Bravo to Janet Yellen

Speaking on Capitol Hill Thursday, Federal Reserve Board Chair Janet Yellen warned lawmakers that as they consider such spending, they should keep an eye on the national debt. Yellen also said that while the economy needed a big boost with fiscal stimulus after the financial crisis, that’s not the case now.

“The economy is operating relatively close to full employment at this point,” she said, “so in contrast to where the economy was after the financial crisis when a large demand boost was needed to lower unemployment, we’re no longer in that state.”

Yellen cautioned lawmakers that if they spend a lot on infrastructure and run up the debt, and then down the road the economy gets into trouble, “there is not a lot of fiscal space should a shock to the economy occur, an adverse shock, that should require fiscal stimulus.”

In other words, lawmakers should consider keeping their powder dry so they have more options whenever the next economic downturn comes along.

Here is the full story.  Here is my earlier post on which macroeconomic theories will rise and fall in status because of Donald Trump.  She and the Fed were less wise but a mere month ago.


Yeah, well we all know the fiscal stimulus calls are pure politics on both sides, don't we?

Trump isn't going to get a big stimulus bill anyway, so Yellen need not worry in that regard. However, I would like to see the Republicans make a show of considering so that Paul Krugman gets smoked out publicly on the issue, too. I have always predicted that the deficit/debt worrying Krugman would return as soon as a Republican president took office again.

"I have always predicted that the deficit/debt worrying Krugman would return as soon as a Republican president took office again."

Where's Tylers post about which macroeconomic theorist's alter egos will rise and fall in status because of Donald Trump?

Krugman's already been tweeting about Trump's plan. It's not public spending--it's about stimulating development of private assets through tax breaks, potentially privatizing what are currently public assets.

Dems have already been suckered into saying they want to work with Trump on his infrastructure plan. I am fairly certain there will not actually be any big stimulus bill.

If the Dems are going to work with Trump, and he's already got many Reps on board, how would there NOT be a big stimulus bill?

He doesn't have a stimulus bill. His infrastructure plan is what I outlined above--a tax cut for developers, the kind of thing that Republicans will always vote for.

Ah yes, got it. Agreed. Tax cuts for developers, eliminate the estate tax, cut taxes on income and capital gains for the rich. How any of this helps the white working class in the Midwest is beyond me.

Trump is almost endearing in his brazenness. Almost.

Helps me personally though. MAGA!

I hate to break it to you but you don't have to pay estate taxes on the kingdom of heaven.

Yeah but what about my dynasty on earth? Way easier when the kids don't have to pay taxes when I go. As Don Jr, Eric, Ivanka, Tiffany, and Barron are about to learn.

You don't pay inherit tax on delusions of grandeur. You make a less compelling successful person than you make a pretend moderate.

Christina Romer says the best stimulus is tax breaks. Are you saying this isn't true?

"She and the Fed were less wise but a mere month ago." Golly, what events could possible explain that change of heart? It's a mystery.

The Magnificent Bastards who elected Trump are already getting results. The Fed is now making a stand for fiscal responsibility! Next thing we will see is them asking politely that the banks buy back at face price the trash they bought from them a few years ago.

I predicted here that a Trump presidency would renew civic and political virtues and get the various branches of government to get their fingers out of their bums and do their jobs.

The Fed is saying they think Trump will do things that again lead the economy to tank (probably a good bet) and that we will need fiscal tools available at that time to address it.

"I have always predicted that the deficit/debt worrying Krugman would return as soon as a Republican president took office again."

Lol. What could that pattern be due to? Hm...Rep president drives the world economy into the toilet, Dem pres picks up the pieces, and now we try again...

"...president drives the world economy..."
Um, no, he doesn't. But keep peddling that narrative.

With Republican control, this is absurd: "Trump isn’t going to get a big stimulus bill anyway,".

Earmarks are back to buy the votes to get favored pet projects passed, whether tax cuts, big jobs programs in red States by way of the defense budget, enriching global corporations, and in Ryan’s fantasy world, gutting middle class and working welfare.

Likely they will go to dynamic scoring to argue that the Laffer curve has a maximum revenue with rates at 5% so that tax cuts to put money in the pockets of corporations paying no taxes today will increase their activity so much their tax rebates will increase enough to pay for themselves.

Since 1982, the economic theory behind the Laffer curve and elasticity in general, the Laffer curve is in reality an elasticity curve, has been misused and abused so much by economists that HW was wise in calling it voodoo.

