engdp-level-path-targeting-for-the-people-of-the-concrete-steppes-.html

      I don't hate the analogy as much as some do:

       "What is really odd to me is that if you follow Scott and Nick enough via their other posts and comments you get the sense that they are of libertarian bent, favoring little intervention on the part of The State in most things. Yet here, with the most sought after thing in our economy, they want an autocratic thug who will just kick your ass if you refuse to spend. Like the soup Nazi they are saying ” No safe assets for you!!”. 

     That comment was I think by my friend Greg. But I don't see this so pejoratively-indeed going back to Keynes, the savers are the problem with their Paradox of Thrift. So for my part I have no problem putting a little pressure on the savers. And I think any "hyrdraulic Keynesian" won't if they realize that savers are a big part of the problem right now.

     However I agree that it's curious how little intellectual curiosity the MMers seem to have about the transition mechanism. Indeed, as Steve says,

     "If the market monetarists’ theory of depressions is correct, then their position is correct. They are famously vague and prickly on the question of what instruments or “concrete steps” central banks will use to achieve their objective. That is because it doesn’t matter one bit, as long as those instruments are persuasive. Whether police wield pistols or tanks or tear gas or nightsticks to keep the peace really doesn’t matter, as long as their choice is sufficiently intimidating that people are deterred from resisting their authority. We only care about the weapon they’ve chosen when deterrence has failed and they are forced to act. Then we are faced with damage from the violence required to sustain their credibility. Even then, if we are certain they will restore order quickly and that incidents of disorder will be rare, we might not worry so much over means. But if conditions are such that lawlessness will not be deterred, there will be no general peace but frequent mêlées

      http://www.interfluidity.com/v2/2392.html

     Nick, Scott and company refer to often the "the people of the concrete steppes." Here is Nick:

     "So this is written for the people of the concrete steppes.First off, you aren't thinking about this right.

    "Sure, I've used mechanical metaphors for monetary policy in the past. But those metaphors only take you so far. Machines don't have expectations; people do. The actions that people take now depend very much on their expectations of what other people will do, and on their expectations of what the central bank will do."

     "You want me to tell you a story in which the central bank pulls a lever, and that lever causes another lever to move next, followed by another lever, then another, spelling out a causal chain from beginning to end, where the end is a higher level of NGDP. But economics isn't like that. Because people aren't like that."

      So "hydraulic Keynesians"are the ones who somehow-in Nick and Scott's mind-think about the idea of a transmission mechanism to mechanistically.

      What occurs to me is that Market Monetarism-this is true of Monetarism in general-is very much like the economy's psychoanalysts."

       If the "Old Keynesians' think about the economy in "hydraulic" and mechanical terms then the MMers think about it in  psychosomatic terms.You could say then the Old Keynesians want to treat the economy's problem like a medical problem but the Market Monetarists see it as in someway a "mental recession." There's a sense that this is true of all Monetarism which always sees the economy in these terms.

       So we could say that the hydraulic Keynesians see it as a mechanical-and so real problem-whereas the MMers see this as being psychological issue the economy needs to be talked out of.

    

Sumner Explains Bernanke

      His seems to be the most charitable view yet with regard to Bernanke's comments in asnwer to Krugman last week that are in any way plausible.

       http://www.themoneyillusion.com/?p=14082

      Sumner argues that there's every reason to think that Bernanke would prefer slightly higher inflation right now. However he may legitimately differ from Krugman in wanting a higher long term inflation target.
    
       " One possibility is that this answer should be seen as a response to Krugman’s argument that we should not just aim for slightly higher than 2% inflation in the short run, but should actually raise the long term inflation goal to something like 4%, in order to lower real interest rates, and also to make liquidity traps less likely. Bernanke probably sincerely opposes that policy, but that doesn’t mean he wouldn’t prefer to see a bit more NGDP growth and inflation right now."

        Of course, if you believe in all this talk about an output gap or Tyler Cowen's Great Stagnation, then we would need higher inflation going forward just to make up the gap and bring us back to historical NGDP. In any case it is possible. Incidentally to those who find a 4% inflation rate unreasonably high, bare in mind that even during the Great Moderation, certainly during this Bush years we saw an inflation trend that was over 3%. Of course I wouldn't mind a permanent 4% inflation target but then I'm something of an "accelerationist" anyway, I'd be happy to have a long term NGDP rate of around 7.5% or 8%. Most of the MMTer's are more skeptical of inflation than I am. Krugman may be with me on this though.

      "In late 2010 he ran into a firestorm when he called for higher inflation. At the time he was merely calling for boosting core inflation up from 0.6% to 2.0%, which should have been incredibly uncontroversial—even the hawks should have applauded. Now imagine he says “we are going to try to push inflation a bit above 2%.” That actually is the implication of the dual mandate, but nonetheless all hell would break lose. I think he might honestly believe that it could be a setback for the doves. He’d rather move quietly in that direction."

       He does say though:

       "Without the criticism of Bernanke from us market monetarists, and without the criticism of Bernanke from Krugman, DeLong, Avent, Yglesias, Duy, Thoma, etc, etc, Ben Bernanke’s job would be much harder. Without that criticism, all the pressure on the Fed would be coming from the right, and would be pushing the Fed in exactly the opposite direction from where Bernanke would like to go. We are helping him, whether he knows it or not, and regardless of how annoying he finds our criticism."

       So Sumner has at least given us the best case scenario-he desires higher inflation now but not permanently as Krugman may have suggested. The worst case scenario is that he will resist deflation but do nothing to give us a little more inflation because he worries that the Fed could lose it's "inflation fighting credibility."

      Interesting that Sumner indentifies as himself as not being on the Right. Don't know if I agree with that or not.

Sunday, April 29, 2012

David Glasner Nails Bernanke

      I've never been a Bernanke basher. While I never thought he was the best neither did I think he was the worst. And, yes, like many others I looked back on his academic work through the years with a good deal of admiration. I too puzzled over his change from his book in 1999 calling out the Bank of Japan and his own actions now. Glasner quotes Bernanke's answer to Krugman's piece that asked Bernanke this very question:

     "So there’s this, uh, view circulating that the views I expressed about 15 years ago on the Bank of Japan are somehow inconsistent with our current policies. That is absolutely incorrect. My views and our policies today are completely consistent with the views that I held at that time. I made two points at that time. To the Bank of Japan, the first was that I believe a determined central bank could, and should, work to eliminate deflation, that it’s [sic] falling prices."

     "The second point that I made was that, um, when short-term interest rates hit zero, the tools of a central bank are no longer, are not exhausted there, are still other things that, um, that the central bank can do to create additional accommodation."

