Not enough

I’ll be travelling in Italy and unable to approve new commenters, or old commenters with multiple links.

The post title refers to my reaction if the Fed does something while I’m gone.

Update 8-26-11: Important story in The Economist.


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223 Responses to “Not enough”

  1. Gravatar of foosion foosion
    23. August 2011 at 08:26

    Ever the optimist :)

    Have fun in Italy

  2. Gravatar of Mike Sandifer Mike Sandifer
    23. August 2011 at 08:41

    Have a great trip.

  3. Gravatar of johnleemk johnleemk
    23. August 2011 at 08:58

    The title would be funny if it wasn’t so true. (Also, it won’t happen, but what if the Fed raises rates while you’re gone…)

  4. Gravatar of Morgan Warstler Morgan Warstler
    23. August 2011 at 09:30

    Enjoy yourself! Now to thread hijack…

    Perry is leading in Iowa, and is making gains in NH:

    http://www.washingtonpost.com/opinions/rick-perrys-very-good-week/2011/08/22/gIQAsoRNWJ_story.html

    I had no idea Richard Fisher is a Democrat.

    ““Texas has accounted for 49.9 percent of net new jobs created in the United States,” and the vast majority were equal to or above the national average for weekly wages. “These jobs are not low-paying jobs,” he said. Moreover, Fisher added, the reason so many people and businesses have been moving to Texas is that “private sector capital and jobs will go to where taxes and spending and regulatory policy are most conducive to growth.” Translation: Texas is creating half the new jobs in America, thanks to the pro-growth policies Perry presided over. (Or, as Perry put it here, “They aren’t coming because we have good barbecue and warm weather in December.”)”

    ——

    Question: Who amongst you doesn’t think Richard Fisher would change his view on QE, if the President, any President, announced Texas is the new American model?

    Anyone? Seriously, will ANYONE argue that Fiscal doesn’t effect the Fed’s take on things?

  5. Gravatar of Benjamin Cole Benjamin Cole
    23. August 2011 at 09:36

    There is a strain of asceticism runs through the human race. The gold nuts believe in a type of monetary asceticism. It is worthy to suffer, if it preserves the value of the dollar.

    We are suffering, but somehow I do not feel closer to any deity, unless it be the God of Money. Lucifer.

  6. Gravatar of Benjamin Cole Benjamin Cole
    23. August 2011 at 09:41

    From USN&WR:

    “Total jobs. Texas: Up 0.7 percent since the beginning of 2008. U.S: Down 5.6 percent. Since the recession began, Texas has added about 75,000 jobs, one of the few states with any job creation at all. Overall, the U.S. economy has lost about 5.6 million jobs since then. But net job gains in Texas have come entirely from government hiring, which accounts for 115,000 new jobs over the past three years. The private sector in Texas shed about 40,000 jobs during that time.”

    Perry is a bilious knave, a vile excretum from a newly unblocked southern portal of Texas. He also set up $475 million in “funds” using taxpayer money to give to selected businesses. Grants! Guess who got the money? (Well, it is Texas, where the Anglo power structure is as cynical as it is corrupt.)

    The GOP is sinking deep into the dungpit–when before has a GOP candidate called for the state execution of a sitting Federal Reserve Chairman? And they like executions in Texas. Even if you are not guilty.

  7. Gravatar of John Thacker John Thacker
    23. August 2011 at 10:49

    The GOP is sinking deep into the dungpit–when before has a GOP candidate called for the state execution of a sitting Federal Reserve Chairman?

    Indeed, that’s the trouble that comes from accepting former Democrats like Rick Perry into the Republican Party.

  8. Gravatar of John Thacker John Thacker
    23. August 2011 at 10:59

    And they like executions in Texas.

    Also, they like executions in the UK too. The difference is the politicians not letting them have them.

  9. Gravatar of Benjamin Cole Benjamin Cole
    23. August 2011 at 11:02

    I am an atheist, and even I am praying Perry does not become President of the USA.

  10. Gravatar of Eric Morey Eric Morey
    23. August 2011 at 11:14

    Morgan,

    “Texas is creating half the new jobs in America, thanks to the pro-growth policies Perry presided over.”

    You are wrong again. Texas is benefiting mostly from the oil industry and government spending (mostly on public sector jobs).

  11. Gravatar of Martin Martin
    23. August 2011 at 11:40

    Eric is right regarding the public sector jobs, under Perry, Government Employment has grown by nearly 20%.

    http://research.stlouisfed.org/fredgraph.png?g=1Lb

    If you compare Texas Government Employment to the number of Federal Government Employees since 2009-01-01, Perry has created relatively more Government jobs than Obama has :P

    http://research.stlouisfed.org/fredgraph.png?g=1La

  12. Gravatar of Martin Martin
    23. August 2011 at 11:41

    Eric is right regarding the public sector jobs, under Perry, Government Employment has grown by nearly 20%.

    If you compare Texas Government Employment to the number of Federal Government Employees since 2009-01-01, Perry has created relatively more Government jobs than Obama has

    I couldn’t post the links but you can look it up yourself in Fred.

  13. Gravatar of Mikko Mikko
    23. August 2011 at 12:48

    So judging by your track record in timing, this time the eurozone will break due to the collapse of the Greece package. Never, ever take vacations anymore. The world cannot take one more hit.

  14. Gravatar of Morgan Warstler Morgan Warstler
    23. August 2011 at 12:53

    Martin, I’m not going to chase it down for you, but the TX Govt. grew commensurate with population.

    It is a DUMB argument though, go look at how we solved the budget crisis – we just fired a bunch of teachers.

    In Texas we treat public servants like servants!

    And our black kids are smarter than black kids in Chicago and Wisconsin, our Hispanic student outperform Hispanics in those states, and tis the same for white kids.

    We not only execute more prisoners… we spend 1/3 as much per prisoner as California. Simple stats make the point.

    That dog won’t hunt.

    The reality is that this election will not be about Perry and Obama, it will be about the country DECIDING to be more like Texas no matter what the liberals think.

    I left California to live someplace where government is reverential to business.

    That’s the difference.