But just as in 2005, Republicans do not have the guts to pay for their policies. Trump tapped into the anger of the actual middle class who are not upper middle class like their parent were or expected their children would be, and who are seeing their children become lower middle class. The only stable thing in their life is middle class welfare when employers refuse to pay them any more.

Imagine the fate of towns where factories closed and moved to Texas, bought by Gov Perry, without middle class welfare. The towns lost half their kids in the 80s and 90s while the younger boomers who got jobs in the factories held on, got old, paid off mortgages, and the using peer networks got by until they turned 62 or 66 and get a check every month that covers the low living costs in the dying town. With Medicare, their health improves from the gap between losing factory benefits and turning 65. And for those who could not stay healthy enough, middle class disability welfare compensates for being denied health care access.

Note that since Obamacare began covering everyone, the number of people on middle class disability welfare has stopped increasing, for every new benefit granted, one ages out, for a population that is growing. The criteria for qualifying is medical condition preventing work, thus uncontrolled diabetes or excess fluid retention causing heart and lung problems makes a person unfit for work. $10,000 in medical to stabilize and $3000 a year maintenance will make 70% not only fit for work, but actually get them working because they are people who worked all their life.

Ryan knows he must deliver on campaign promises and has accepted the need to buy votes in the House and Senate. He knows his pet objectives of eliminating middle class welfare must be done in probably ten months max so he needs to buy votes quickly to advance his project from April 2017 to March 2018, at which time reelection trumps all other considerations in the House as the Republican primary campaigns begin, the elections that matter above any other. 90% of the Republicans in Congress are elected by 20% of Republican voters, making them vulnerable to radicals. Democrats in similar situations are very rare, like Joe Lieberman.

My guess is Ryan will not make gutting middle class welfare as his priority, instead focus on tax cuts in the guise of tax reform, and given Obamacare is 90% tax law, taxes to pay for subsidies, taxes as subsidies, taxes as incentives, taxes as sticks, tax cuts will target the working poor and working lower class, the whitelash will halt Ryan in gutting middle class welfare.

But how does this apply to Trump's stimulus? Trump is advocating tax cuts to pay for infrastructure projects. Instead of paying $50 million in taxes, a group of taxpayers put $50 million into preferred stock, an investment fund, that borrows another $250 million, and then builds $300 million in infrastructure, the money going to friends of the taxpayers, friends of Trump, friends of members of Congress and State officials in exchange for tolls, tax revenue, fees on the infrastructure. Investors get say 4% dividends on their $50 million. When the cost overruns and revenues drive the project into insolvency, it heads to bankruptcy court where an unelected technocrats redistributed wealth, an in some cases, the $50 million of tax revenue paying 4% to the taxpayer is converted into $10 million while the $250 million in debt is cut to $100 million, and the first $250 million for cost overruns gets $50, and the second $250 million gets $150 million in assets. Just like a typical Trump investment, like his redevelopment and jobs program fixing Atlantic City, the project that qualifies him to be the Jobs President.

Meet tax reform, Trump style. Meet a trillion in government infrastructure investment, Trump style.

The bidding starts at the doors of Trump, Senate and House tax reform chairs , and Ryan and McConnell office doors.

Two trillion deficits here we come.

"Two trillion deficits here we come."
So, Krugman-style Keynesianism then? Remember, Krugman himself (who actually defended Trump's economic positions during the primaries) argued that it is so important that Hillary wins because the GOP (being "crazy") wouldn't be willing to spend enough to keep the demand up.

"..keeping their powder dry so they have more options whenever the next economic downturn comes along"

Perfect timing-there will be a US recession in 2017

Synchronise watches!

I don't think it will hit until early 2018 myself. it takes a little while for the message of the capital gains tax cuts to hit (aka hit the exits).


"Yellen cautioned lawmakers that if they... run up the debt..."

" If " they run up the debt ?? What galaxy does Bravo-Janet dwell within ?

Congress has already run up a $20 Trillion direct debt, with another $130+ Trillion in unfunded liabilities. Congress will default on this debt eventually, one way or another, devastating the US economy. They have no "powder" left to keep dry.

Bravo-Janet should be fired immediately... and her empty utterances ignored forever.