      "Now looking at the current situation in the United States, we are not in deflation. When deflation became a significant risk in late 2010 or at least a moderate risk in late 2010, we used additional balance sheet tools to return inflation close to the 2% target. Likewise, we’ve been aggressive and creative in using nonfederal funds rate centered tools to achieve additional accommodation for the U.S. economy. So the, the very critical difference between the Japanese situation 15 years ago and the U.S. situation today is that, Japan was in deflation and clearly, when you’re in deflation and in recession, then both sides of your mandate, so to speak, are demanding additional deflation [sic]."

     "Why don’t we do more? I would reiterate, we’re doing a great deal of policies extraordinarily accommodative. You know all the things we’ve done to try to provide support to the economy. I guess the, uh, the question is, um, does it make sense to actively seek a higher inflation rate in order to, uh, achieve a slightly increased pace of reduction in the unemployment rate? The view of the committee is that that would be very, uh, uh, reckless. We have, uh, we, the Federal Reserve, have spent 30 years building up credibility for low and stable inflation, which has proved extremely valuable, in that we’ve been able to take strong accommodative actions in the last four or five years to support the economy without leading to a, [indiscernible] expectations or destabilization of inflation. To risk that asset, for, what I think would be quite tentative and, uh, perhaps doubtful gains, on the real side would be an unwise thing to do."


      So that's his answer? Japan had deflation while we don't currently have deflation? So he's now claiming that the protecting the 2% inflation rate is so sacrosanct that it can't even in the short term be breached? What about trend inflation targeting? If he uses that he still would need to have a slightly higher inflation rate for the short term. Glasner does a good job of nailing him:

      "over the past 30 years in which the Fed has built up so much credibility that the Fed has been able to do all the wonderful things that it has done to promote . . ., well, to promote the weakest recovery since World War II, nominal GDP growth after each recession during the past 30 years substantially exceeded 5% quarter after quarter. During this recovery, however, the annual rate of nominal GDP growth has not exceeded 5.5% in any quarter since the “recovery” began, while averaging less than 4%. And Mr. Bernanke has the nerve to tell us that he is unwilling to allow inflation to increase above 2% because it would squander the precious credibility achieved by the Fed over the past 30 years when nominal GDP during recoveries almost always grew at an annual rate greater, often substantially greater, than 5%? Remember the audacity of hope? This is the audacity of complacency and indifference."

       A comment he made to Becky Hargrove in the comments section was particularly to the point:

       "I also don’t understand why protecting creditors takes priority over every other consideration. Creditors understand that they are taking a risk, they have no reasonable expectation that they will receive full payment of principal and interest whatever happens to the economy."

       I would say that in particular is what is least understandable-this feeling that creditors have to be fully whole no matter what happens to the economy. While a strong financial system is vital for an economy like ours to be healthy and grow the tail has been wagging the dog for too long. Indeed, I might go further than Glasner goes and question the Great Moderation itself. As Steve Waldman has argued during this 30 year period the Fed has been much more vigilant knocking down wages than other prices, especially debt prices.

     We haven't even talked about school loan debt.

Market Monetarism and MMT: Frenemies?

       I had to laugh seeing Steve Waldman call them this but the more you think about it the more sense it makes. Let's listen to Scott:

      "There are two broad stories having to do with “sticky prices”. One, the mainstream New Keynesian story, emphasizes rigidity in the price of goods and services, most especially “sticky wages”. The other, emphasized by post-Keynesians and sometimes by monetarists, has to do with the sticky price of satisfying debts."

       " If we mean to pursue reflationary policy, the goal should not be to reduce real wages, but to reduce the real value of debt relative to incomes. One way to do this, which the post-Keynesians’ closest frenemies suggest, is to stabilize the nominal income path at its prior trend while tolerating whatever inflation that engenders. This implies a large increase in nominal income from current levels. Going forward, if we hold nominal income to a gently rising path, the burden of aggregate debt relative to income will never unexpectedly rise. (Unfortunately, predictable distress may not prevent debtors in aggregate from taking on more debt than they can service, due to the competitive dynamic of a boom. I think NGDP targeting would be a big improvement, but not sufficient: We must always be mindful of leverage and debt.)"

      http://www.interfluidity.com/v2/3310.html#comments

       Of course our Market Monetarist "frenemies" do believe the goal is to reduce real wages. In this sense they are on the side of the New Keynesians. 

      http://diaryofarepublicanhater.blogspot.com/2012/04/scott-sumner-on-case-for-ngdp.html

     However, what both the Market Monetarists-indeed all Monetarists- and the MMTers-really all Post Keynesians-believe is that what's important is total nominal spending in the economy.

        Take the MMT idea of the government serving as the Employer of Last Resort (ELR) offering a Job Guarantee (JG). The idea is for the government to pay a flat low wage for those workers who take the JG jobs. This low wage-always lower than they would get in the private sector-is supposed to be little more than the minimum wage-currently the number I've seen bandied about is $8 or so.

        Even this of course would raise the effective minimum wage form $7.25 to $8. However this upwards wage shock would be one time. After this the wage would not rise with inflation and would only rise about every 5-10 years by discretion. In this way this JG wage serves the same function as NGDP targeting does for the MMers.

Saturday, April 28, 2012

Scott Sumner on the Case For NGDP

        David Andolfatto asks Sumner about his empirical/theoretical basis in ascribing NGDP as the answer to our problems:

         "Proponents of NGDP targeting, however, like Scott Sumner and David Beckworth, for example, seem to believe very strongly in the vast superiority of a NGDP target–not just as a policy that would mitigate the effects of future business cycles–but also as a policy that should be adopted right now by the Fed to cure (what they and many others perceive to be) an ongoing “aggregate demand deficiency.”

        "What I am curious about is not that they believe this, but how strongly they believe in it. I respect both of these writers a lot, so naturally I am led to ask myself how they came to hold such a strong belief in the matter. What is the theoretical underpinning for NGDP targeting? And what is the empirical evidence that leads them to believe that an NGDP target right now is a cure for whatever ails us right now?"

     "One way to seek answers to these questions is to spend hours perusing their past blog posts. I’m sure they must have answered these questions somewhere. But I figure it will be more efficient for me to just state my questions and have them (or somebody else) point me in the right direction for answers."

       Sumner responds:

       "My approach to economics is very different from that of my thesis adviser (who was Robert Lucas.) I think one does actually have to peruse those thousands of old blog posts to get a sense of why I am so confident. That’s because I think the situation is very complicated, and must be examined from multiple perspectives. For instance, I believe that more NGDP right now would modestly lower the unemployment rate, which would cause Congress to shorten the maximum number of weeks people can collect unemployment insurance, which would lower the natural rate of unemployment. I don’t recall seeing that argument in any Lucas models. It’s not that I think there is any single overwhelmingly persuasive case for faster NGDP growth, but rather that there are many arguments, of varying persuasiveness, all pointing in the same direction."

       http://www.themoneyillusion.com/?p=14092

        So how satisfying an answer is this? Couple of things strike me about this response of his. First, saying "read all my previous posts" is not very satisfying. I don't find it a good answer. He says that there is no single overwhelmingly persuasive case but don't good theories usually give us a little more? The single case that he is able to come up with off the cuff I don't find very persuasive-that it would modestly lower unemployment which would lead Congress to shorten the maximum number of weeks of unemployment insurance lower the natural rate of unemployment."