  15. Gravatar of Benjamin Cole Benjamin Cole
    23. August 2011 at 13:02

    Yeah Morgan, Perry is so reverential, he confiscates money from you through taxation and grants it to buddies in business.

    Hoo-boy. I will give you this: Texas is one of the best places to live in the Third World.

    I also liked the way that Bush buddies used eminent domain to shove some property owners off of their land so they could build a baseball stadium.

    So, except for property rights and respect for bona fide free enterprise, Texas government is great.

    The Texas Banana Republic–long may we slip on our peels!

  16. Gravatar of CA CA
    23. August 2011 at 13:17

    Saddest news of the day, Romney has turned against the Fed. And here I thought he was the only adult in the race.

    http://www.reuters.com/article/2011/08/22/us-usa-campaign-romney-idUSTRE77E64720110822

  17. Gravatar of Morgan Warstler Morgan Warstler
    23. August 2011 at 13:37

    Benji, you think Thailand is an advanced culture!

    Say it with me, “President Perry will make it all better, it’ll be like Obama never even happened.”

  18. Gravatar of George Selgin George Selgin
    23. August 2011 at 14:20

    Buon viaggio, Scott!

    I don’t know restaurants in Vicenza, but I do know many nice ones in Verona, which is one train stop away and is also home to a beautiful amphitheater in which shows are still performed regularly.

    I particularly recommend the beautiful and very old Bottega dei Vino, http://www.anticabottegadelvino.net/. Sit in back for a full meal, or just have some assorted cicchetti (Italian equivalent of tapas) and a nice glass or two of wine in the tables near the entrance.

  19. Gravatar of George Selgin George Selgin
    23. August 2011 at 14:21

    Sorry-read “del” for “dei”

  20. Gravatar of Benjamin Cole Benjamin Cole
    23. August 2011 at 14:52

    CA-And so now Romney joins the parade of popinjays, jackanapes, poltroons and strumpets running for the GOP presidential nomination in uttering knee-jerk bromides for fixing the Fed and the economy.

    The Fed “might cause some inflation,” says Romney-Ted Danson of Cheers.

    Yeah, and they might cause some business growth, employment and deleveraging too.

    The horrors! The horrors!

  21. Gravatar of W. Peden W. Peden
    23. August 2011 at 14:54

    Benjamin Cole,

    Only tax cuts stimulate output, obviously. At the same time, they are a proven way to reduce the deficit. In fact, if the Us reduced the top rates of income tax and capital gains tax to 0%, the resulting spike in revenues would quickly pay off the US national debt, like under Reagan.

  22. Gravatar of Benjamin Cole Benjamin Cole
    23. August 2011 at 15:34

    W. Peden-

    I am all for reducing structural impediments (although no one talks about the huge structural impediments lodged at state and local levels).

    In fact, I would prefer replacing the corporate income tax with a national gasoline tax. Reducing military outlays by half (VA and Homeland Security too). Trimming entitlement outlays.

    I see the state of Georgia just passed very onerous laws, both in Draconian penalties and in compliance, against the hiring of illegal aliens. If enforced, it will crush Georgia’s farm and restaurant sectors. It is a major structural impediment.

    Nice editorial today in WSJ that all states should wipe out licensing for lawyers. I agree with that.

    One big problem is that we have 50 states, all with codes and regs devised by local industries to squelch competition, and who knows how many local regs.

    In Newport Beach CA, you can’t build a building more than 250k square feet without getting voter approval. And that is GOP-stronghold. The Bushes outlawed oil drilling off of Florida.

    You can’t drive a jitney, push a push-cart vendor service (hot dog stand on wheels), or sell hamburgers out of your front yard in almost any city in America. Try opening up a liquor store, or a speakeasy. Putting in a factory. Even starting up a barbershop.

    Yet we have people braying about state’s rights. The right to squelch competition.

  23. Gravatar of Jim Glass Jim Glass
    23. August 2011 at 16:11

    Stock prices are showing new deflationary expectations?

  24. Gravatar of W. Peden W. Peden
    23. August 2011 at 16:37

    Benjamin Cole,

    It’s amazing how difficult it is to take a position that is so ridiculous that it is obviously a satire…

  25. Gravatar of John John
    23. August 2011 at 17:35

    W. Peden,

    If they cut the capital gains and income tax to 0%, the economic growth and job opportunities would be so great that no one would even care about the government or its levels of debt.

  26. Gravatar of Morgan Warstler Morgan Warstler
    23. August 2011 at 19:53

    DeKrugman comes one step closer to screaming for war:

    https://plus.google.com/100094747939867300298/posts/QJUXU19sPws

    Why is it that so many liberals freak out about 5% more people not working? I mean these are the least productive people. If there a real ROI on them they would have a job.

    But noooooooooooooo, we ought to see the upside to WWII and disaster.

    The DISASTER is a people unwilling to be made to make others work for very little money.

  27. Gravatar of Lorenzo from Oz Lorenzo from Oz
    23. August 2011 at 23:21

    W. Peden: perhaps you need an satiricon–an emoticon that indicates satire :)

  28. Gravatar of Lorenzo from Oz Lorenzo from Oz
    23. August 2011 at 23:35

    Posner is talking Depression. He is the sort of person who needs to be convinced that monetary policy can do more.

  29. Gravatar of Eric Morey Eric Morey
    24. August 2011 at 06:03

    Morgan,

    You are wrong again. Krugman has no Google+ account. See:
    http://krugman.blogs.nytimes.com/2011/08/24/identity-theft/

    “these are the least productive people. If there a real ROI on them they would have a job.”

    No one ever finds money on the ground because if there was money on the ground someone would have picked it up.

  30. Gravatar of Morgan Warstler Morgan Warstler
    24. August 2011 at 08:22

    Eric, I just saw!

    You are wrong of course, I see plenty of unemployed people I could make a profit on, find a use for… but we can’t agree on what they are worth.

    This is why my guaranteed income plan is crucial. if there are indeed sticky wages, then we have a moral obligation to use public policy to unseat them.

    All aid… minimum wage, food stamps, UI, etc. should be tied to people being required to let someone make a profit on their work.

