Results for “age of em”

17233 found

1. Resource misallocation and unemployment get “baked in” to some extent, due to hysteresis.  I also would argue that some of the long-term unemployed are revealed as having been “baked in in the first place,” once the boom demand for their labor ended and their marginal products were more closely scrutinized.

2. Many nominal values end up reset, more and more as time passes and as new projects replace the old.

3. As banking and finance heal, debt overhang is less of an AD problem.  The debt repayments get rechanneled into investment, rather than falling into a black hole.

4. The Fed, at least right now, is not able to make a credible commitment toward a significantly more expansionary policy for very long.  Putting aside the more general and quasi-metaphysical issues with precommitment, just look at the key players.  Bernanke leaves the scene in 2014 and is a lame duck at some point before then.  Obama could be gone by the end of this year, and in any case is unlikely to be reelected with a thundering mandate.  Romney’s actual views on monetary policy are a cipher.  Either house of Congress could change hands.  There is less public support for a consensus view of the Fed today than in a long time.

On this issue I feel Scott Sumner is insufficiently Sumnerian.  He correctly stresses the role of expectations and credible commitments, but I still do not understand why he does not accept the implied pessimism in this, at least for May 2012.  2008-2009 was the time to act, in a Ludwig Erhard/Douglas MacArthur/Alexander Haig “I’m in charge now and we’re doing ngdp targeting try to challenge me in the chaos and confusion” sort of way.

5. The Fed already has failed to act, for whatever reasons.  That makes it all the harder to achieve the credible commitment now.  The market expectation has become “the Fed can/will only do so much.”  It’s like a guy hemming and hawing on the marriage proposal for three or four years, and then trying to suddenly set it right and show real commitment to the woman.  That’s hard to do, even aside from the points in #4.

I still believe in a looser monetary policy, I just think that what we can get for that now is much much less (a fifth? a tenth?) of what we could have received in 2008-2009.

Scott Sumner believes that Jim Hamilton somehow has changed his mind (and is puzzled by my approving link to Hamilton), but I don’t see that.  I simply believe Hamilton realizes he is now writing for a world where the credible commitment from the Fed mostly isn’t there.  Angus understands this well.

This will sound counterintuitive, but we should be debating real factors more and nominal factors less, all the more as time passes.

Circa 2012, monetary policy matters less every day.  You might feel outraged by that reality, and by the policy omissions from the past, but still monetary policy matters less every day.  That point follows from basic insights from Milton Friedman and Irving Fisher, or for that matter modern most mainstream neo-Keynesian models.  By the way the labor force participation rate declined in the latest round of data, and will likely remain low for a good while, so I am not convinced by graphs which beg the question about the size of the output gap.

I also stress that I haven’t changed my views at all, not since 2008-2009, and not since my early column on Scott Sumner (someday I’ll do a post on why I wrote that column in terms of prices rather than ndgp).  Same views, but I do see the clock ticking on the wall.

This entire point is hardest to grasp in a mental framework of “accumulated blame,” easiest to grasp within a disciplined, non-moralizing look at marginal products.

You also could write a post “Fiscal policy matters less every day.”  It’s not a message that a lot of people want to hear.

Here is Evans, Kotlikoff, and Phillips making the case that transfers to the elderly, such as Social Security and Medicare, have dramatically lowered the US savings rate, the investment rate and real wage growth:

In the lifecycle model, the young, because they have longer remaining lifespans than the old, have much lower propensities to consume out of their remaining lifetime resources. This prediction is strongly confirmed for the US by Gokhale et al (1996).

Hence, in taking from young savers and giving to old spenders, which Uncle Sam has spent six decades doing on a massive scale, the lifecycle model predicts a major decline in US net national saving associated with a major rise in the absolute and relative consumption of the elderly. This is precisely what the data show.

In 1965, the US net national saving was 15.6% of net national income. Last year, it was just 0.9%. And, according to Gokhale et al (1996) and Lee and Mason (2012), the secular demise in US saving has coincided with a spectacular rise in the consumption of older Americans relative to that of younger Americans.

As Feldstein and Horioka (1980) document, US net domestic saving tracks US net national saving. Hence, postwar intergenerational redistribution has not only lowered net national saving; it has also reduced net domestic investment, from 14.0% of national income in 1965 to just 3.6% in 2011. This decline in the rate of net domestic investment is, no doubt, playing a major role in the slow growth in US wages. Indeed, the level of private-sector average real earnings per hour, exclusive of fringe benefits, is lower today than it was 40 years ago.

We call this America’s “fiscal child abuse”. If it continues, it will no doubt shortly drive the national saving rate, which was negative 1.2% in 2009, into permanent negative territory and further reduce net domestic investment and prospects for real wage growth.

The industrial countries have a choice. They can act as if all is well except that their consumers are in a funk and so what John Maynard Keynes called “animal spirits” must be revived through stimulus measures. Or they can treat the crisis as a wake-up call and move to fix all that has been papered over in the last few decades and thus put themselves in a better position to take advantage of coming opportunities. For better or worse, the narrative that persuades these countries’ governments and publics will determine their futures—and that of the global economy.

Every paragraph of his piece is excellent, and as I like to say “We are all stagnationists now.”  Hat tip goes to The Browser.