      First of all it's not a theory. And he provides not a shred if empirical evidence for any of the  assumptions he makes. On what basis does he have that it would "modestly lower the unemployment rate?" And that if Congress were to lessen the number of weeks of unemployment insurance this would lower the natural rate of unemployment?

     He says he can't come up with a single, overwhelmingly persuasive reason but the reason he does come up with speaks volumes about his own assumptions. He believes that unemployment benefits are a major reason for the demand shortfall.

     This returns us to something we discussed here at Diary of a Republican Hater recently-that the debate of "fiscal" vs. "monetary" policy is a definitional and political issue as much as anything. Let's be clear-Sumner desires to cut unemployment benefits. Now if he or one of his Republican friends were to propose this in the fiscal/political sphere there would be a lot of political blowback.

     But in the form that these arguments that Sumner puts it-in the area of monetary policy-a seemingly "technocratic" debate he's able to propose things that he would get criticized quite pointedly for if he were arguing in the fiscal/political sphere. This is why I call Sumner's approach "monetary activism." In judicial activism things can be accomplished that aren't able to be achieved in the political sphere. Sumner's agenda is the same thing  using monetary policy.

     

Romania the Latest to Vote No Confidence on Austerity

       Austerity is hazardous for a politican's heatlh.

     "Romania's right-leaning government became the latest political causality of Europe's austerity drive when it unexpectedly lost a parliamentary confidence vote Friday, calling into question the willingness of politicians to stick with the painful measures intended to shore up state finances."

      Wall Steet Journal, April 28-29 Weekend edition, pg. A9.

       "Romanian President Traian Basescu designated left-wing opposition leader Victor Ponta as new prime minister."

       "I have tasked Victor Ponta with forming the new government," Mr Basescu said, according to AFP news agency.

       "Earlier, Mr Ponta welcomed the no-confidence vote, saying it marked the end of "an abusive system that uses any weapon possible."

      "Today there was justice," he said.

       It's not exactly clear exactly what the changes Pinto will make. While he reportedly is an admire of Che Guevera he has said that he will honor agreements with the EU and IMF. Yet he also promises to end an "abusive system." How he can do both at once remains to be seen. But is another happy sign that the people of Europe are making their preferences clear. With the predicted victory of Hollande over Sarkozy in France, the recent fall of a Center-Right government in Holland, the fall of Papandrou in Greece, it is clear that austerity is not only very bad for a nation's economy but for the health of a politicians career.  In Czechoslavkia a Center-Right government barely held on, but it was very close.

Reading Minsky: End the Fed? Not so Fast

     Minsky himself at least did not say as so many do "End the Fed." His was not the simplistic Ron Paul solution. Sit down with Ron Paul and actually get him to explain it and he's not really saying End the Fed either.

     What's interesting is that in theory almost everyone wants to  End the Fed. The Market Monetarists would like to and claim that their NGDP targeting scheme will make the system work almost as if the Fed were abolished or will take us down a road to where at some point we could End the Fed.

     Indeed Monetarism has always tried to present itself as a kind of Trojan Horse to End the Fed. The Left on the other hand likes the sound of "End the Fed" as it sounds populist and anti-elitist. There's a sense that all one needs do is declare that the Fed is just about the banks and not people and that's enough to condemn it.

     Just to underscore how widespread if not nearly universal the desire to End the Fed is Alan Greenspan-Mr. Federal Reserve himself, indeed the Maestro of the Fed-told us in his Age of Turbulence that he himself is kind of partial and fond of the gold standard. He doesn't quite advocate it but does admit that he's personally nostalgic for it and that he basically dreams of the age prior to the Federal Reserve.

     Yet Minsky did not advocate ending the Fed as is clear from a piece by the Levy Institute. He did not support the Treasury plan in 1991 for the Treasury to absorb many of the Fed functions.

     http://www.levyinstitute.org/pubs/eBook_2012.pdf

     As I understand it, his position of the monetary vs. fiscal debate is this. Let the Fed handle monetary matters-that is to say the financial economy. However he was not a fan of having as the Monetarists are the Fed handle most fiscal operations. Certainly he showed how wrong headed the DSGE school including the New Keynesians who think that Fed should handle recessions. The NK school to be sure-unlike the Market Monetarists-is allowing for fiscal policy during this deep downturn as we're up against the Zero Bound (ZB). However Minsky's position is that the fiscal authorities should handle the problems of the real economy, and the Fed should deal with the financial economy.

     This view of Minsky jibes with the view that I've been developing myself. What people who declare End the Fed never speak to is this: the economy has performed much better since the Federal Reserve Act. In the prior 40 years-1873-1913, the age of the classical gold standard-we were in recession half of the 40 years and there was a bank panic about once every 3 years. Since the rise of the Fed bank runs have ended. Indeed while the paper linked above talked about Glass-Steagall, the part of GS that was not abolished in 1999-Glass is a big part of why this is with the rise of FDIC.

     So we don't need to End the Fed-though some reforms I think are called for. Making it more directly accountable to the government-the kind of reforms that Barney Frank and the late Henry Gonzalez used to call for is in order. Actually even Sumner I think has spoke out against the Fed Governors. weakening if not abolishing their power would be a fine thing.

Friday, April 27, 2012

George Zimmerman's $200,000 Legal Problem

     In my two previous posts I mentioned that the people who had donated all this money to him, enabling him to make 25% more than his bail, were both weirdos but also racist weirdos. However there's more to it than this.

     http://diaryofarepublicanhater.blogspot.com/2012/04/again-george-zimmerman-defenders-are.html

     http://diaryofarepublicanhater.blogspot.com/2012/04/weird-stuff-george-zimmerman-raises.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+DiaryOfARepublicanHater+%28Diary+of+a+Republican+Hater%29

     Zimmerman's actions are legally problematic or at least complicating. The one thing you can say about Zimmerman's current lawyer-as opposed to the previous dynamic duo he had representing him-is that he's highly professional and ethical. So he freely admits that had the judge known of this he might well have set Zimmerman's bail higher.

     "George Zimmerman's attorney said his client's bail might have been set higher if a judge had known about $200,000 raised by a website and that only came to light this week."

     "Mark O'Mara said on CNN's Anderson Cooper 360 that he only learned about the money Wednesday and will inform a judge at a hearing Friday."