    And that means tying aid to their willingness to earn whatever the market says WITHOUT them having a say.

    Once you get aid, you no longer get to price yourself.

  31. Gravatar of StatsGuy StatsGuy
    24. August 2011 at 08:34

    Dear all,

    There is only one saving grace – and that is 2012 is an election year, and Obama (although he seems incompetent at so much else) will pull out the stops for his campaign. He cannot win with unemployment>8.5%, and needs to show marked improvement in unemployment if he’s going to get back in the race. The only way this will happen is if he prints.

    Perry knows this. Romney knows this. That’s why they’re piling on the pressure.

    Obama’s campaign will force the choice between jobs and inflation – and this time he needs to make sure the stimulus carries through to the end of 2012 (not merely to May). Note the extension of the freeze on rates through 2013.

    Bernanke knows very well that if Perry wins election, he’ll be under incredible pressure (and the Fed may lose substantial independence). Institutionally, he’s allied with Obama. Intellectually too.

    The fear is simply this – is Obama too subtle for his own good (even in a campaign year)? Does the Fed do something “cute” and “smart”, or do they just drop a bomb. If they want to drop a bomb, they should simply announce Operation Twist (reinvest their 2.8 trillion balance sheet into long term bonds, shifting out the maturity curve), and price level targeting. This would avoid the QE3 attacks initially. A real bomb would be breathing the words NGDP targeting in an official Fed memo.

    I suspect, btw, that as other developing country central banks are forced to tighten (they really do have an inflation problem), this will lag through to commodity input prices and free the Fed to loosen a bit more without impacting input price inflation.

    The Fed will give us something after Jackson Hole – the question is what.

  32. Gravatar of Morgan Warstler Morgan Warstler
    24. August 2011 at 10:23

    Statsguy,

    Don’t be ridiculous. You ARE being ridiculous.

    Ben knows, I mean he KNOWS, like Scott knows, and I know and you know that AN12… the whole ball games changes.

    And Ben does not:

    1. think Obama’s fiscal or regulatory efforts are good – he’s a REPUBLICAN.

    2. think he can survive when Perry wins, unless he performs admirably today.

    3. think he’ll get away with what you are cheering for – my side is too big and strong.

    Ultimately, fiscal matters, and it is one thing to make sure we stay just to south side 2% inflation until 2012 – the GOP will stomach that.

    But it is quite another to go deeply unconventional when we are this close to teaching America what happens when a progressive Socialist is President.

    Stats, loyal Dem voters are going to be getting out of the wagon, and nobody at the Fed to their overlords, or the overlords’ bosses (the Tea Party) has any interest in stopping that.

  33. Gravatar of Eric Morey Eric Morey
    24. August 2011 at 10:27

    Morgan,

    I tried to point out that you were begging the question. I though that you’d be able to follow the analogy. You clearly missed it. Sorry.

    “Once you get aid, you no longer get to price yourself.”

    Why? Why not just give aid? Or why pay them at all? Why not just use your guns to force them to do useful stuff?

  34. Gravatar of Russ Anderson Russ Anderson
    24. August 2011 at 11:33

    Scott, assuming you are correct and the Fed does little (if anything), will you thank John Taylor for their inaction?

    John Taylor: “So I think the economy would be better off if the Fed started moving to a higher funds rate now rather than later, and I certainly see no rationale for another round of quantitative easing. Unfortunately, it looks like the Fed will continue with its zero interest rate for a while longer, and traders will continue to debate whether or not there will be a QE3 adding volatility to the market.”

    http://johnbtaylorsblog.blogspot.com/2011/05/taylor-rule-recommends-raising-rates.html

    http://johnbtaylorsblog.blogspot.com/2010/11/certainly-milton-friedman-would-not.html

  35. Gravatar of morgan warstler morgan warstler
    24. August 2011 at 12:05

    Eric that’s clearly what I favor folks protect their stuff with guns and then another layer of cops and courts and military and then another layer of private insurance.

    This creates property rights.

    Then everyone who wants to survive better work. Now if you indicate that some don’t want to work. Who cares?

    Now if instead you say that what some can earn is not self sustaining then we have a DIFFERENT discussion entirely now we must do two things:

    1. Make sure they still work in support of the private system. They labor for someone at whatever rate they can command where some finds ROI.

    2. They receive all that they need in the most direct form cash from the general fund of taxpayers.

    Eric. Fundamentally you do not realise how HARD it is to generate profit…you poopoo it instead of revering it. You want to wave your hand and say Americans are a good ROI when in fact many are not… were a global market and governments are bureaucratic cesspools of unshovel ready underbids and unproductive wants.

    Note I don’t want anyone to go without but you speak to me like I do – and you dance around the clear obviousness of my argument as if one person would suddenly be asked to do anything less than you would expect of your family your neighbor etc.

    Profit is good. It means the market wants it. Work is good. It means there is no moral hazard.

    Putting those ideas together leads towards one possible soluttion that still keeps everyone’s head above water.

  36. Gravatar of JimP JimP
    24. August 2011 at 13:23

    FT calls again for NGDP targeting

    http://ftalphaville.ft.com/blog/2011/08/24/661711/how-yields-track-nominal-gdp-changes/

  37. Gravatar of Morgan Warstler Morgan Warstler
    24. August 2011 at 13:51

    Reading through Krugman’s needle threading on disaster = growth, it struck me he doesn’t really understand why war and earthquakes are bad.

    It isn’t just loss of life, it is loss of property.

    It is a TRAGEDY precisely because we have to rebuild.

    There is no silver lining to having to rebuild, whatever “gains” he imagines as growth like full employment, those are WORTH LESS than the losses in the disaster.

    It is better to have the least productive be unemployed.

  38. Gravatar of Benjamin Cole Benjamin Cole
    24. August 2011 at 15:05

    I see Rick Perry, despite chronic rumors about being a closet homosexual, is taking the lead in the R Party. Is he the next John Edwards, gay version?

    Perry, a bilious knave, may come to regret threatening to lynch or execute that little bearded East Coast pointy-headed intellectual Semitic guy.

    Do we see payback?