I don't think she's actually a bad chairman, myself - I despise Bernanke for his cheerleading of the debt explosion, Yellen mostly inherited this mess. I think she's trying her best given the situation... :/

It is going to be nice to see the left care about the debt again, and our endless wars. I think Yellen's concern is and has been genuine, though.

Your $130 trillion in liabilities is backed by $110 trillion in assets assuming the economy keeps going at the current 2% steady state, not the 2001 to 2009 peak of 4+% mixed with 0% and minus 5% plus asset write down.

I know you want to eliminate middle class welfare, but you assume that by slashing incomes of those over 65 by $30,000, the economy will not shrink because the 20% of the population over 65 will still spend $40,000 a household to pay high profits to global corporations and the wages of the lower middle class masses.

Even in your ideal economy of everyone saving for old age just gets you to the economy of China where it stays afloat only by selling to the big government welfare States to pay for centrally planned investment that is so excessive returns on capital are zero to negative. Only with a middle class welfare system like the US or Europe will the Chinese be free to grow the economy with internal consumer spending, instead of savings and investing in way too much capital assets.

She and the Fed were less wise but a mere month ago.

Of course Hillary had an election to win a month ago. Now she has lost it, there isn't the same need to puff up the economy and massage the figures. Fiscal responsibility can make a come back.

A generation ago no one would even think the Chair of the Fed would deliberately tank the economy to make the President look bad. But I am not so sure now.

Time for you to invest in tinfoil hats.

Perhaps the economy needs tanking. If so, why wouldn't a Dem appointee push for it to happen on the Republicans watch.

'A generation ago no one would even think the Chair of the Fed would deliberately tank the economy to make the President look bad.'

Maybe a generation and a half ago to two generations ago then?

As noted here 'Burns served as Fed Chairman from February 1970 until the end of January 1978. He has a reputation of having been overly influenced by political pressure in his monetary policy decisions during his time as Chairman and for supporting the policy, widely accepted in political and economic circles at the time, that Fed action should try to maintain an unemployment rate of around 4 percent. (See also: Phillips curve)

When Vice President Richard M. Nixon was running for President in 1959–1960, the Fed, under the Truman-appointed William McChesney Martin, Jr., was undertaking a monetary tightening policy that resulted in a recession in April 1960. In his book Six Crises, Nixon later blamed his defeat in 1960 in part on Fed policy and the resulting tight credit conditions and slow growth. After finally winning the presidential election of 1968, Nixon named Burns to the Fed Chairmanship in 1970 with instructions to ensure easy access to credit when Nixon was running for reelection in 1972.

Later, when Burns resisted, negative press about him was planted in newspapers and, under the threat of legislation to dilute the Fed's influence, Burns and other Governors succumbed. Burns' relationship with Nixon was often rocky. Reflecting in his diary about a 1971 meeting attended by himself, Nixon, Treasury Secretary John Connally, the Chairman of the Council of Economic Advisors, and the Director of the Bureau of the Budget, Burns wrote:

The President looked wild; talked like a desperate man; fulminated with hatred against the press; took some of us to task – apparently meaning me or [chairman of the Council of Economic Advisors, Paul] McCraken or both – for not putting a gay and optimistic face on every piece of economic news, however discouraging; propounded the theory that confidence can be best generated by appearing confident and coloring, if need be, the news.'

Do you think the propagation of wild conspiracy theories and fake news might be contributing to the fact that many fewer people trust our institutions these days?

I don't know Jan. Do you think your total lack of response to claims, for instance, the Gulf war was about oil has resulted in no one trusting you these days?

Wild conspiracy theories and fake news have been mainstays of the Left for a long time. But you seem to be fine with it when your side does it. Tell me again how you objected when Harry Reid lied about Romney's taxes and Joe Biden said Romney was going to re-introduce slavery.

The evidence about fake news and other lies this past year is pretty clear. It overwhelmingly points in one direction. You can be a Trump supporter and also admit that this is true.

Just don't be surprised if Democrats take a play out of the alt right's book (because lying worked!) and it further undermines our institutions, making the country worse overall.

Still no response, in case someone's counting.

Tom, a Dem said something stupid. Ok, that happens sometimes. Literally every single day of Trump's campaign lied about multiple things that actually matter. His supporters spread misinformation and continue.

In case you're counting, the score is obvious. But you don't care, because double standards are the name of the game for conservatives or white nationalists or Republicans or whatever white working class or whatever you guys are calling yourselves now.