        So certainly O'Mara deserves some credit here.

        http://news.yahoo.com/lawyer-disclose-200k-zimmerman-hearing-112343171.html

         Of course Trayvon's parents are understandably very upset to discover this:

         "The lawyer for Martin's parents, Benjamin Crump, said Friday he has asked the prosecutor in the case to request that the judge revoke Zimmerman's bail for not disclosing at the original bond hearing last week how much money he had."

        "This is a bombshell that was dropped," Crump told The Associated Press. He said the parents, Tracy Martin and Sybrina Fulton, were "offended" that Zimmerman failed to inform the court of the money the website raised."

          So this is a legal problem too. And yes, it is also creepy and racist. Some have pointed out that Zimmerman himself is not white-or at least not fully, in fact he's white on his father's side, Latino on his mother's.

           However what matters is the race of the victim. If the victim had been white this $200,000 would not have been raised. There are some so insecure out there that they have to hold the coat of any racist who is held accountable. But accountable Mr. Zimmerman will be.

Again George Zimmerman Defenders are Racists

      Guess it's a full moon. After my previous piece on the many racist Americans who have given George Zimmerman $200,000 I got this odd comment by someone who calls himself "thedfyent"

      "GEORGE ZIMMERMAN IS FREE FOR NOW! HE NEEDS HELP WITH LIVING EXPENSES, HE CAN NOT WORK FOR FEAR OF HIS LIFE! HE NEEDS OUR HELP, DONATE TO THE GEORGE ZIMMERMAN DEFENSE FUND. POST THIS LINK EVERYWHERE. A LOT OF PEOPLE HAVE SAID A LOT OF THINGS, NOW IT'S YOUR TURN TO MAKE YOUR VOICE HEARD! STAND UP AMERICA! "

       http://diaryofarepublicanhater.blogspot.com/2012/04/weird-stuff-george-zimmerman-raises.html?showComment=1335536259358#c8132259484772494959

      He left this website.

     http://george-zimmerman-defense-fund.com

      Yes I'll allow him to print his website though I certainly wouldn't donate a nickel to it if my life depended on it. Let's be honest here though. Only racists are moved my the need to donate to a child killer like George Zimmerman. Is this what thefydent means by "a lot of people saying a lot of things?" Doesn't his use of all caps make you feel like this is a nice, normal guy you can trust?

      Maybe I should not have referred to this movement to help Zimmerman as "weird." I know that some will try to say it's unfair to paint all of his supporters with such a broad brush. All I can say to that is me and those people who say that disagree. I guarantee you that if Trayvon Martin were white there would be no money raised to aid his killer. Of course if he were white, Zimmerman would be in jail already.

       Again, I don't mind leaving the link-I prefer not to hold back stuff. However that doesn't mean you should donate-it's your choice but I hope you feel as I do about it. Now if someone wants to go there to let them know exactly what they think of this nasty, racially based campaign, well I could respect that.  Leave a comment if you like telling them that you wouldn't donate a bad nickel to this and that they should be ashamed of appealing to such base instincts. That's if you feel like visiting.

For Those Who Hate on Obama's ACA

      The first widely publicized benefits will be shown this summer.

      "Thanks to a provision in the health care reform law, millions of consumers will be receiving rebates from their insurers this summer."


       "By Aug. 1, insurers that failed to meet one of the early guidelines of the Affordable Care Act are going to issue rebates averaging $127 to certain policyholders, according to estimates from the Kaiser Family Foundation."


       "Last year, the Affordable Care Act started requiring health insurers to spend a certain percentage of the premium payments they receive toward patient care, such as doctor's visits and hospital stays, and quality improvement activities, including discounted gym memberships or wellness brochures, instead of things like administrative and marketing costs."

       http://finance.yahoo.com/news/health-insurance-rebates-way-140000508.html

       A beautiful thing huh? To be sure there have been many benefits so far-women receive access to birth control(we know that because of the GOP furor over that) as well as the young people who are staying on their parents plans and those who now are not denied care based on a pre-existing condition. But this will be on much larger scale with greater publicity.

      ACA will get what it needs-a big does of publicity. Once people start to see the benefits then the ACA will become a lot more popular.

      Of course the irony is that by then the SJC may have declared at least the individual mandate if not more or even the entire law.

      So was there no way they could have structured this to kick in before this trial? More on ACA:

      "Under the law, large employer-sponsored plans must spend 85% of a policyholders' premiums this way, while insurance companies that cover individuals and small businesses have to spend at least 80%. If an insurer fails to meet that threshold, they must issue a refund."

      "Based on insurers' recent filings to the National Association of Insurance Commissioners, those rebates will total $1.3 billion altogether this year, according to Kaiser."

      What health care reform is (and isn't) doing now

     "A large share of this money, or $426 million, will go to consumers who bought their own insurance through one of 215 plans. Nationwide, these consumers -- roughly 3.4 million people -- will each receive an average rebate of $127, Kaiser said in its report."


     "Most likely, they will receive a check in the mail, although the rebate could be issued as a discount on future premiums. Actual amounts will vary by insurer, by state and the extent to which the insurer fell below the threshold, Kaiser said."

       Ah! You see, this is what Republicans really hate. Those checks to consumers is what they rue. The whole point of "Starve the Beast" is that the less benefit people are allowed to see from government the more opposed they become to government. What they oppose is any good pr which those nice checks will be.

       Indeed, in some places the payout will be more than the average $127, as much of 150% more on average:

       "In some states, like Alaska and Maryland, the average rebate is estimated to be near $300, while in New Mexico and Maine, the average rebate will be just $1 (not even enough for the insurer to issue a check)."

       "Those insured through a private employer or a state or local government plan could see nothing at all. Those rebates will mostly go to the group policy holder, although the money could be passed on to employees who contributed a portion of their paycheck to their premium last year."

       "Kaiser calculated the averages based on insurers' early estimates. Actual rebates will be based on the reports the insurance companies submit to the federal government later this summer, Kaiser said."

     

Weird Stuff: George Zimmerman Raises $200,000 Online

     I find this kind of depressing.

      " George Zimmerman, the former neighborhood watch volunteer who is accused of murder in the death of unarmed teenager Trayvon Martin, has raised at least $200,000 through a website set up to fund his defense, his lawyer said on Thursday"
       "Donors contributed "just over $200,000," said Mark O'Mara, Zimmerman's defense lawyer."
       "The site set up to solicit funds for Zimmerman's defense, therealgeorgezimmerman.com, has since been shut down."

      http://news.yahoo.com/trayvon-martins-killer-raises-more-200-000-defense-021028644.html

      Why exactly would total strangers want to give Zimmerman of all people so much money? Much as I hate to say it, maybe this shows how many racists are still out there. Many see him shooting an unarmed young black man something heroic or at least that he somehow needs to be supported or defended against some kind of liberal smear.