    Come on Bernanke, pour it on, baby, pour it on. Print a Niagara of money.

  39. Gravatar of Morgan Warstler Morgan Warstler
    24. August 2011 at 15:19

    Benji, he’ll give speeches standing next to $5 a gallon gas pumps and win by a landslide.

    Which part of everyone feels inflation while just some feel unemployed, do you not get?

    MY GOD, the moment that basic harsh truths are trotted out about politics, “rational economists” go completely to shit.

    Seriously, DeKrugman wants to dispassionately assert that “useless spending can be expansionary”

    But everybody gets grudgy when I remind them that “policies unfavored by the haves will not happen”

    and mine is the fact.

    You are a bunch of women.

  40. Gravatar of JimP JimP
    24. August 2011 at 16:34

    http://blogs.ft.com/money-supply/2011/08/24/a-price-level-target-for-canada/

  41. Gravatar of Benjamin Cole Benjamin Cole
    24. August 2011 at 16:47

    Morgan: Include your bosom buddy Rick Perry in your last description. BTW, his hair is nicer than my horse’s.

    Seriously, Perry strikes me as Bush jr. minus the IQ.

  42. Gravatar of JimP JimP
    24. August 2011 at 18:18

    http://ftalphaville.ft.com/blog/2011/08/24/661336/fantasy-fed-options/

    See option 6.

  43. Gravatar of Mark A. Sadowski Mark A. Sadowski
    24. August 2011 at 19:15

    Non basta.

    It turns out I will only be teaching one course at UD, but I’ll be teaching a second course in engineering calculus. Evidently they wanted to get more work for less pay from me. On the other hand they knew I could deliver, so who’s really complaining? (Me?)

    But his leads me to say….

    Si può risparmiare qualche cambiamento?

  44. Gravatar of Mark A. Sadowski Mark A. Sadowski
    24. August 2011 at 19:42

    http://www.youtube.com/watch?v=hIKWnBmxb-8&feature=related

    Pogrzebiemy was!

    P.S. Just joking. You know me.

  45. Gravatar of Rick Rick
    24. August 2011 at 20:21

    if (A) we should selling lots of bonds while yields are low in order to make cheap investments (as Karl Smith insists) and (B) be doing lots of QE, which buys back the same bonds, then putting (A) and (B) together isn’t this the same as just spending money into circulation (except that it goes to contractors first instead of bond-buyers)? If so, why does MMT seem to have such a worse reputation than the combination of debt-financing and QE?

  46. Gravatar of Mark A. Sadowski Mark A. Sadowski
    24. August 2011 at 20:24

    OK. Here’s an oldie, but a goodie.

    It was hard to get an automobile in the old Eastern bloc. They were owned mainly by elite bureaucrats. It took an average of 10 years to get a car. 1 out of 7 families owned automobiles. You had to go through a major process and put the money out in advance. So this man did this and the dealer said “okay in 10 years come get your car.”

    “Morningk or afternoon?” The man replied.
    “Vwhat difference does it make?” Said the dealer.
    “The plumber is coming in the morningk” said the man.

    So is this East or is it Vwest??? How much has changed?!?

  47. Gravatar of Mark A. Sadowski Mark A. Sadowski
    24. August 2011 at 20:42

    Rick,
    The quick answer to your question is that MMT believers believe that there is a limit to money creation. That is that money can only be created if there is a government deficit. Now, we all know that this isn’t true, right?

  48. Gravatar of Linus Huber Linus Huber
    25. August 2011 at 02:29

    SCARE 20.12.2012

    (Stop Corruption And Repression Effective 20.12.2012)

    Banks were given a very important privilege to create money in the form of extending credit. This function requires diligence and careful consideration in regard to individual credit risks as well as to overall credit levels in the system. The financial crisis revealed that the banks were operating at too high a leverage and with too much risk. They were used to be saved by the Central Banks and certain that in times of difficulties the Central Banks were there to save them. They were like trained dogs and their master Greenspan or Bernanke would always be there to rescue them when unforeseen difficulties arose.

    That may be true but that does not absolve them from their obligation to monitor overall debt levels in the system as well as being diligent in evaluating the debtors ability to not only service a debt but to be able to repay it over time. The banks clearly failed in this function that is the core function of banking but focused mainly on their compensation packages. The way these bankers enriched themselves in the process of driving the financial system into a wall was appalling and the average income earner was never able to comprehend their schemes but preferred to simply ignore them. Of course, the bankers explained their outrages income levels with free market principles of supply and demand, where the best simply could be hired with those kinds of benefits only. In hindsight those superior managers seem to have missed their mark considerably. The most interesting aspect of all of this is the fact that, after we have been more than 3 years in this financial crisis, the bankers continue to loot the system as if nothing ever happened.

    True to form the Central Banks “saved” the financial system by saving those great financial institutions without whom the system would have collapsed, as was argued. Hardly were we out of the danger of collapse, the banks immediately went back to their old ways and were certain that this was a problem that would occur just once in a lifetime and now all was clear again. The real problem, however, had not been addressed but had simply been muddied.

    In actuality, the losses produced of extending unsustainable levels of credit by the banks have been transferred to the public. Different ways were chosen to achieve this task in the form of free money for the banks, injection of government funds into some institutions, increase of basic money supply and so on.

    The threat of system collapse would have been labelled blackmail if it would have occurred in another setting. However the bankers were able to influence the media, the legislators and regulators in their favour with all the financial resources available to them. Nobody was made to take any responsibility and no one was taken to account.

    This represents a serious violation of the spirit of the Rule of Law that is the basis of western society. It seems that now the new rule is Might is Right. This changes many parameters in the compass of the social system within the western world. No one can be sure on what level and when one will be subjected to the financial abuse of those elites. Presently, the people in charge are trying to enhance financial repression of which one form is to keep interest rates below the level of inflation which affects mainly those that lived within their means over the past many years; another clear violation of the spirit of the Rule of Law as it transfers losses from bad investments to the innocent and decent part of the population. In addition, the increased level of government debt puts in doubt all those benefits promised by governments the world over.