Unleash the kleptocracy. I'm sure nobody will report on it.

Fake news? You must be talking about Salon, Slate, Vox, HuffnPuff, Politico, NYT, and that Bezos plaything - the Amazon Post, I mean the Washington Post. I think they have about 20 "reporters" hired to smear Trump. They are still at it - someone forgot to turn off the bots.

They lost.

Lanigram, conservatives long ago quit reading most newspapers and mainstream websites. I don't think those sources are generally dishonest--they adhere to journalistic standards that prevent that--but I totally get that a lot of the population doesn't agree with me. Fine.

But I am talking about the proliferation of fake news on the one platform where most Americans, especially those who have turned off the mainstream media, now get at least some news: Facebook.

On Facebook, there was literally more fake news and hoaxes about the election read than there was actual news:

There are also a lot of fake news from the left. Beyond Democratic politicians.

Let's review some fake news of old: how about Bush TANG documents?

Faked. Seems pretty big deal. Probably CBS shjould get banned from facebook right?

More modern versions exist, too. My FB feed is full of these sites and when I googled them, even had people on the left warning about using them. The one I recall was "bipartisan report." There was an entire list.


I understand there is a difference between biased news and fake news. I don't get any of my news from FB for many reasons. The advent of fake news on FB is unsurprising - after I discovered this I knew that I knew about it all along, because of (1) hindsight bias and (2) my superhuman ability to predict the past.

I'm going to turn my attention to economics now. That should be worth some money.

"The evidence about fake news and other lies this past year is pretty clear. It overwhelmingly points in one direction."
Not really, but Dems need someone to blame for the loss other than themselves, hence the 'fake news' meme.

I don't doubt there are plenty of inaccurate 'news' sources (hell, most of them are inaccurate). But if you think Salon or the Huffington Post are less 'fake news' than Breitbart then you aren't in a position to accuse others of wearing tinfoid hats.

Even "respectable" lefty rags are still falsely claiming Steve Bannon is a white nationalist (asshole maybe, but he is definitely not a white nationalist) or claiming that Trump won because of a surge in white voters (when in fact he lost ground with whites relative to Romney, while gaining ground with minorities).

To their credit, WaPo and Fivethirtyeight have published accurate assessments of the election, but the other progressive news sites are dispensing fake news at a rate that would make Hearst blush.

Be careful about what is in fact, fact.

But don't forget, anon, you're '''center right.'''

Sure. And this moderate tries to acknowledge facts.

You can make a nuanced argument that the Energy Task Force existed, but was not a big factor. It is not a nuanced argument to say that it did not exist, nor say worrying things. The quotes “The review of operational policies towards rogue states,” such as Iraq, and “actions regarding the capture of new and existing oil and gas fields” are accepted.

So what do you do Whit, when presented with fact?

Jan November 19, 2016 at 8:36 am

The evidence about fake news and other lies this past year is pretty clear. It overwhelmingly points in one direction. You can be a Trump supporter and also admit that this is true.

I think it is mandatory for Trump supporters to admit this is true. Because the tide of dishonesty has only run one way since the Left was apologizing for Stalin and Pol Pot. The fake news this year has come entirely from the Left. Which is not surprising when it is led by someone like Harry Reid who openly admits to lying about Romney - and the media let him get away with it.

Just don’t be surprised if Democrats take a play out of the alt right’s book (because lying worked!) and it further undermines our institutions, making the country worse overall.

You mean whine loudly on the internet? The alt-right has nothing to do with this election.

Extra points if you can hate Stalin and love Putin, I guess. Two peas from the same pod. They just operate in different environments. Animal Farm, but for oligarchy.

They did get Clinton to denounce a cartoon frog.

"The fake news this year has come entirely from the Left." You don't believe that and nobody reading this believes that. Sad!

'Stalin': CHECK

'Pol Pot': CHECK

'Democrats': CHECK

… ;)

Jan November 19, 2016 at 12:58 pm

You don’t believe that and nobody reading this believes that. Sad

I understand you need something to take away the pain and stop your tears, but everyone knows it is true. Just as they are lying about Stephen Bannon. The Left has nothing else really.

carlolspln November 19, 2016 at 3:37 pm

‘Stalin’: CHECK

I tried to get Chomsky in there somewhere but I just couldn't. He deserved it bigly. Sad.

Jan: "You don’t believe that and nobody reading this believes that"
What's sad is that I think you really do believe it came overwhelmingly from the right.

