Results for “from the comments” 1938 found
From the comments
It seems like market forecasts of low real yields 30 years into the future support TGS. How long does it take for long-run money neutrality to win out? If the yield curve showed low yields 100 years out, would that dissuade those looking for a monetary solution?
That is from fmb. Here are the real yield rates.
From the comments, on nominal wage stickiness
MR commentator Donald A. Coffin posts on the wage stickiness issue:
There is, as it turns out, some actual research on this issue in the job search literature. The bottom line is that reservation wages appear to fall relatively quickly with duration of unemployment. One common conclusion is that wage stickiness comes from the behavior of *employers.* Some citations:
“Reservation Wages, Offer Wages, and Unemployment Duration–Some New Empirical Evidence” http://ideas.repec.org/p/kie/kieliw/1095.html The authors conclude that offer wages fall faster than do reservation wages (not that reservations wages do not fall).
“The Relationship Between Unemployment Spells and Reservation Wages as a Test of Search Theory,” by Stephen R. G. Jones, QJE, V. 104, N. 4, 1988. “…the main finding is that reservation wages play a significant role in the determination of duration.”
“Short-Run Equilibrium Dynamics of Unemployment, Vacancies, and Real Wages,” by C. A. Pissarides, AER, V. 75, N. 4, 1985.
“Efficiency Wage Models and Unemployment,: by J. L. Yellen, AER, V. 72, N2., 1984. The stickiness of wages is attributed to the reluctance of *employers* to reduce wages.
“Unemployment, Wage-Setting, and Insider-Outsider Relationships,” by A. Lindbeck, AER V. 76, N. 2, 1986. The stickiness of wages is again attributed to the reluctance of *employers* to reduce wages.
“Wage Dynamics: Reconciling Theory and Evidence,” by O. Blanchard and L. Katz, http://www.nber.org/papers/w6924 1999. “In this paper, we ask whether one can reconcile the empirical evidence with theoretical wage relations. We reach three main conclusions. First, we derive the condition under which the two can indeed be reconciled. We show the constraints that such a condition imposes on the determinants of workers’ reservation wages as well as the relative importance of workers’ outside options as opposed to match specific productivity in wage determination. Second, in the light of this condition, we reinterpret the presence of an “error correction” term in macroeconomic wage relations for most European economies but not in the United States. Third, we show that whether this condition holds or not has important implications for the effects of a number of variables — from real interest rates to oil prices to payroll taxes — on the natural rate of unemployment.”
“An Empirical Test Job-Search Model, with a Test of the Constant Reservation-Wage Hypothesis,” N. Keifer and G. Neumann, JPE, V. 87, N. 1m 1979. “Reservation wages are found to decline significantly with duration.”
“An Econometric Analysis of Reservation Wages,” by T. Lancaster and A. Chesher, Econometrica, V. 51, N. 6, 1983. Their table A-IV clearly shows reservation wages falling with duration of unemployment, from 21.28 pounds per week for durations less than 13 weeks to 17,74 pounds per week for durations exceeding 52 weeks,
I could go on, but go to Google Scholar and search on “reservation wages and duration of unemployment” if you want more.
If the employers don’t want you at the high wage, and don’t want you at the low wage, what might your perceived MP be, temporarily or not? Keep in mind, firms are flush with cash.
From the comments
This is from James:
The reason why the rest of western civilization, the majority of living economists, the world markets, most people on the floor of the US stock exchange, most businesses who are following the drama, the CBO, the president, the Senate, and the majority of American voters in every major recent poll support Reid’s plan over Boehner’s plan is that Boehner’s plan seeks to redo this entire farce again in 6 months. In other words, Boenher wants to continue the damage that is being done right now to the national prestige, credit rating, and status as a safe haven for investment while Reid wants to postpone it for at least another 12 months. We don’t even have to delve into the affect extreme austerity measures will have on economic growth and job growth to see that the debate getting us there is itself a drain on our economic growth engine.
I stand in awe that you all are convincing yourselves that the current debate is productive. It comes off like a self defense mechanism. First, serious damage has already been done by the very nature of the debate itself. Second, doing this all over again in 6 months would do further tangible damage to the national credit. I’m surprised, really, in your abilities to ignore the obvious. I became interested in economics, and consider myself a Conservative, because I value sober analytics to emotional/idealistic appeals. I don’t see how anyone of a similar mindset can view the current debate as beneficial to the country.
By the way, by this measure Apple now has a greater cash reserve than does the U.S. government.