    It is interesting how the banks were able to confuse the public who was/is unable to grasp the actual situation. But considering the banker’s great financial resources, it seems not that much of a miracle to influence the media and the legislator and having politicians do their bidding. The question is what the heck can WE, THE PEOPLE do about it.

    Usually, we could address such things on a political level as we are a democracy, right? But it seems that the system has been corrupted by all the money sloshing around and it is extremely difficult to find any electable person that will act against those powerful interests. In addition, it will take many years until sufficient numbers of persons with the new thinking and with integrity not to be corrupted by those lobbying efforts will be elected to office that will implement the changes needed. So, what should we do? Start a revolution?

    Well, the blackmail used by the banks may be the only way to address the injustices that have occurred over the past few years. They showed us how to leverage one’s limited resources to achieve one’s goal. Therefore the following proposal to start the movement “SCARE 20.12.2012” should be seen in this context. The idea is that if by that time (20.12.2012) some serious injustices have not been removed from the system, people will start to withdraw their money from all financial institutions driving them into default. And it might work, because those who hesitate to support this threat may be left with no money as the banks will have to close down before all has been paid out.

    Now, what demands are made if that scenario is to be avoided.

    1. Bankers and past Bankers (all those working in the financial industry that earned in excess of $500k plus annually for more than 2 years during the past 15 years and this without any downside risk i.e. risk of financial losses, except the possibility of losing their job) have to be made personally accountable for their past activities and be removed from any such position that might directly or indirectly have influence on the money creation and lending aspects of the economy (this includes regulating agencies and politics) before 20.12.2012.

    2. Present and past regulators have to be made personally accountable for their past activities and be removed from any such position that might directly or indirectly have influence on the money creation and lending aspects of the economy (this includes financial institutions and politics) before 20.12.2012.

    3. Politicians that accept any financial support from institutions that are involved in the money creation and lending aspects of the economy will have to face a jail term of no less than 2 years without the possibility of parole.

    When these 3 points are implemented before 20.12.2012, we the public will not destroy the financial system but support the way to find back to the RULE OF LAW and away from the idea of MIGHT IS RIGHT.

  49. Gravatar of JimP JimP
    25. August 2011 at 13:59

    http://www.ft.com/intl/cms/s/0/aa41c0f2-ce78-11e0-b755-00144feabdc0.html

    Good for Mike Woodford:

    What we need is clarity of communications – as he says in this article.

    A clarification could help the economy in two ways. First, he could signal that a temporary increase in inflation will be allowed, before policy tightening is warranted. This would stimulate spending by lowering real interest rates. Second, specifying the size of any permanent price-level increase would avoid an increase in uncertainty about the long-run price level. This in turn would ward off an increase in inflation risk premiums that might otherwise counteract the desirable effect of the increase in near-term inflation expectations.

    Uncertainty about the economic outlook is likely now the most important obstacle to a more robust recovery. The problem is not just uncertainty about Fed policy, but the fact that the Fed has become harder to “read” does not help. Better Fed communication, long on the agenda, would be particularly helpful at this juncture. Jackson Hole provides Mr Bernanke with the ideal opportunity.

  50. Gravatar of JimP JimP
    25. August 2011 at 15:09

    http://www.nationalreview.com/corner/275564/iwashington-posti-vs-sound-monetary-policy-ramesh-ponnuru#

  51. Gravatar of Gene Callahan Gene Callahan
    25. August 2011 at 17:36

    “You are a bunch of women.”

    And I, Morgan Whorestead, am an immoral troglodyte who thinks calling people “women” is a cool and macho sort of insult.

  52. Gravatar of Morgan Warstler Morgan Warstler
    25. August 2011 at 18:45

    Gene, I don’t think it is an insult, but you certainly think so.

    I think it is a fact: women are generally more emotional than men. I also think they are softer and prettier than men.

    If your response is,”yes we are soft and emotional, after all we are economists” ….

    That’s I guess a response, but you better make sure you speak for the group.

    I’d prefer if you ACTUALLY prove how logical you are, and stop gasping and being offended and ANSWER my point.

    You PRETEND to be dispassionate where DeKrugam is concerned useless = expansionary, but not when I stick basic hegemonic power structures in your face.

    Economics is about reality, not human aspiration. Policy has to pass through the gauntlet of hegemonic influence. The Tea Party has to like you.

  53. Gravatar of mdm mdm
    26. August 2011 at 01:32

    Mark A. Sadowski,

    The quick answer to your question is that MMT believers believe that there is a limit to money creation. That is that money can only be created if there is a government deficit.

    What are you talking about? MMT doesn’t say that. It argues firstly, that money is a financial asset, and thus always someone’s liability, and secondly, following Minsky, argues that anyone can create money, the key is getting your liabilities accepted.

    They argue that their exists a hierarchy of money, in which at the top is state money, and below that bank money, and further down other forms of private sector ‘money’. The reason why state money is at the top is because the modern state has the ability to declare that which is necessary to pay taxes, and thus create acceptance for their liabilities. The reason why bank money is widely accepted is because of institutional arrangements which facilitates the convertibility of bank money into state money.

  54. Gravatar of johnleemk johnleemk
    26. August 2011 at 04:48

    Re The Economist, “First they ignore you, then they laugh at you, then they fight you, then you win.” Which stage are we at now?

  55. Gravatar of Ram Ram
    26. August 2011 at 05:18

    @JimP:

    Woodford’s piece is exactly right. I don’t think he should frame his perspective as anti-QE, given that these days QE is essentially identified with stimulative monetary policy, but his substantive points are spot on. The Fed needs to temporarily raise its inflation target (whether through explicitly higher inflation targeting, price level targeting, NGDP level targeting, or whatever). Any complementary base injections must be understood to be permanent to be effective.

    The only thing I’d take issue with is his explanation for how QE2 signaled easier future Fed policy. The Fed quite explicitly said several times that it was worried inflation was going to come in below the level they consider consistent with their mandate. This was not as explicit or ambitious as Woodford or I would have liked, but it got the point across that they were trying with QE2 to produce higher inflation expectations. Moreover long-term nominal government bond purchases are effectively a bet that future policy rate settings will be lower than the market expects.