Maybe if the wild conspiracy theories did not keep turning out to be true, people would stop subscribing to them. When CNN is perfectly willing to conspire with one on candidate to rig the debates, it is not hard to accept that all of these people will say and do anything. Read the WikiLeaks e-mails and what jumps out is that these people despise the rest of us.

That's not a true telling. One candidate had an insider who blabbed, one did not. "CNN" did not make the decision or take the action to "rig the debates."

Well no. The families that were going to ask the question did not talk to anyone from the DNC. They did talk to someone from CNN.

So CNN hired someone closely associated with the Clinton campaign. As they had done before. They told her about the question.

The bias of the media in recent debates is beyond question. It is a shame Gyn Ifill was part of it.

They did make the decision to distribute inside information to Donna Brazile. Did they really thing that career consigliere had any integrity at all?

And did the Clinton campaign refuse this "insider's" help? Nope. These are people who are willing to lie, cheat and steal to win. It's not a "wild conspiracy" to suggest that they'll do it again in a different context.

Tipping her off to expect a question about lead at a debate in Flint, just to remind everyone how through the looking glass we are.

Really glad they gave Core Lewandowski a job, for a while at least, and gave Trump more coverage than Clinton or the actual issues combined.

Perhaps I am a cynic, but I don't think either party would disregard a rip-off.

Do you mean that the close to 1 $Trillion dollars that purportedly was given to the banks from congress was a wild rumour? And the trillions of asset purchases the Fed did are a figment of our imaginations?

The banks paid back every penny of TARP with interest. The government made a great return on that deal.

The Fed's work has been exemplary, especially in the depths of the collapse. How soon we forget.

"The banks paid back every penny of TARP with interest. The government made a great return on that deal."
Ignoring the hidden cost of encouraging banks to behave badly, and assuming that the TARP money wouldn't have been spent elsewhere.

I was responding to the comment that those funds were 'given' to the banks. And the money wasn't spent so why would they want to spend it elsewhere? It was lent and repaid with a nice return.

As far as the moral hazard, I've never been a fan of the Andrew Mellon approach. Sometimes it's more important for the system not to collapse.

"Ignoring the hidden cost of encouraging banks to behave badly, and assuming that the TARP money wouldn’t have been spent elsewhere."

Again, it wasn't spent but lent out. The government's balance sheet did not change measurably as a result of TARP. You would get a bit more traction if you were to talk about opportunity cost and say the money that was lent to banks might have been lent somewhere else, but the Treasury is not a commercial bank and is never actively seeking new lending opportunities to bring in profits for the government. TARP was a special program authorized by Congress to deal with the biggest financial collapse since the 1930s.

Wild conspiracy theories? You mean like about how certain presidential candidates are "Russian puppets?" That's the kind of thing that would have been a Conspiracy Theory had it been said in the last century, but now is just a common sense observation based on the evidence.

Arthur Burns (then an advisor to Republican pols, later Fed Chair) supposedly warned Richard Nixon in 1960 that Wm. Martin would do just that. It is interesting that there was a stagnant quarter in 1956 and a brief recession in 1960. There was a recession after the Korean War as well, concluding in mid-1954. There was a sharp recession at the end of 1957 and extending into 1958. The Republicans lost their majority in Congress in 1954 and never regained it, being shellacked especially badly in 1958. Funny, Wm. Martin was the Fed Chairman during the period running from 1960 to 1970 when there were no recessions. Was his technique getting better?

I really doubt Yellen is partisan on this. I think she has done a good job. The debt level is high ( ~$20T) but interests rates are low so the interest payments are manageable for now. However rates are rising and both candidates promise higher deficits but especially Trump (Infrastructure spending/tax cuts).

So, she is right to mention that the mounting debt is likely to become a more serious problem. At any rate as she says, I don't see why we need a stimulus now

Just a thought, would it make sense to borrow for infrastructure or borrow for Obamacare subsidies?

Because before the election, many people wanted to increase those subsidies.

That was "good" investment?

A month ago, Clinton and Democrats were going to win and hike taxes on the people sitting on cash and refusing to spend it paying workers, and use the tax revenue to pay workers. Of course, the taxes will not be paid because those sitting on cash will pay workers because that is a tax dodge, and they will own the tax dodge, not the government.