From the comments (ouch!)
E. Barandiaran passes along to us:
On the substantive issues of how to solve U.S. fiscal crisis, I suggest to read Ray Fair’s latest paper http://cowles.econ.yale.edu/P/cd/d18a/d1807.pdf
ABSTRACT: This paper estimates how large fiscal-policy changes have to be to solve the U.S. government deficit problem. This question is complicated in part because of endogeneity issues. A fiscal-policy change designed to decrease the deficit has effects on the macro economy, which in turn affects the deficit. Any analysis of fiscal-policy proposals must take these effects into account: one needs a model of the economy. This paper uses a macroeconometric model of the world economy to examine the deficit problem. A base run is first obtained in which there are no major changes in U.S. fiscal policy. This results in an ever increasing debt/GDP ratio. Then net taxes (taxes minus transfers) are increased by an amount sufficient to stabilize the long-run debt/GDP ratio. The increases are linearly phased in over a three-year period beginning in the first quarter of 2012. The estimates of the needed net tax increases are large. Compared to values in the base run, net taxes after the phase in need to be about $650 billion higher each year in 2011 dollars. In percentage terms this translates into about 45 percent of personal income taxes, 51 percent of social security taxes, 24 percent of transfer payments to state and local governments and to persons, 44 percent of purchases of goods and services, and 176 percent of corporate profit taxes. The output loss is 1.38 percent of real GDP over the 9 years analyzed.
Indeed, Ray shows that your crisis it’s not a laughing matter.
I’m more skeptical about macro models than is Ray Fair, and that includes more skepticism toward the Fair model. Still, I don’t think there is any kind of free lunch available which renders this general mode of reasoning invalid. Ouch!
File under “We’re not as wealthy as were thought we were.”
From the comments
This is from Mark, the caps are his:
We had these big interconnected undercapitalized things that were mandated by federal policy to keep expanding the amount of paper they bought or backed, which meant inevitably they were going to reach the point where the paper they were backing was too risky, and the GSE’s mandated growth necessarily called for them to issue more paper of their own to do that..And then you had Basel II and its US application that made GSE paper Tier I capital to support maximum loan growth in private sector banks. No wonder credit dried up when the GSEs were taken over in Sept 08. But you never see the Rortys and Mins speak to this perspective. THE GSE’S WERE PROCYCLICAL VECTORS THAT TRANSFORMED HOUSING DEMAND TRENDS INTO CREDIT MARKET TRENDS AND VICE VERSA, FREQUENTLY AMPLIFYING THEM, BUT THEY WERE NOT STRONGLY CAPITALIZED ENOUGH TO ABSORB A TREND REVERSAL.
From the comments
Wiki writes:
One way to think about it is how much even relatively wealth Americans (those who travel abroad) willingly pay for expensive internet access while traveling. The answer is: Not very much. Look at how many people put up with less internet than they’re used to or go out of their way to find a cafe with free wifi when hotel charges are on the order of $10 or $15 per hour. But since it often takes search plus travel time (say 15-30 mins) to get to these inconvenient locations that tells me it’s REALLY not worth more than a few hundred dollars a month for most people to have internet for several hours a day in the most convenient locations. And think of all the people who can’t afford to travel or who don’t bother to get smart phones or who pay for neither texting nor email.
The infovores are overvaluing themselves and the relative weight of their consumer surplus in the economy. Certainly compared to those who were heavy users of air travel (in for example the 1960s) or those who first encountered modern highways (1930s to 50s) or who benefited from mail order catalogs and phone books. And certainly compared to users of penicillin.
From the comments
Albert Ling writes:
How about this: Amy Chua’s method is better in raising successful kids career-wise, at the expense of emotional attachment, family warmth, etc. It’s a trade-off. If you envision your child’s future life to be of economic hardship and misery, maybe it’s a GOOD trade-off (as evidenced by the stricter methods of parenting on poorer societies, and also in the past when being poor really influenced your happiness).
If you already earn more than USD 25,000$ a year (which is the threshold after which income stops correlating positively with happiness), then it’s probably better to be a B.Caplan-style parent. (if your goal is to maximize your child’s total future happiness).
I think the answer is that simple.
Scott Sumner, from the comments
This is on “The People’s Budget“:
Matt Yglesias has a much better solution for progressives; a progressive consumption tax.