  56. Gravatar of JimP JimP
    26. August 2011 at 05:23

    johnleemk

    One might hope that we are more along that list than we were a year ago. Lets hope so at least. And now Scott has made it into the print Economist – even if I myself get real tired of their Oxbridge snotty humor. But – better to laugh than cry – they are surely correct about that.

  57. Gravatar of JimP JimP
    26. August 2011 at 05:37

    Ram

    I am really hoping Woodford sent that article to Bernanke as he was writing his speech. He might well have done so. We shall see in 30 min from now.

    The most powerful thing now – by far and away – is for the Fed to clearly communicate – not what they expect (sad and gloomy stuff) – but rather what they WANT. Not their expectations but their aims – as Scott has said one thousand times.

  58. Gravatar of Russ Anderson Russ Anderson
    26. August 2011 at 05:38

    Krugman’s take on why Bernanke won’t do enough. http://www.nytimes.com/2011/08/26/opinion/bernankes-perry-problem.html If history is a guide, this will prompt Scott to complain about Krugman/Keynesians, who do not oppose more monetary easing but are not convinced it will be sufficient, of not being supportive enough of monetary easing while giving the conservatives/republicans/John Taylors that outright oppose more monetary easing a free pass. Hopefully this time it will be different.

  59. Gravatar of JimP JimP
    26. August 2011 at 06:08

    And no – no statement of aims. An entire failure. No Woodford here – at least from the TV summary. It is utterly depressing and amazing. One can only rage and scream in frustration. No statement of aims – just more gloomy Fed expectations. Its sickening.

  60. Gravatar of malavel malavel
    26. August 2011 at 06:30

    http://www.federalreserve.gov/newsevents/speech/bernanke20110826a.htm

    Is nothing not enough? What a huge disappointment.

  61. Gravatar of malavel malavel
    26. August 2011 at 06:48

    Here’s a nice quote from Bernanke.

    “Commodity prices have come off their highs, which will reduce the cost pressures facing businesses and help increase household purchasing power.”

    Never argue from a price change…

    “In addition to refining our forward guidance, the Federal Reserve has a range of tools that could be used to provide additional monetary stimulus. We discussed the relative merits and costs of such tools at our August meeting. We will continue to consider those and other pertinent issues, including of course economic and financial developments, at our meeting in September, which has been scheduled for two days (the 20th and the 21st) instead of one to allow a fuller discussion. The Committee will continue to assess the economic outlook in light of incoming information and is prepared to employ its tools as appropriate to promote a stronger economic recovery in a context of price stability.”

    A small light perhaps?

  62. Gravatar of JimP JimP
    26. August 2011 at 06:55

    malavel

    A small light in that at least he did not say that they were just going to suspend all future Fed meetings and wait till this whole thing blows over. Or till the Republicans get elected and give us a really PROPER depression.

  63. Gravatar of Morgan Warstler Morgan Warstler
    26. August 2011 at 06:56

    Kids: “we wanna lollipop!, we wanna lollipop!”

    Parents: “You have to clean your room first”

    Kids: “we wanna lollipop!, we wanna lollipop!”

    Parents: “You have to clean your room first”

    Kids: “we wanna lollipop!, we wanna lollipop!”

    Parents: “You have to clean your room first”

    Kids: “we wanna lollipop!, we wanna lollipop!”

    Parents: “You have to clean your room first”

    ——

    Now, listen to me you kids… I’m sick of saying it!

    You will come out loudly in support of Fiscal cuts that undermine government regulation, unstick stick prices, tie the hands of lawyers behind their back, and end Obamacare.

    And EACH STEP OF THE WAY, you will receive more lollipops from the Fed.

    This is of course unspoken. Butalso unarguable.

    You kids KNOW that when the private sector is in ascendancy over the public sector… and all parts of the government are supporting it… businessmen and bankers will FEEL differently about the state of things.

    They will naturally think it is time to throw caution to the wind.

    And you will get your lollipop.

    Now stop saying what you want and go clean your rooms.

  64. Gravatar of malavel malavel
    26. August 2011 at 07:01

    JimP, I thought the extra day was interesting. Perhaps enough time to seriously consider NGDP level targeting.

  65. Gravatar of JimP JimP
    26. August 2011 at 07:02

    But but but…….

    On second thought.

    Scott has always said that the real task is to convince the public, and especially the professional economists community, of the idea of NGDP targeting – that Bernanke cannot and will not get too very far ahead of popular opinion – something Lincoln and Roosevelt were also very aware of.

    From that point of view I certainly do think that that article in the Economist is a very big deal.

  66. Gravatar of JimP JimP
    26. August 2011 at 07:12

    malavel

    One can surely hope they will. Hope is not a policy but it is the best we have.

  67. Gravatar of Morgan Warstler Morgan Warstler
    26. August 2011 at 07:58

    Good lord, even Matty gets it…

    http://thinkprogress.org/yglesias/2011/08/26/305271/at-jackson-hole-bernanke-tells-the-nation-hell-deliver-high-unemployment-for-years/

    What Matty doesn’t like is that these bankers DO THINK the government can changes its own policies to promote growth.

    After all, these bankers are basically Republicans.

    The sad thing is that Obama and DeKrugman are bound and determined to ruin the economy for the next 14 months rather than do what they have been told to do.

  68. Gravatar of JimP JimP
    26. August 2011 at 08:43

    More on the Economist:

    This is their second lead print editorial for next week:

    http://www.economist.com/node/21526897

    and one of the links there is to Scott

    quote:
    The euro zone also needs a monetary-policy shift. The European Central Bank is in the peculiar position of both holding the single currency together (through its purchase of Italian and Spanish bonds) and at the same time making those countries’ adjustments harder by raising short-term interest rates. That is a nonsense. The ECB should give its overindebted members room to adjust. At a time of fiscal austerity, even of a more calibrated sort, monetary looseness is essential—as the Bank of England has admirably shown (see article). One way of achieving this without squandering years of credibility might be for central banks to pay greater attention to the path of nominal GDP, rather than just inflation (see article). This is likely to mean tolerating occasional bursts of rising prices.
    end quote

    Scott is now not just in the Economist but in their editorial!