       There are many deserving recipients for charity-why was $200,000 on someone who is not at all deserving?

Sumner Makes a Good Point about Obama

       In reacting to Krugman's criticism of Bernanke Sumner admits he really can't criticize it:

       "I think what Bernanke meant to say was that the Fed should not raise its long run inflation goal when unemployment is high. And that’s certainly a defensible proposition. But he didn’t express this view clearly, and hence got hammered by people like Paul Krugman and Brad DeLong. And I can’t blame them, because the Fed is acting as if they don’t care at all about the unemployed. It’s acting like the ECB. Inflation has averaged much less than 2% since mid-2008, which would be an excessively tight policy even if the Fed didn’t care at all about the suffering of the unemployed."

       http://www.themoneyillusion.com/?p=14065&cpage=1#comment-153398

        He does try to give Bernanke something of a benefit of the doubt:

        "My hunch is that Bernanke does care about the unemployed, and wishes the Fed had done more. My hunch is that he doesn’t have the Fed with him, but feels forced to defend Fed policy for political reasons. This is very awkward, and he occasionally stumbles. (It’s also a very poor reflection on Obama’s leadership, as he appointed 80% of the Board of Governors, including Bernanke.)"

         He then notes:

         "It’s much easier to be head of the ECB, because you don’t even have to hide  the fact that you don’t care about the unemployed."

          Here here! But to his point about Obama, well... I'll be the first to tell you that I'm a partisan Obama Democrat and I tend to mistrust Obama bashing whether on the Left or Right.  I believe that he's been our only line of defense against Paul Ryan-Mitt Romney style austerity.

          In my defense I'll appeal to one of the very greatest Republicans, Thaddeus Stevens who declared,

          "Principles indeed! Betray your principles and get behind your party!"

           Sumner though perhaps does make a good point here that Democrats should ask themselves. Obama did have an opportunity to shape the Fed. Many of us are frustrated by the SJC. This week again in hearing the case of the draconian Arizona immigration law, the Justices unfortunately seem to be inspired more by a partisan conservative Republican ideology than to really applying the law properly.

          For them it seems perfectly natural for Arizona to target Hispanics for invasive investigations. Yet, here Obama has a chance to really influence the Fed-he could appoint as many as all 8 of the FOMC and yet he has not been out in front on this. What I think is a fair question is what exactly is Obama or his economic advisers monetary philosophy-do they have any opinion at all? Have they even considered that the Fed offers them a much to be envied opportunity to shape monetary policy for decades to come?

Thursday, April 26, 2012

Joe Biden: President Obama Carries a Big Stick

      Score it as reason number 87,001 for why I love Joe Biden. Another reason, about 33,485 was when they caught him on mic saying "we fucking did it!"

      That was a nice windup on this latest line first quoting Teddy Roosevelt's saying to "speak softly and carry a big stick."

       It also made a good point. Romney has nothing to tell us about foreign policy. Just like on domestic policy he has nothing to say on foreign policy.

      Like Biden all he has to say are either things that the President already does-like sanctions against Iran, to things that are politically unacceptable-overwrought bellicose war talk, to mostly rootless criticism that really has no real aim other than to bash the President.

       As Biden also said all Romney can try to do is rely on the amnesia of the American people whether we're discussing foreign or domestic policy. Romney as rich as he is he's just a dime store phony. He has nothing to say, he simply takes both sides on each issue and hopes people are tricked.

       Insulting the intelligence of the American people is not such a great strategy.

Hillary Clinton Now at Her Most Popular Ever

     So shows a recent poll where 60% now like her as opposed to 27% who don/t In a way you got to think that it's true what they say-they never appreciate you till you're gone. I mean they love her now. Evidently the Democrats now say she's their favorite for 2016.

     For me, who was always a Hillary man, it's all a little late for this. I'm glad she finally has the love she deserves.

     Mind you I don't know about 2016. Really I just want to win 2012. Back in the long primary season for 2008 I was for Hillary. However then the feeling was that most of the young Democrats felt that it was time for a change-that Hillary somehow represented the previous generation-the 90s.

       I didn't get this attitude-weren't the 90s some darn good times? But the feeling was that it was time to move on to the new generation. Rightly or wrongly Hillary was represented as being part of an older generation that the youth wanted to move beyond.

     So that makes it seem hard for me to imagine here winning in 2016. I would be very happy to vote for her, don't get me wrong. But it's hard for a primary loser to come back. And if she represented the last generation in 2008 what will she represent in 2016?

     My best guess is that the likely Democratic candidate in 2016 will be someone we haven't thought of yet-less likely I think to be Biden as well.

     But mostly let's just win 2012. I'm not even thinking about 2016. We have so much riding in this election let's just win that and discuss 2016 in about 3 years.

Now GOP is For Violence Against Women Act?

      The etch a sketch is rolling now. And the GOP is now being forced to follow their titular head as it were, Mitt Romney So now today the Senate Republicans chose not to stand in the way of renewing the Violence Against Women Act.

      It had originally barely gotten through committee and passed on a purely partisan basis, 10-8. Today however it passed easily, 68-31. To be sure, all the neigh votes were Republican males-all 5 Republican women voted for it.

      Look, let's be honest here: you and I both know that in their heart of hearts-ok, the GOP barely have hearts but still-they support not the Violence Against Women Act, but-violence against women. I mean there have been enough violence against women in Virginia GOP Governor Bob McDonalds' vaginal probes, and Scott Walker abolishing the laws for equal pay for women.

      But they are getting killed with the gender gap. That was just a terrible choice in retrospect to go after Obama's healthcare bill because of religious organizations being required to provide birth control. They thought they could spin it as "religious liberty" being undermined. It didn't work. To the contrary, it blew up in their face. That was really the time when the whole Republican War Against Women theme got off the ground.

      So now Romney and the rest of the GOP are backpedaling furiously while trying to pretend this is not what they're doing. Of course if they go too far in being Centrist the Tea Party will get after them.

Could Sen. (IND-R) Dick Lugar's Trouble Bode Well For Democrats?

     He's currently trailing the tea party favorite  the state treasurer Richard Mourdock by 5 points (44-39) with just 12 days left to go till the primary. Citizen's United is throwing lots of money behind Mourdock.

    As I have suggested in previous posts, the Senate Democrats have a decided disadvantage as they are defending 21 incumbent Democrats in 2012 to just 10 by the GOP. However, there are a few things that might help. One is that backlash against the GOP among women and Latinos may shift the balance. In Massachusetts Scott Brown is stuck in a deadheat with Elizabeth Warren solely on the strength of the gender gap.

    Then again if there are coattails in this race the Democrats will do very well-assuming as I am that Obama will do well.

    What's happening in Indiana may augur well too as it suggests a problem that Romney is suffering from and may well harm the GOP in many races this year. It's the fact that the moderates have all been chased form the GOP the last few years. The Republican primary electorate is now very conservative. Much more so that the general electorate.