I always find it amusing to hear Boehner talk about how he as a business man knows that higher tax rates on profits prevented him from hiring workers to grow his business. Clearly he was defrauded by his tax accountant who told Boehner he owned 35% tax on the million in revenue, pocketing $325,000 after paying the $10,000 income tax after all the business expenses and the $300,000 in accounting frees he pocketed reduced the business profit to under $50,000.

Milton Friedman attacked the high tax rates of the 1960s based on them not raising much tax revenue because too many workers were put on the payrolls to dodge taxes. He was most incensed by nepotism like you see in the Trumps. Relatives are paid way too much because the excessive pay is a tax dodge.

I guess this is one of the benefits of the Trump presidency, all big government ideas now will be opposed by the media.

This kind of inversion of ideologies will freshen discourse up. I'm already mapping out the Trump-Bannon High Speed Rail line from Pittsburgh to Milwaukee, which can be extended to Minneapolis if Minnesota flips red in 2020.

As Obama says, reward your friends and punish your enemies.

I'm thinking a high speed hovercraft ferry from Grand Rapids, MI to Milwaukee, WI to bypass Illinois completely.

It already exists


Speaking of Freshwater Economics, when my Dad lived in Oak Park, IL in the 1920s, he used to take the ferry from Chicago's Navy Pier to Ludington, MI and then on to their summer cottage in Manistee (?), Michigan every Memorial Day and come back to Chicago on Labor Day. My grandfather, who worked in Chicago's Loop, would put his Model A on the ferry every Friday and come back on Sunday.

But they moved to California in 1929 and then the ferry boat sank.

I don't know if this is the ferry boat that they used to take.

But the Trump Era will require something much faster.

I took a hydrofoil across the Rio Plate from Buenos Aires to Colonia, Uruguay in 1978 and a hovercraft across the English Channel in 1980. I assume there's something much faster today.

A tunnel under Lake Michigan connecting Michigan and Wisconsin, utterly bypassing Chicago? Unless Illinois sees the light in 2020, I think that's a done deal.

"...when my Dad lived in Oak Park, IL in the 1920s, he used to take the ferry from Chicago’s Navy Pier to Ludington, MI and then on to their summer cottage in Manistee"

That's long gone, but there still is an coal-fired car ferry operating out of Ludington that makes runs across to Wisconsin. (You know, given how infatuated progressives are with trains, I'm a little surprised they haven't also been pushing to bring back all the old steamship routes).

The good and decent people of MR want Tyrone's take on the election. Please.

Tyrone thinks that the absurd candidate beat the appalling candidate.

1. Stimulate.

2. Are long term rates and inflation going up?

3. Yes goto 4, else goto 1.

4. stop stimulating

It's magic!

Still an idiot!

Nuh uh! YOU are!

It's cute when economists think they can create a perpetual motion device.

More like saying you can't really tell if anything is wrong with your car's suspension if you don't first inflate the tires properly.

"She and the Fed were less wise but a mere month ago."

What changed during this month, I wonder? It' really hard to guess!
She might be speaking the truth now but oh boy, what a partisan hack.

You could argue that maybe she trusts the Democrats to be better at stimulus spending (actually deciding where the money goes and managing the spending) than Republicans. I don't trust either, but I don't fault her too much for being worried about how a President Trump would do this.

Democrats pay for spending.

Republicans claim that their tax cuts pay for themselves because the maximum tax revenue on the Laffer curve is when tax rate is zero, or maybe minus 10%.

Trump's stimulus pays for itself based on every $100 million in corporate income tax rebate given to global corportions will generating $200 million in FICA revenue.

"Democrats pay for spending."
Haha, that one made my day.

I agree, the basic indicators of the economy have not changed in the past month. However, I wonder if she is making a calculation that under a Trump presidency there is a much greater risk of "a shock to the economy occur, an adverse shock" that would require fiscal stimulus. She wouldn't be wrong. The plan is now to deregulate the banks and potentially other things that could introduce those shocks.

Deregulating finance would not quickly cause an adverse shock. You would first need to wait for a bubble to form in a class of financial assets, for a lot of wealth to get tied up in that bubble and then the collapse to cause a shock as many people realize they are suddenly poorer than they were just before. That would require years.

What she is thinking about more is that Trump is a short term, superficial President who will use the Nixon strategy of trying to win re-election by what Tyler called 'lots of free lunch economics'. He will only be helped by a Republican Congress which can be relied upon to switch into 'deficits don't matter' mode whenever a Republican holds the White House (and even if they weren't none of them carry any political or moral credibility to oppose him).