This capital gains proposal is especially silly. I’m 99% sure they won’t allow unlimited write-offs of capital losses, which means the effective cap gains rate would be even higher, and risk-taking would be discouraged. And why even have a corporate income tax system? Even from a progressive perspective it makes no sense at all.
This proposal taxes rich guys who live a hedonistic lifestyle at a much lower rates than equally rich guys who are thrifty, and leave something for others. That’s progressive?
A progressive consumption tax system composed of a mixture of modestly progressive VAT and steeply progressive payroll taxes and carbon taxes and land taxes. That’s all you need. K.I.S.S.
From the comments: what does the fiscal endgame look like?
Slocum writes:
Nonetheless it is naive to think spending cuts can do the job alone, and insisting on no tax hikes drives us faster along the path of fiscal ruin.
This is a political, not economic judgement on Tyler's part — that a majority won't accept the necessary cuts. But I think it's much less politically feasible to imagine enacting VAT (which, in the past, has been Tyler's preferred approach). That's an idea that practically demagogues itself (A EUROPEAN-style Tax! A regressive, HIDDEN tax on EVERYTHING you buy! A tax that will hit the savings of RETIREES the hardest –people who 'worked hard and played by the rules' who were taxed when they earned and saved the money and are now going to be hit by a REGRESSIVE, EUROPEAN, HIDDEN TAX on EVERYTHING when they try to spend the money).
Republicans are so married to 'no new taxes' and Democrats to 'higher taxes only for the rich', that a VAT (or any other new broad-based tax) seems out of the question. So I can much more easily imagine spending cuts eventually getting bipartisan approval with only nominal tax increases included in the bargain.
A few points:
1. A VAT has never been my preferred outcome, rather I warn that it may be necessary if we do not act soon.
2. Balancing the budget within five to ten years with spending cuts alone would be difficult but by no means impossible. I am all for doing that, but a) it won't happen as stated, and b) it still won't balance the budget over a ten to twenty year time frame.
3. The path toward long-run fiscal balance involves recalibrating Medicare, Medicaid, and Social Security to lower rates of indexation, reimbursement, benefit increase, and so on. We need to start that process now. It cannot be done overnight or even over a few years' time. It takes a long time for those gains to come in, cumulatively. No one is going to vote for a "thirty percent cut to Medicare, today," although they might vote for changes in rates, which over time would amount to large reductions.
4. The time for a Grand Fiscal Bargain is now. If we don't do it fairly soon, we won't get spending under control at all. Furthermore the number and percentage of elderly voters will only increase, which will make spending cuts more difficult as time passes.
5. Let's say a proposal for long-run balance were presented, with $3 in spending cuts for every $1 in tax hikes. That is still a good deal for the anti-tax, anti-spending conservative. Rejecting such a deal means we will end up with something closer to $3 in tax hikes for every $1 in spending cuts. (And no, I don't know what is the "break even" point for a good bargain in this regard.)
6. Bill Niskanen's research shows that by taking tax hikes off the table we simply encourage governments to spend more. Spending then looks like a free lunch.
7. Making it a priority to "avoid any tax hike today" is the same kind of short-run view which brings us to fiscal catastrophe in the longer run. In the medium-run, much less the long run, this attitude will lead to higher taxes. However much it may masquerade as a low-tax attitude, it is in reality a high-tax attitude. Unintended consequences is a fundamental economic idea and it is very much operating here.
8. If I called on President Obama to push for a budget deal, and I cite CAP in support, it was not to criticize the Democrats, or Obama (as DeLong and Krugman mysteriously suggested), but rather because I see him as by far the most influential player in this process.
In short, I am asking for the true fiscal conservatives to step up to the plate, and bring about lower taxes in the long run, rather than simply "playing team on the tax issue" in the short run. Time is not on our side, and if we think it is we are fooling only ourselves.
From the comments
I never really bought the "conservatives are fearful" argument; after all, the left is the one arguing for more economic protection.
I think a more useful distinction is that people want free-market competition in areas where they are strong, and protection and regulation in areas where they are weak. Conservatives want free competition in the economic sphere but moral protections in social interactions; liberals want protection from market forces but are happy to take their licks in status-seeking competitions.
In a state of nature, the highest-status people get away with much more bad behavior than low status folks. Therefore, strict social rules are essentially a progressive tax on status!
From the comments
Master of None, Just to be clear, I am not one of those monetarists who argues that you should expect to find a correlation between current movements in M, however defined, and future movements in AD. Indeed if you did find this sort of correlation, it would suggest extraordinary incompetence on the part of the Fed. If they are inflation targeting, there should be no correlation between M and P. And yet M would still be causing P.