    Exactly what you need to win a GOP primary is what hurts you in the general election. So Romney already is being hurt as he is now trying to backtrack from some pretty "severely conservative" things he said during the primary.

   We may see many Republican races like Indiana where only the Tea Party endorsed candidate can win the primary but only the moderate candidate can win the general election.

The Bernanke Disappointment

      Well at least he weighed in. A lot of hope has been generated based on the idea that the Fed can lead us to the economic promised land if only it would raise the inflation rate or do NGDP targeting or something.


        The real trouble with this argument is that the Fed won't in fact do this. It reportedly did discuss NGDP back in November but ultimately decided not to try it. Now Bernanke explicitly has answered Krugman's major piece about Bernanke-it's from his new book, "End This Depression Now!"

       This is one of the major problems with the claims of the Market Monetarists-ultimately the Fed refuses to act so all we can do is speculate about what might happen if they did. While Sumner always tells us that there's no need for fiscal stimulus when you have monetary stimulus what we have actually had is this. Both the monetary and fiscal authorities have acted since 2008 but no proponents of needed stimulus-either of fiscal or monetary, or both as I might argue for, feel like it was enough.

        Some argue that "fiscalists" like I guess I am-though I don't rule out monetary policy and think in general at least both have a role-should give up on fiscal policy-clearly Congress can't get it done.

        Clearly they are right about this,, unless Boehner's warning that the GOP could lose their majority comes true there's no chance of any more fiscal stimulus. So at least until November this is certainly right-and quite possibly after as the Democrats have an uphill climb in holding onto the Senate let alone talking the House.

        But for whatever reason the Fed won't either. You listen to Bernanke's answer to Krugman and your struck with how feeble it sounds. It's not just that he is ruling out raising the inflation rate-which he had advocated back in that 1999 Japan essay but his reasoning-that it's taken a long time to achieve the Fed's credibility on inflation fighting and this would somehow kill it.

      "I guess the, uh, the question is, um, does it make sense to actively seek a higher inflation rate in order to, uh, achieve a slightly increased pace of reduction in the unemployment rate? The view of the committee is that that would be very, uh, uh, reckless. We have, uh, we, the Federal Reserve, have spent 30 years building up credibility for low and stable inflation, which has proved extremely valuable, in that we’ve been able to take strong accommodative actions in the last four or five years to support the economy without leading to a, [indiscernible] expectations or destabilization of inflation. To risk that asset, for, what I think would be quite tentative and, uh, perhaps doubtful gains, on the real side would be an unwise thing to do."

        http://krugman.blogs.nytimes.com/2012/04/25/bernanke-responds/

       The best Sumner can do for a defense of Berannke is this:

        "I think what Bernanke meant to say was that the Fed should not raise its long run inflation goal when unemployment is high. And that’s certainly a defensible proposition. But he didn’t express this view clearly, and hence got hammered by people like Paul Krugman and Brad DeLong. And I can’t blame them, because the Fed is acting as if they don’t care at all about the unemployed. It’s acting like the ECB. Inflation has averaged much less than 2% since mid-2008, which would be an excessively tight policy even if the Fed didn’t care at all about the suffering of the unemployed."

       http://www.themoneyillusion.com/?p=14065#comments

     "My hunch is that Bernanke does care about the unemployed, and wishes the Fed had done more. My hunch is that he doesn’t have the Fed with him, but feels forced to defend Fed policy for political reasons. This is very awkward, and he occasionally stumbles. (It’s also a very poor reflection on Obama’s leadership, as he appointed 80% of the Board of Governors, including Bernanke.)"

      For Bernanke's sake I want to believe this. I want to believe that Bernanke is only saying this for political reasons and doesn't really believe it. So we have an inadequate monetary policy and an inadequate fiscal policy but it could be worse we could be Europe-or Britain. If only the GOP had the White House we would be.

       


        

Wednesday, April 25, 2012

Knicks Beat Clippers, 6 Players in Double Digits

       Talk about making a habit of it. The Knicks beat another pretty good team-strange I know to speak of the Paper Clips that way but they have been this year-and again did it with a team effort and ball distribution.

      At this point I assume Woodson has earned graduation from being an interim coach to permanent. This team has won no mater who has played-or hasn't-game after game.

      They have beaten the Magic twice, the Bulls with Derrick Rose, Atlanta twice, Boston, and now the Clippers.

      Tonight J.R. Smith led the team with 21 points. Then came Anthony with 17 points with 6 rebounds.

       Next was Steve Novak with 14 points-as usually he was on fire from three point land going 4 of 7; what's news is he actually took one shot from inside the arc. Not surprisingly that one he missed.

       Baron Davis had 12, Chandler had another solid game with 11 points and 6 rebounds and finally Stoudemire with 10 points and 7 rebounds.

       Landry Fields scarcely missed double digits himself. The team is now 17-6 under Woodson.

       I can't get over losing Lin. But even without him this is a formidable team that never says die. I don't think Miami or Chicago looks forward to playing them.

       The Knicks claim not have any preference of who they play and Anthony says he will sit out Thursday's finale against Charlotte:

       "But the Knicks don't seem to care about finishing with a higher seed, with Anthony saying he doesn't expect to play Thursday in the regular-season finale, and players insisting they have no preference which East power they play in the first round."

     ''Right now it really doesn't matter,'' Anthony said. ''Whoever we play, we'll have to start on the road anyway, so we just want to start just preparing for whether it's Chicago, whether it's Miami, just get ready to go.''


     http://sports.yahoo.com/news/knicks-hold-off-clippers-stay-025125216--nba.html

       It really doesn't matter much-there is a narrative out there that the Knicks match up better against the Bulls anyway. In any case this is Charlotte. They've beaten teams like the Bulls and Orlando shorthanded. So Charlotte doesn't sound so daunting.

     

The 2012 Election: Romney Against Romney

      We were wondering when Mr. Severe Conservative would have his frist etch a sketch this campaign. The answer is student loan debt. He now agrees with the President on not allowing student loan rates to double in the Summer after declaring back in February in answer to a female college student that he'd "love to hand out free stuff but we can't do that."

      Now he agrees with President Obama. This puts him on the other side to the Congressional GOP. It will be interesting to see how he tries to moonwalk away from his primary season. How can he pretend that there is any daylight between him and the House GOP after being joined at the hip during the Wisconsin caucus?

      UPDATE: Evidently the Congressional GOP has now come around to Obama's view now as well. They are no longer pushing for the higher rates.

      He thinks he can eat into his 70-14 deficit among Latino voters how exactly? He has actually argued for "self-deportation" and said the draconian Papers Please! Arizona law is "marvelous" and "a model for the nation."