In the short term we may get better growth if Krugman is right, that the economy could still use stimulus but if he goes big enough we could see inflation pick up and soar after being tamed for over a generation.

I agree it wouldn't necessarily be a short-term shock. The concern about not having all the tools in the toolbox when the time does come still applies.

"She and the Fed were less wise but a mere month ago." Maybe Cowen missed the news, but Trump won the election and Republicans are now expected to adopt large tax cuts for the wealthy, exploding the deficit with little bang for the buck and leaving the Fed with the impossible task of simultaneously maintaining financial stability and promoting economic growth. Cowen's friend, Justin Wolfers, has decided that predictions of economic doom and a big drop in asset prices were all nonsense, confirmed by the steady rise in equity prices after initially falling immediately following the election. Wolfers provides readers with a list of irrational explanations for investor behavior, omitting the one rational explanation: rising deficits mean rising interest rates means falling bond prices. Money has to go somewhere, and rational investors moved it from bonds to equities, causing the price of the latter to rise. Another, nefarious explanation: bankers didn't panic with the election but doubled down by investing heavily in equities, causing the latter to go up and up in price and drawing suckers, I mean investors, with them, and allowing the bankers to slowly move their money elsewhere and leaving the suckers, I mean investors, holding the bag when the inevitable drop in equity prices arrives.


Given the size of our debt, you could probably stop your causal train at "interest rates rise".

In other words an inflationary binge so Trump can claim he did 'amazing' things would cause equity prices to rise even absent real economic growth.

"exploding the deficit with little bang for the buck"

Christina Romer, Obama's choice for stimulus planning, says tax cuts have the most bang for the buck.

Are you saying she's wrong?

The Tea Party and many other conservatives say big deficits are bad. Are you saying they are wrong?

Big deficits are a bad thing. Unfortunately Gary Johnson never had a chance in the election, so what difference, at this point, does it make?

Agreed I was just responding tp Harun. Lotta hypocrisy (on both sides) when the presidency changes hands.

I'm open to the possibility Trump might work economically. He might push just hard enough on spending and tax cuts to get decent growth but won't push the economy far into inflationary territory as he will be held back by party infighting, the Fed or just his own inability to focus. That's kind of a worse case scenario for Trump as autocrat. He declares the economy 'fixed' (this time the data reported is deemed accurate), he doesn't round gays or Latinos up for camps so flunkies in the media declare him is 'more moderate than expected' and at that point he pushes for more power.

looks like tyler gets wet when the media hypes janet...

I will take this expertise seriously.

I assume that some of the difference between now and a month ago is the difference between spending $ and potentially $$$ (to use Yelp symbols). To spend $ may still be fine, and the caution is about $$$.

Has Bernanke made any comment?

Good point also that expected tax cuts multiply the effect of spending increases.

>they should keep an eye on the national debt.

Yet another bonus of having a Republican President: people start caring about the national debt again!

The upsides of this election result just keep coming.

I also bet that there will be more focus on transperancy and 1st amendement transgression, which was lost the last 8 years.
I also hope for a more investigative press than the last 8 years, now that the "wrong" president is elected.
The last 8 years only impressed me with how much the world of media has become a one party session. This is not an American phenomenon, but one that also is rampant in Europe.

Trump may change this again, though I dont think it will carry over in another Democrat president term...

One bad bit: She thought that a fiscal stimulus was necessary in 2008, which history showed is untrue. Does this mean Yellen does not learn from the past or does she draw different conclusions. If so, I would like to know why?

Also the definition of "full employement" in the age of the shrinking labour force participation, is a bit hollow, no?

Why are we assuming that the proposed infrastructure spending is stimulus spending? Planning and building infrastructure takes longer than a typical business cycle. You build infrastructure to decrease costs and increase productivity. That is appropriate in both a boom and a bust period.

You make some very good points.

First, infrastructure spending is not stimulative when it merely matches the depreciation rate. Our manner of fiscal accounting doesn't contain a balance sheet, just an income statement.

Second, to the extent that infrastructure is stimulative, it simply moves employment of resources into the present, robbing the future.

Yellen is certainly correct that additional debt is unwise, but she is among the villains that made additional debt unwise. The Feds bloated balance sheet is going to explode on Trumps watch.