These studies don't seem to incorporate recent advances in monetary theory, such as the Woodford model where current movements of AD are caused by changes in the future expected path of monetary policy. It's almost impossible to pick that up with Granger causality.
I agree with the logic of Scott's point, but I might interpet it differently than he does. I would file this one under "Good macroeconomic knowledge is hard to come by."
From the comments
From Ezra's comments, this is ctown_woody:
Ezra,
To what extent is the Fed worried about making a visible commitment and failing? If Tyler Cowen and others are right that this slump is the end of family-deficit spending, it is quite conceivable that the Fed will fail to deliver that which it promises to deliver. At that point, the institutional players in the Fed will have lost credibility, which would lead to a lose of independence from politics.
So, to what extent is the Fed acting like Peter LaFleur from Dodgeball, "If you never try anything, you'll never fail"?
From the comments
…in 1981 Margaret Thatcher cut UK government spending in the middle of a recession, and against the advice of 391 economists that it would worsen the recession, and UK GDP started its recovery the same quarter. In 1991 Ruth Richardson in NZ cut government spending against the advice of 15 economists, and NZ GDP started its recovery the same quarter. There are a number of other cases of expansionary fiscal consolidations, and there's a causal theory to explain why this can happen – see http://ideas.repec.org/p/cpr/ceprdp/417.html (shortly, it's that cutting government spending improves people's expectations about the future of the economy and taxes, so they start investing more right now). Of course, correlation does not prove causation, and perhaps there is something about the EU countries now that is so different as to the cases I cite as to make those results no longer likely to hold, but Krugman writes as if he has forgotten entirely about the 1980s and 1990s.
That is by TracyW. Later in the thread she refers us to this paper, on how "contractionary" fiscal policy can be expansionary, and vice versa.
From the comments, on the inevitability of utilitarian judgments
Mario Rizzo writes:
Tyler, please. You should have taken my course this past semester. Benthamite reasons. Bentham is a total mess. One commentator said that Benthamite utilitarianism is a philosophy that tells you what to do when you have the data that you cannot obtain. This is it in a nutshell.
I very often agree with Mario and even here I think I agree with Mario, though Mario doesn't think he agrees with me.
To be sure, I am not a Benthamite utilitarian, if only because I believe rights should sometimes trump utilitarian recommendations. Furthermore, schema for making interpersonal comparisons involve value judgments, which means the Benthamite calculation is never purely descriptive but rather contains significant elements of other, non-Benthamite moral theories.
That said, Benthamite reasoning is hard to escape. Everyone relies on it when making decisions in everyday life, whether it be voting on a job candidate or buying one car rather than another or putting a bus line on one road rather than another. Even a lot of the arguments for following rules rely on an ultimate Benthamite judgment about good vs. bad consequences.
The fact that one might be wrong in any particular estimation — always the case — doesn't change the need to make a final judgment. "Benthamite" makes it sounds more scientistic than it needs to be, since Bentham had some unusual views, but still an assessment needs to be made.
Mario offers an instructive comment: "Bentham is a total mess." Is this an aesthetic critique, or is the suggestion that following Benthamite maxims won't lead to utility-positive results? If the latter, which is what I suspect, Mario is himself a Benthamite broadly speaking and in that sense we (at least partially) agree.
Maybe you're a preference utilitarian, but when it comes to aggregation, or how you interpret "veil of ignorance" results, you're still going to rely on utilitarian constructs to do a lot of the final work in the theory. If your imaginary people are behind a veil of ignorance, they've got to estimate the cardinal utilities (broadly interpreted) associated with different results. You're just shifting the cardinal comparison to a different place, away from the theorist (supposedly) and into the hands of the veiled ones.
Benthamite reasoning is inescapable, though it is a big mistake to make cardinal utility the only relevant value. We're all pluralists now, but cardinal utility should be a major part of the relevant pluralist bundle.
From the comments
Natasha C. writes:
I have not seen this mentioned in any comments (or Tyler's post) but consider this: there are at least some men who would support the idea of cloning themselves, I doubt there are many women who would do so. Are men more narcissistic or is there something else at work?
One possibility is that men are more insecure about paternity than women are about maternity, and so they demand greater similarity. The lower variance of female reproduction results is related to this, noting that the would-be male cloners are outliers of some kind rather than the median. What other explanations can you think of?