      How's he going to get away from this? The only hope he has is to bet on the short memory and gullibility of the American people. I think he'll lose the bet and it won't be close.

Sarkozy Sounds Like Mitt Romney

      Usually of course, the Republicans like to smear Democrats like John Kerry in 2004 as somehow not being real Americans-they claimed that Kerry "looked French." The French have been a long time whipping boy of the GOP-who can forget Freedom Fries?

     In this cycle it turns out it's actually Romney who is more French, or anyway, actually speaks fluent French. So if Mitt Romney speaks French perhaps it's appropriate that  French Nicholas President Sarkozy speaks Mitt Romney.

      After his poor showing on Sunday's first round where he lost to Socialist candidate Francois Hollande and Far Right wing candidate Marine Le Pen of the National Front party scored the highest NF showing ever in the first round with 18% of the vote.

      Sarkozy's answer is to double down on extreme Right wing rhetoric to woo the Le Pen voters. He is out attacking immigrants and promising to lower quotas. Hollande, however, actually is trying to win Ms. Le Pen's supporters too. Of course he's not doing it by attacking immigrants but by arguing that he can speak to their economic concerns and unhappiness with the euro system.

      For her part, Ms. Le Pen is not advocating anyone and will likely tell her supporters to vote for neither. What is disconcerting for Sarkozy is that his lead over Hollande among Le Pen supporters is only 47 to 26.

      So we see that Sarkozy speaks fluent Mitt Romney just as Romney speaks fluent French. After all, Romney is about as extreme on immigration as can be imagined-he argued for "self-deportation" without a touch of irony. This phrase-self-deportation-was actually a joke about the policies of Californian Governor Pete Wilson during the 90s. They served him well-the Republican party is now basically nonexistent in the state.

     As for Sarkozy, if this is the best he can do-vote for me I'll deport the strange foreigners-he doesn't deserve another term. Even besides the fact that I really like this guy Hollande-he is shaping up to be the ultimate anti-austerity candidate. Europe may finally be waking up.

The 60s and the 90s: The Golden Age for American Workers

     Jared Bernstein did that post a few months back about the fact that if you put your money into the market during only Democratic Presidents you'd have a huge return while you'd have a much more modest return if you put your money and held it in the market only during Republican Administrations.

     Of course we can speculate on this in various ways-there is always the danger of the correlation-causation fallacy. Still the question begs: seeing that this is the case why does Wall Street prefer the Republicans? When push comes to shove they always feel more comfortable with them being the ones to give them "business friendly policies."

     Why is this in view of Bernstein's observation? Good question. I guess Wall St believes in certain policies-low or no taxes on capital gains, deregulation, union busting that the GOP is the more reliable partner on. What's really sobering when you hear what the truly "business friendly" countries are held to be-Singapore, Latvia, Ireland.

    Maybe Wall Street wants the party that has presided over the most boom-bubble-busts. In that regard the GOP has the lead though the Clinton 90s became a bubble.

     Switching form Wall Street to Main Street, it's pretty clear which party American workers do better under. The golden ages for US workers are the Kennedy-Johnson 60s and the Clinton 90s. Both decades finished with unemployment beneath 4%.

     Marcus Nunes over at his Faint of Heart website a few months back did a piece comparing the 60s to the 90s as well. He preferred the 90s. He prefers it because of price stability. Yet, inflation was not a problem in the Kennedy-Johnson years until 67-68, and even then it was quite mild in absolute terms. Arguably that was the start of the inflation boom we saw in the 70s.

    Yet the end of the Clinton years were perhaps the start of the real estate bubble-it started in 97-98 though it really came into its own from 2002 on.

    What's interesting is that by the 90s there was no "wage-price spiral" like there was in the era of the 60s which is why Greenspan didn't raise rates all that much despite talk of "Irrational Exuberance." He did wonder if there were an "asset bubble" but never followed up on it.

     What's interesting to me is that while both the 60s and 90s were high growth years with very low unemployment under a Democratic President, ,employers themselves are not always so comfortable which such low unemployment. The 60s boom led to the concern over a "labor shortage."

      Why? Because if you see the labor market as just another market of supply and demand of a (human) commodity then you see that eras of such low unemployment are "sellers markets."

      What we have lived in during the current era of Krugman's "Depression economics" is a buyer's markets. In some ways corporate American thrives under such conditions as perverse as that is. Here we can't but think of MInsky's instability hypothesis. True, his instability he had in mind was financial.

       But he did somewhat pessimistically say that there is no final resting place of stability in a capitalist system, though it is possible to usher in a large period of stability-like the New Deal Capitalist era of the postwar era.

       Marx-of course capitalism's great nemesis-spoke of internal "contradictions" in capitalism.  One aspect that is certainly in major tension is the fact that during worker golden ages, corporate America often starts to chafe even if profits are up because labor is too strong for their purposes.

      In many ways ideas like NAIRU are much more efficacious to them. Again, recall, that in the 90s during the early years of Clinton it was wondered how much hotter the economy could become-it was believed that the "natural unemployment" rate was only about 6%, any lower would open the Pandora's Box of inflation.

      Greenspan concluded that with the weak unions there would be no wage-price spiral. Since the Bust of 2008 many Republican economists have been talking about the idea that we are already at NAIRU. What really is Tyler Cowen's Great Stagnation hypothesis but the same NAIRU idea in a new wine bottle?

      Keeping unemployment higher enforces labor discipline keeping wages lower. So while some wrongly say that Cowen's hypothesis is nonideological-not Left or Right or even Keynesian or Monetarist-it is basically a Right wing notion.

       The idea of keeping unemployment at 9% or even what it is now at 8% might seem pretty brutal particularly if you are one of the unemployed. Yet there is a theory that having a higher unemployment rate is somehow socially optimal or welfare enhancing.

       Anyway this begins to give you an idea why though the Democrat agenda has been better for workers-and indeed Pace Bernstein for the stock market-this agenda is still very controversial with a lot of push back. Strange to say that in good times when everyone is employed and getting richer there really is some smoked filled room of businessmen, policy makers at both the Fed and in Congress worrying that workers have it too good.

Cameron's Austerity: Could it Happen Here?

      Here is Krugman on the terrible mess Cameron has made of Britain;s economy-totally unnecessarily as well

     "When David Cameron became PM, and announced his austerity plans — buying completely into both the confidence fairy and the invisible bond vigilantes — many were the hosannas, from both sides of the Atlantic. Pundits here urged Obama to “do a Cameron”; Cameron and Osborne were the toast of Very Serious People everywhere."

    "Now Britain is officially in double-dip recession, and has achieved the remarkable feat of doing worse this time around than it did in the 1930s."

    "Britain is also unique in having chosen the Big Wrong freely, facing neither pressure from bond markets nor conditions imposed by Berlin and Frankfurt."