That’s Ron Paul vs. Paul Krugman, the video and transcript is here, here are a few comments under the fold…

1. RP: I don’t understand RP’s claim “I want a natural rate of interest.”  Even gold standards allow for monetary influences (distortions? …depends on your point of view) on interest rates.  RP has not fully absorbed Myrdal (1930) and Sraffa (1932).

2. K’s response to RP: Numerous good points, but Christie Romer (!) has shown that economic volatility was not higher before WWII.  (Somehow that’s one Romer paper which isn’t discussed so much anymore.)  That’s a major hole in K’s argument.  Relative to the evidence, he is overreaching when a more modest point would suffice.

3. RP: The transcript may be garbled here.  In any case, the Fisher effect is imperfect and so inflation does to some extent tax savings, also through interaction effects with the tax system.  That said, I don’t see that two to four percent inflation has unacceptable costs, especially when AD is otherwise weak.  On Diocletian, via Matt, here is a good recent paper.

4. K’s response: Modern liberals have a bad and selective case of 1950s nostalgia.  Krugman is significantly overrating the role of policy here.  More overreaching.  He should stick to analyzing the “no bailout in 2008-2009” scenario, and how much worse it would have been, including for RP’s preferred ends.  On earlier time periods, he should reread his own writings from around the time of The Age of Diminished Expectations.  There is very little in The Conscience of a Liberal which actually trumps or overturns the earlier book and its focus on productivity rather than politics.

5. RP: I don’t understand his discussion of the liquidation of debt.  Perhaps the transcript is garbled again.  He is correct that the massive spending cuts which followed WWII brought no depression but rather the economy boomed.  Keynesians have a hard time explaining that episode without recourse to Ptolemaic epicycles, etc., or without admitting the importance of real shocks.

6. K’s response: On Friedman, correct and on target.  That said, K’s blogged claim today — that Friedman misrepresented his own views — lacks a quotation or citation altogether; furthermore it is contradicted by this excerpt from Free to Choose, which was Milton at his most popular but still he represented the truth correctly (ignore the heading, which is not from Friedman).  K won’t address the WWII point, although he could if he revisited his earlier writings on changing rates of productivity growth.

7. RP’s response: The decline in the value of the dollar since 1913, or whenever, has not been a major economic cost.  No one has had such a long planning horizon, for one thing.  We don’t see much indexation, for another.

8. RP on the Fed: If we had “real monetary competition,” dollars still would reign supreme.  Who now is opening up U.S. bank accounts in other currencies?  Or using gold indexing?  It is allowed.

9. K’s response: Mostly I agree, though it is odd to think of shadow banking as “currency competition.”  It is more akin to “not explicitly regulated banking, with stochastic under-capitalization, and with bailouts in the background and largely driven by regulatory arbitrage.”  That makes it less of a counter to RP than PK is suggesting.

10. RP: Equating inflation with “fraud” is an excessive moralization of the issue.  The point remains that gentle inflation is usually a good thing, and that the money supply under free banking, or a gold standard, would be excessively pro-cyclical.  The best shot is to hope that a natural monopoly private clearinghouse would institute nominal gdp targeting in terms of levels and perhaps “targeting the forecast” too.

11. The exchange about Bernanke: I don’t know whether Krugman literally has “printing money” in mind, so this is hard to interpret.  They are stuck in the vernacular, when a more precise economic language would allow for more targeted commentary.

12. PK: Demographics, plus government gridlock and lower productivity growth, make a higher debt-gdp ratio more problematic than Krugman admits.

13. RP: Polemics from RP.

14. K’s response. Very short.  But if he likes the market so much, why does he so often seem to be pushing for much higher taxation and higher government revenue?  I understand why he wants single payer, but he also seems to favor direct government provision of health care itself.

15. RP: The discussion of debt doesn’t make sense, though it is correct to argue that eight percent measured unemployment underestimates the depth of our labor market problems.  I fear, though, that he may be holding an exaggerated version of this point.  U6 matters, but it should not be taken as the correct measure of unemployment.

16. RP: Seigniorage isn’t a major source of government revenue, and in general it is worth thinking about why corporate profits are so high and why the stock market, at least in recent times, has done OK.  Is it really all about policy uncertainty?  Lots of polemic here.  Still, RP raises the point that Fed purchases of T-Bills may be helping to keep rates artificially low.  This remains unproven, but it is also unrebutted.

17. RP (again): There is no credible alternative to the dollar as reserve currency today.  On Spain, it is nonetheless a good point that spending cuts in a dysfunctional economy don’t help very much if at all.

More RP: Doesn’t PK get to speak again? Did Austerians suddenly cut the funding for his part of the transcript?  (Had I watched the video, I wouldn’t have had time to write this post.)  In any case, pegging the dollar to gold in an era of commodity price inflation would be a disaster and lead to massive deflationary pressures or more likely a complete abandonment of the gold peg rather quickly.

In sum: There were too many times when RP simply piled polemic points on top of each other and stopped making a sequential argument.  He overrates the costs of inflation, including in the long term, and for a believer in the market finds it remarkably non-robust in response to bad monetary policy.  Still, given that Krugman is a Nobel Laureate in economics, and Paul a gynecologist, the score could have been more lopsided than in fact it was.