Comments on: The Third Way

By: TVHE » On penalty cash rates

TVHE » On penalty cash rates — Mon, 13 Jul 2009 03:37:55 +0000

[...] Scott Fullwiler from New Economic Perspectives (ht Economists View) describes some issues he has with the “negative interest rate” idea being put forward by Willem Buiter , Greg Mankiw , and Scott Sumner [...]

By: Why Negative Nominal Interest Rates Miss the Point

Why Negative Nominal Interest Rates Miss the Point — Sun, 12 Jul 2009 02:24:34 +0000

[...] Buiter, Greg Mankiw, and Scott Sumner have all recently proposed negative nominal interest rates on reserves or currency as a way to [...]

By: ssumner

ssumner — Tue, 23 Jun 2009 14:32:55 +0000

Alex, I’ll concede one point. I think the “Great Moderation” from 1982 to 2007 did lead to more leverage. The paradox is that the more stable the Fed makes the economy, or seems to make it, the more risks people take. So that is an issue. But I still think we should go for stability, even if it leads to more risk taking, as it will make the consequences of bubbles much less bad. The subprime bubble never should have caused this severe recession. BTW, one way to reduce leverage is to reduce moral hazard by getting government to do less bailing out.

Current and Alex, I tend to use caps more from my home computer, as there is no italics button (or maybe I’m too ignorant to find it.) Otherwise I use italics at school. But I have no problem with caps.

By: Alex Golubev

Alex Golubev — Mon, 22 Jun 2009 20:07:07 +0000

I disagree, any sort of writting could do much better with tone. It’s a subset of speech which is a subset of communication. unless of course you’re being a d1ck, then i’d have to say something mean back about you not having a last name. Or if you were joking, then i’d say LOL. BTW, i dont’ capitalize i’s and first letter of some sentences to make up for it. Capitalization redistribution.

By: Current

Current — Mon, 22 Jun 2009 17:01:37 +0000

Alex Golubev you could do better with fewer capital letters.

By: Alex Golubev

Alex Golubev — Mon, 22 Jun 2009 16:49:41 +0000

Scott, I’m not that much of an outsider, 4.0 in all econ classes i ever took, 3.8 in finance (major), CFA, and years of watching financially EDUCATED people makign real financial decisions. But i’ll give you that i’m not fascinated by econ, i’m fascinated by markets (since high school – thank you dotcom bubble!) so a close “sibling”. I see econ more like a game of monopoly, because of what I believe to be unrealistic assumptions. Yes, we can explain a lot within that framework (and i did just fine in college), but i don’t think the “captains” (fed, hedge funds trying to take the other side of a “misbalance”, educators…) are well equipped right now to handle the unfair reality of life/business/politics due to assymtric incentives and leverage.

I think that we’d want economic activity to be stable. However i would argue that economic activity/resource allocatio has to be fair and if it’s unfair, imbalance will be created.

Now high dedgees of LEVERAGE, are highly unstable for any system and you cannot say that leverage is not a concern of monetary policy, because one of fed’s tools is the ability to control the reserve ratio, not to mention the creation of money out of thin air is also “leverage”. So… all i’m saying is that leverage can be one of the most creative and destructive forces on earth and not monitoring the NEW WAYS it manifests itself is WRECKLESS on the part of the captain, whoever thinks they’re watching over STABLE (5%) economic growth. It actually baffles me how little you talk about leverage, because i always though it was way more IMPORTANT than interest rates.

Another point – pace of techonoligical progress and innovation is hardly linear (5% or not). exponential jumps and phase shifts as new technologies and energy sources are discovered. new ideas don’t change the fact that FUNDAMENTALS and MARKET LEVELS can get disconnected, but how many people do i hear every day tell me that there’s an “green premium” for living in seattle. i bet 95% of the people dont’ understand that only NEWS aren’t already reflected in prices. And that’s with boring concepts. Whenever the next internet is invented, we’ll ahve another blowout.

We will ALWAYS misallocate resources as new things are invented. THUS another aspect of striving for 5% growth is that it doesn’t jibe with what political and economic pressures will exist for the agents within the economy as well as the captain. Obviously an all knowing being doesn’t exist to tell us when to slow down and you task the markets with this, but i think that WAY in which growth is accomplsihed is incredibly unfair. I’ve only been in this country for two full cycles (‘93-now) and it baffles me that we’re so far ahead of other coutnries in fairness, yet so far behind simple fairness, because of the incredible assymtery in incentives and leverage. Growth shoudl take a distant 2nd to fairness in my world.

(i’m sorry for being Yoko, but argument/discussion – creative destruction – are much more productive than me/you talking with people that agree with me/you. so thank you/me )

By: ssumner

ssumner — Sat, 20 Jun 2009 16:46:08 +0000

Alex, My general impression is that people who come at economics from the outside think that the economic system is very unstable. Thus they look for all sorts of deep reasons for that instability. In my view the economic system is only as unstable as monetary policy. Bad monetary policy makes the system look much more unstable than it really is.

By: Alex Golubev

Alex Golubev — Fri, 19 Jun 2009 14:21:38 +0000

not directly, but you asked me why i keep bringing up the need to model complex social systems with reinforcing processes and this is a much better presentation of the material.
The way i see it is that leverage is directly correlated to “coupling”. normally your neighbors’ actions wouldn’t have too many implications for you. But if everyone around you is leveraged, a slight miscalculation on one’s part can lead to asset liquidations which will affect the rest of the agents leading to real loss of equity and a PHASE SHIFT (not gradual linear drift) into much slower growth state.
Another degree of coupling is globalisation and higher integration. For example – the ability to access your electronic funds online give you that ability to more and REMOVE your money from riskier assets quicker than ever before. This enhances the degree of coupling once again (in my opinion). There’s a lesser “cooling off period”, so our “rationalizing” mind has even less time to make educated decisions/choices and we end up acting on emotions more.
what do all these things have to do with monetary policy. Not that much directly, but economics is a study of the most efficient way of resource allocation and i wanted you to opine on something that i think has great application potential, but very little current acceptance and even exposure. (I want you to say EUREKA and share the presentation with the econ community. I mean, the one way communication with a teacher is great, but I think the blog can give something back to you as well)

By: ssumner

ssumner — Thu, 18 Jun 2009 13:01:23 +0000

Alex, OK, I looked at it, but what does it have to do with monetary policy? Does it have anything to say about targeting NGDP futures?

By: Alex Golubev

Alex Golubev — Wed, 17 Jun 2009 14:05:16 +0000

Scott, sorry i understand that 60 slides is a bit much and the intro was a bit basic. I suggest loooking at slides 35, 37, 38, 45-54 – that is where the meat of new material is. here’s the same link:

http://www.slideshare.net/noahraford/collapse-dynamics-phase-transitions-in-complex-social-systems