"The economy is operating relatively close to full employment at this point"

What's the support for this? Looks like the employment rate in 2008 was about 63%, while it now is 59.5%, bottoming out at 58% in 2010. Still some way to go, eh.

I hope Yellen's not doing some petty trick with not counting the long-term unemployed.

Not to worry, shortly after Trump becomes president, the media will rediscover poverty, homelessness, and unemployment in America. The word "labor force participation rate" will reappear in their consciousness.

Jobless recovery anyone?

I think the greatest good that will come out of this election is the realization that the media does not represent the voters. In fact the opposite. Remember the town hall meetings when Obamacare was in congress? The media hated them because it contradicted the narrative, so these people were branded as racists, radicals, violent. The Democrats listened to the Media, passed legislation, and since have lost and lost and lost. Somewhere along the line Democrats will stop listening to those idiots and talk to constituents.

That is what Trump did. Immigration was only dynamite as an issue for Republicans if you listened to the media. It was the road to the White House if you didn't.

Isn't there a lesson there?

By the way we have a policy at our business. If a media person shows up, they are told they have 30 seconds to remove themselves, and after that they will be considered to be trespassers and removed from the premises. They are out to hurt and destroy. They are not welcome.

I hope Facebook alt-right reporters are allowed at your shop though.

your eyes, are crying

This paranoia about the 'alt-right' is getting kinda worrisome. Never before have a few thousand people on some message boards who have no political significance whatsoever been spun into such a bogie man.

People on the left complain about McCarthyism, but wrong as it was, at least there were people (including Bill Donovan's personal secretary and Lauchlin Currie) actually were Soviet informants in the 1940s, providing a rudimentary basis in reality for McCarthyist fantasies about communist entrenchment in the government. With this 'alt-right scare' it's basically degenerated into making stuff up entirely.

Come on. Trump already moved a Ford plant from Mexico to Kentucky. America, what a country!

If people aren't participating in the labor force and they don't want to (ie they aren't looking for a job) is that a good thing or a bad thing? Do we like stay at home moms? What if they lose their health insurance, so decide to work a crappy job just for the health care--is that good or bad?

Insufferable leftist.

If you are enough of an old timer to know I am center right, you are enough of an old timer to know I did not wait until now to worry about poverty, homelessness, nor unemployment.

These flimsy straw men that "now people care" are already old.

Move on already, to what you see that Trump can and will do for these problems.

NPR already ran a homeless story a few days after Trump won.

Amazing. Are they not aware that people know about these patterns?

And before as well. You need a histogram if you are serious about this.

Of course the federal debt will continue to increase as the population ages.

And to not increase the annual deficits with infrastructure "stimulus" spending seems obvious. Is it more complicated than that?

It depends in part on how much not upgrading or maintaining infrastructure will cost us in the long run. Terrible infrastructure can hinder growth and good infrastructure can boost it. I actually haven't looked at any economic analyses of specific infrastructure proposals, but it seems to be something lawmakers should carefully consider. I'm sure they'll do a great job weighing the pros and cons.

The difference between terrible and good infrastructure is not simply a matter of increasing spending. That's a false dichotomy unfortunately accepted among so many people. Much like people who assume a poor education system needs more funding, or cutting education funding necessarily leads to lower quality, or cutting defense spending necessarily makes America less safe.

Personally I think improvement in quality and cutting costs are not mutually exclusive, but it would involve considerable privatization, which is unfortunately a bad word among so many Very Serious People.

Trump needs to send her back to Israel.


Nice while it lasted!

MR readers might get a kick out of this: I'm cradle Episcopalean, so I don't understand cults, whether it's the Trump cult or the Hayek cult. And although I'm Christian, I never got the appeal of eschatology, including eschatology of the economics variety (i.e., the inevitable economic apocalypse preached by, well, you know who).

"i.e., the inevitable economic apocalypse preached by, well, you know who"
Thomas Piketty? Karl Marx?

Put in household medical terms: Don't take two aspirin for a headache today, you might have a more painful headache tomorrow and two aspirin won't help then but you can't take three aspirin.

How convenient.

I'm just thinking that someone who been leader of the bureau that has kept interest rates at zero for eight years while the current administration has doubled the debt probably shouldn't be lecturing others on keeping their powder dry...

But I've been looking forward to what she will do when either i) a normal business cycle recession occurs, or ii) people wake up to the debt bubble.

May you live in interesting times.

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