And you are also right about the confusion over the distinction between instruments and targets.

happyjuggler0, Well put. I am planning another post on this issue.

Van, Exports may rise, but imports may rise even more. The trade balance of the US actually got worse after we devalued sharply in 1933 (and were accused of beggaring our neighbors). And China’s trade surplus has gotten much smaller over the past year. Because their expansionary monetary policy propped up their domestic economy, China’s imports have fallen less than China’s exports.

Thanks Mark.

JimP, Yes, I saw that as well, and did a newer post commenting on Free Exchange.

Joe. The closer equivalent would be to set a CPI, or preferably a NGDP target path. FDR targeted the WPI, and said he wanted to raise prices to 1926 levels. He never got there in the 1930s, but he did raise them considerably.

If we do that, we won’t have to print a lot of money. If necessary, reduce bank hoarding of excess reserves through a penalty rate.

Statsguy, You said;

“Hetzel basically argues something that a number of us have been trying to convince you – the Fed was watching oil prices in summer 08 rather than TIPS. Note, specifically, the comment about concern for a depreciating dollar.”

You don’t need to convince me, I agree. I argue that the Fed should have looked at TIPS. But clearly they didn’t pay much attention.

You are making an argument that I’ve seen others make, that more AD will create a supply shock (higher oil prices.) Maybe, but that would be good news nevertheless. And I agree with your punch line, that this shows why we should focus more on NGDP than inflation. NGDP growth was slow in the first half of 2008.

Your final point about the US responding to China is related to a Free Exchange post that I plan to comment on, if I can ever find time!

rob, I think Yglesias’ right. 10% unemployment is just a number to lots of people (including me.) You need to force yourself to think of the real world pain this causes.

Thanks Don.

Matthew, Yes, I think that is a good point. It isn’t that they don’t care. Bernanke would surely prefer lower unemployment. But the risks are nowhere near balanced. And it is the Fed’s job to balance those risks. Right now the risk of excessively high unemployment over the next few years greatly exceeds any inflation risk.

Doc Merlin, I think only a small part of the 10% unemployment is due to minimum wage increases and extended jobless benefits. So I think AD would help a lot. Having said that, the minimum wage increase was poorly timed.

And BTW, don’t assume health won’t be passed, I think it will pass.

Joe, Perhaps. But a general comment regarding incentives and macro. A disincentive that only causes 1 out of every 50 workers to lose jobs, can still put us in a recession. Thus some incentive effects can have more of a macro effect than common sense would suggest. So it is misleading to imagine a “typical firm” and then thinking if that firm doesn’t lay off workers, there will be no macro effect.

Of Course, but if the margins were so thin to begin with they would be on the sidelines, because every employee we target is valued at 3x cost. So a small marginal bump in mandates makes no difference, especially if the manpower is needed to grow the business, improve my scale, and bring in other unique resources to my firm. Those are all benefits that are hard to value, but that I place a VERY high value on. Culture makes and kills an organization.

No, I merely called them uberhypercountersumnerianismistic. I make no moral judgments over the meaning of that.

I agree. I think this explains the complacency of the elitist left as well as the uberhypercountersumnerianism of the right.

Insurance costs and pay and such would go on the cost side and what they can produce for you on the benefits side. If the costs go up, then wouldn’t you be less likely to hire that marginal worker because they cost you more?