    This is wonderful news.

  69. Gravatar of Patrick R. Sullivan Patrick R. Sullivan
    26. August 2011 at 09:43

    Unfortunately for Scott’s argument, the ‘Important story in The Economist’ ends:

    ‘The biggest risk may be the loss of credibility. Whatever its shortcomings, inflation targeting has yielded a reasonably stable macroeconomic environment for the past two decades. Central banks in America and Europe have at least avoided following Japan into deflation, which raises debt in real terms and so makes deleveraging even more of an uphill struggle. Asking central banks to ditch inflation targeting and to pursue another goal could do more harm than good particularly if it left people less certain about the central bank’s ultimate commitment to prudence and stability. That is why a switch to NGDP targeting, whatever its virtues, should not be undertaken lightly.’

    Which, I think, represents what is on the mind of Bernanke.

  70. Gravatar of JimP JimP
    26. August 2011 at 10:00

    Patrick:

    Except that – “Whatever its shortcomings, inflation targeting has yielded a reasonably stable macroeconomic environment for the past two decades.”

    Who would call what we now have – and what Europe faces – “a reasonably stable macroeconomic environment”?

    I think myself that inflation targeting increases instability and uncertainty – and I also think that that article understands and implies that – and that that last paragraph can be read and will be read with a big LOL.

    But I have been wrong before.

  71. Gravatar of JimP JimP
    26. August 2011 at 10:14

    Patrick

    Of course – and as that article says –

    “Some observers suspect that the Bank of England has covertly been targeting nominal income of late, pointing to its tolerance of inflation running consistently above target and the relative stability of Britain’s nominal GDP growth.”

    Nota bene – “covertly”.

    If the Bank of England has to be covert with this one can imagine that you are quite right – and that Bernanke just will never be able to do it. Could very well be true. Very sadly.

    All the more important then that this blog and the people on this blog shout just as loud as we can:

    “TARGET NGDP”

    and then just hope for the best.

  72. Gravatar of Russ Anderson Russ Anderson
    27. August 2011 at 06:42

    After reading Bernanke’s speech where is acknowledged that 1) inflation is expected below the Feds 2% target “or a bit less” 2) economic growth has not been strong enough to get unemployment below 9%, 3) economic growth has been slower than the Fed predicted, for reasons more than just temporary factors, and the Fed is lowering its prediction for future growth, 4) the Fed could do more (“the Federal Reserve has a range of tools that could be used to provide additional monetary stimulus”), yet other than say they expect to keep rates low through mid-2013 (due to the weak economy) Bernanke is not willing to do more right now to increase economic growth.

    It is not that Bernanke does not understand the weak state of the economy or that the Fed has the tools to do more. I don’t think he has forgotten what he wrote about Japan. It is enough to consider that Morgan may be right for once, that Bernanke is refusing to act because he is a REPUBLICAN.

  73. Gravatar of W. Peden W. Peden
    27. August 2011 at 07:45

    Russ Anderson,

    I find Morgan’s explanation ridiculous; but given what Bernanke has been saying, I agree that it seems worth considering.

    Another possible explanation would be hawks on the board. However, this explanation does not tell us why Bernanke (or any Fed doves) is putting no noticeable pressure on the hawks.

    “Things are terrible. We could do something. We won’t do something.”

  74. Gravatar of David Pearson David Pearson
    27. August 2011 at 09:05

    W. Peden,

    I think you misread Bernanke. First, he is not saying, “things are terrible.” In his speech, he cites a number of positive developments about the recovery. He then asks, “given these, why has the recovery been slower than expected?” Temporary factors are insufficient to explain the shortfall. He cites two “more persistent” factors: housing and the effects of the financial crisis on investor sentiment. One leads to spending restraint; the other to “Bouts of sharp volatility and risk aversion.”

    Bernanke then says, “Monetary policy must be responsive to changes in the economy,” and, “the Federal Reserve has a range of tools that could be used to provide additional monetary stimulus.”

    Bernanke is not claiming the Fed can do much about these two “more persistent” factors. He is implying (“responsive to changes…”) that if the Fed’s NGDP forecasts come down, they will add stimulus.

    Bernanke has been consistent all along. He believes DEFLATION has unacceptable negative secondary effects — you can read about these in “Essays on the Great Depression.” He is determined to protect the economy from these effects. Beyond that, he has not made any sweeping claims about the Fed’s power to induce faster RGDP growth, to my knowledge.

    The problem with the Fed “put”, all along, has been that its strike price is lower than where markets would like it to be. 2008 was all about markets coming to terms with this reality. 2011 has been a variation on the same theme.

  75. Gravatar of W. Peden W. Peden
    27. August 2011 at 09:14

    David Pearson,

    I had only read a summary of the text, which was clearly very inaccurate.

    I agree with your summary of Bernanke’s position. The question is, why does he have the position he has?

  76. Gravatar of morgan warstler morgan warstler
    27. August 2011 at 09:33

    Morgan is right for once? Are you joking?

    Look guys you have to get check your assumptions. People have innate biases. SCOTUS proves it.

    Now grow up. You say you are rational so ACCEPT that the Fed has an innate pro business anti governmnet preference. Don’t cry about it. Man up and deal.

    In scottsw last economist article he got more explicit in kicking progressives in the teeth, because he knows I’m right…

    He is saying know that we have to couple monetary easing with pro business fiscal reform.

  77. Gravatar of dwb dwb
    27. August 2011 at 09:34

    negative interest on reserves: thoughts on what the right target is, or how to determine it – besides the taylor type rule. I am excruciatingly familiar with that.

  78. Gravatar of MTD MTD
    27. August 2011 at 11:33

    The Fed could do more heavy lifting here via the expectations channel, which could boost velocity and thus NGDP. See Woodford’s Friday piece in the FT and David Beckworth’s recent blogging on the subject.

    A Fed that better shapes expectations of expected future nominal GDP and/or the price level via level targeting could create an implicit negative IOR by generating positive enough expectations of inflation (which have again fallen well below 2% for the next five years).