    "Now, the defense I hear from Cameron apologists is that the austerity mostly hasn’t even hit yet. But that’s really not much of a defense. Remember, the austerity was supposed to work by inspiring confidence; where’s the confidence? Basically, the expansionary aspect should already have kicked in; it’s all contraction from here."

    "Needless to say, Cameron and Osborne insist that they will not change course, which means that Britain will continue on a death spiral of self-defeating austerity."

      http://krugman.blogs.nytimes.com/2012/04/25/camerons-remarkable-achievement/

       What's important to see is that it could happen here. It's basically the Latvian model. It's also the Paul Ryan plan. Look I like some of the Market Monetarists. I even like Sumner a lot of the time. But he too is a proponent of the Latvian model. Surely it should not be lost that Britain has most closely followed Sumner's NGDP agenda.

       What is not fully appreciated is that Sumner's gloss is that by having monetary stimulus it enables us to have fiscal austerity. That's what all this carping about the fiscal multiplier being roughly zero.

        What is the Latvian model? It is the ultimate conservative wet dream. What they got was a 59% wage tax and almost 0% on property taxes. It fulled a huge bubble in all the Baltic economies while their workers led the world in emigration.

        No matter how you want to look at it this is what all conservatives have in mind. Romney too though he;s now trying to distance himself from the congressional Republicans. How does that work after he spent so much time joined at the hip with Paul Ryan?

         This is also why I have so little patience with all the liberal Obama bashers. He's the main reason until now anyway austerity has not happened here. If he is re-elected-as expect he will be it never will.

Romney the Etch a Sketch Man Becomes a Centrist

      If you were waiting to see it in action you finally got to see what it looks like: in the last few days Romney has done is bout face on his first issue.

      He now agrees with the President about not allowing student loan interest rates to double back to 6.8%. Of course he isn't admitting he agrees with the President but it's Obama who is urging Congress not to allow the rates to go up and the GOP Congress who wants its to go back up.

     What's fascinating is that back in February Romney himself thought they should go up. At a college a young woman asked him about it and he came back with some real crowd pleaser like "I'd love to just give out free stuff but I can't do it. If you want free stuff vote for the other guy."

      There was a piece in Think Progress that argued that Romney has been more Right wing than George W. Bush. He has been at least during the GOP primary season on immigration, campaign finance reform, and immigration. Indeed on immigration Bush actually spoke of a path to citizenship back in 2007. You certainly won't hear Romney say that even now that he's reinvented himself as a centrist.

     However we already see the change in strategy. He's no longer Mr. Severe Conservative. Now he even sounds half reasonable. In his speech after winning a bunch of states last night-in what sounded like an acceptance of the party's nomination speech, which it in effect was-he spoke of understanding the pain of average Americans who are struggling with gas prices and "never thought they would be on food stamps."

    That's about as much empathy as your allowed to show and still be a Republican. Indeed some people are arguing that it was his best speech of the campaign. What it did show is his ability to take two sides of any issue. What he's banking on is the short memories of the American people. I don't think it's going to work.  Remember the Romney Rule: everything the American people learn about Mitt Romney makes them like him less. Certainly his attempt to underestimate the people is not endearing.

Tuesday, April 24, 2012

Hollande Could be the Chink in the Austerity Project

     What is becoming clear is that for a Eurozone politician, voting for austerity measures is like stinging someone is to a bee-any satisfaction you might gain from it is very short lived. Over the weekend Holland Prime Minister resigned after his failure to push through austerity measures in the alliance between his Center-Right party and the Right wing Freedom Party.

     This has become a very common occurrence. We had Papandreou  in Greece who resigned after agreeing to fresh Euro austerity measures in exchange for debt reduction. In Italy Prime Minster Berlusconi resigned rather than be involved with further austerity measures. Now we have the demise of Prime Minister Rutte.

     Then there is what is going on in France.

     "French Socialist challenger François Hollande beat President Nicolas Sarkozy in the first round of France's presidential election yesterday by 28 percent to 27 percent, even as far-right candidate Marine Le Pen captured an unprecedented 18 percent of the vote. Hollande and Sarkozy will face off in the final runoff vote on May 6 (Guardian), in an election that is expected to have significant implications for European integration and the eurozone's response to its ongoing sovereign debt crisis."

     ""Mr. Sarkozy will have to find a way to attract most of Ms. Le Pen's votes as well as the 9.2 percent who voted for centrist Francois Bayrou, who finished fifth. This is no easy task, and his appeal will probably include a combination of anti-immigration riffs and more attacks on the European Central Bank (which has become the modern French substitute for running against the Germans)," notes this Wall Street Journal editorial."

       http://globalpublicsquare.blogs.cnn.com/2012/04/23/roundup-hollande-beats-sarkozy-in-first-round-of-french-election/

       There is just no way to fail to understand what the election results in France augur. It is a wholesale voter rejection of austerity. For once we can even speak of a "transpartisan" movment like the firebaggers are always talking about.

       Certainly the most notable and encouraging development was Hollande's first round victory. However, it is also notable of the performance of Marine Le Pen. She received 17.9% of the vote, the best showing ever of her National Front party in a first round election.

       Ms. Le Pen has just recently taken over the party's leadership from her father, the notorious Rightist Jean-Maria Le Pen.

        Traditionally this Far Right party has been about some pretty nasty things like demonizing and targeting immigrants and extreme nationalism. Mr. Le Pen once declared that the gas chambers of WWII were  "a detail of history" and that the German occupation of France was not particularly "inhumane"-he was there too.

         His daughter however he sought to distance the party from this legacy and has empathised that "the euro has been a disaster." (Today's WSJ, og. A12, 4/24/12. I'm sure this is on the web too I can't find it right now, my computer has redirect issues.)

         Most of what she says could be agreed to by leftists during this cycle as many Europeans feel this way about the euro at this point. To be sure her party is more radical and calls for the end of the EU or at least France's departure which would be ironic as the EU project is in many ways France's baby historically speaking more than anyone's.

         When you add her near 20% with Hollande's you see that the large majority of the French are voting against the establishment euro austerity candidate, President Sarkozy.

          Mr. Hollande plans many things that I sure like the sound of as many liberals would. He wants to raise the minimum wage for instance. But best of all he is urging France: "If France changes the direction of European construction, if France brings back growth, economic activity sustainable development, big environmental infrastructure, then Europe will recover and we;ll be done with this austerity that is imposed everywhere and which ends up taking hope away from the people and leading them to vote for the far right."

           I can't think of a campaign speech that more totally knocks it out of the park. I half which I were French myself just to vote for this guy.

           The really important thing here is that this is France were talking about,, along with Germany the other big player in the EU. If France changes course this will have to slow down Merkel's eager beaver's of austerity over in Germany. Viva La France! I don't know if this phrase is French or Spanish or whatever but it sums up my sentiment.