  79. Gravatar of Morgan Warstler Morgan Warstler
    27. August 2011 at 12:54

    No matter how you slice it, this is good news:

    http://www.msnbc.msn.com/id/44275882/ns/us_news-life/#.TljswL-2nw4

    Economists need to place positive value on bigger households and extended family.

    Please check your assumptions and redo your maths.

  80. Gravatar of David Pearson David Pearson
    27. August 2011 at 13:35

    “…why does he have the position he has?”

    Bernanke’s research identified the pernicious effects of deflation on the GD. These included: rising real interest rates, rising real debt values, and rising real wages. Today, we don’t have deflation. We suffer from none of those effects.

    Scott and others refer to the “2002 Bernanke” who wrote the BOJ speech. That Bernanke was speaking about Japan’s deflation problem. So was Friedman in his “Reviving Japan” article, which also refers to Japan’s positive real rates being evidence of the problem.

    Is “too-low” U.S. NGDP the same dynamic as the 1932 deflation, only less so? Is the difference between Japan’s deflation and 1932 also a matter of degree? Or are all three events more different from each other than they are alike?

  81. Gravatar of Morgan Warstler Morgan Warstler
    27. August 2011 at 17:11

    David, the single biggest difference, is that in 1932 our grandparents were retarded.

    We’re talking 3 pts. in IQ every ten years retarded.

    Back then government takeover of the the economy was only 20 years old!

    It was sooooo cool, lessors were in power!

    Very few understood that government and unions didn’t actually make everybody work harder, they gave people a reason to slack.

    They were just a very dumb, dumb people. They were racists, and bigots, and far more prone to violence and crime. Women were chattel.

    They were DUMB.

    So when you look at what they did – basically all of FDR, it took us TWO YEARS to trun on Obama, and even when he was LOVED, he wasn’t trusted enough to bring a new New Deal.

    That’s what you expected. That’s what Scott expected.

    Of course that’s, not what I expected.

    I told everyone, and have told everyone since the late 1980′s – we’res pending all the money on purpose, we are short circuiting democracy. Hacking it, to turn things back towards 1913.

    And I haven’t been wrong. I’m not wrong now.

    The answer is back then people were dumb.

    Now as to Japan, well they are the ones who loan themselves the money, they have a high rate of savings, and generally they have a older but homogeneous culture.

    They aren’t a real free market. Government runs business. they aren’t crazy with entrepreneurs, not like the SU can be.

    my point here is that the answer to why situations are different is that this stuff is very political and micro -the kind of stuff that you pay no attention to, that’s the answer.

  82. Gravatar of Full Employment Hawk Full Employment Hawk
    27. August 2011 at 20:48

    “From USN&WR:

    “Total jobs. Texas: Up 0.7 percent since the beginning of 2008. U.S: Down 5.6 percent. Since the recession began, Texas has added about 75,000 jobs, one of the few states with any job creation at all. Overall, the U.S. economy has lost about 5.6 million jobs since then. But net job gains in Texas have come entirely from government hiring, which accounts for 115,000 new jobs over the past three years. The private sector in Texas shed about 40,000 jobs during that time.”

    Perry has sure debunked the conservative myth that the government cannot create jobs. He should run as a liberal Republican promising to do for the country what has worked so well in Texas: Reducing the unemployment rate by creating a lot of additional public sector jobs.

  83. Gravatar of Full Employment Hawk Full Employment Hawk
    27. August 2011 at 20:51

    “Question: Who amongst you doesn’t think Richard Fisher would change his view on QE, if the President, any President, announced Texas is the new American model?”

    So if the President promised to create a lot of additional public sector jobs, Richard Fisher would change his view on QE?

  84. Gravatar of Full Employment Hawk Full Employment Hawk
    27. August 2011 at 20:59

    “Saddest news of the day, Romney has turned against the Fed. And here I thought he was the only adult in the race.”

    Obviously Republicans do not want the Fed to engage in expansionary monetary policy before the election because they want the unemployment rate to be as high as possible in Fall of 2012, which maximizes their chances of beating Obama.

    This explains why Quasi-Monetarists like Scott cannot get any traction among conservatives.

  85. Gravatar of Full Employment Hawk Full Employment Hawk
    27. August 2011 at 21:09

    Obama’s most serious policy mistake has been his failure to fill the two vacancies on the Board of Governors with people who take the Fed’s mandate to achieve maximum employment seriously. He should have filled them promptly early in the term and, failing to do this, should have used recess appointments to overcome the Republican obstructionism.

  86. Gravatar of Full Employment Hawk Full Employment Hawk
    27. August 2011 at 21:22

    “So when you look at what they did – basically all of FDR, it took us TWO YEARS to trun on Obama, and even when he was LOVED, he wasn’t trusted enough to bring a new New Deal.”

    The reason the public turned on Obama is that the unemployment rate has not come down significantly. If Obama had moved agressivily with policies that made the economy grow fast enough to significantly bring the unemployment rate down, he would be very popular and have retained control of Congress.

    The reason Roosevelt remained popular during his first years even though unemployment was very high, was because it was coming down significantly. Obama should have learned from that.

    Obviously filling the vacancies on the BOG with full employment hawks would have been essential. If he could not have gotten a bigger stimulus past the 60 vote barrier, he should have used reconciliation to bring the stimulus up to Cristina Romer’s 1.2 Trillion. He should moved agressively at froreclosure mitigation, including expending political capital to get the House bankruptcy bill, that permitted the pricipal on the primary residence to be reduced by the bankruptcy courts. And there are other things that could and should have been done. Instead, after a totally inadequate effort to deal with the worst shock the economy was subject to since the Great Depression, he prematurely shifted his emphasis to reducing the deficit. Now he is paying for his bad decisions.

  87. Gravatar of Morgan Warstler Morgan Warstler
    28. August 2011 at 05:53

    Inflation Hawk,

    I said this before. It is the winning argument:

    1. Texas public employees grew at population increase. The NEW jobs were the private sector jobs that JUSTIFIED service increases.
    2. We treat our public employees like they are meant to be treated. The way we solved the budget crisis was firing a bunch of teachers. The WHOLE point to Texas is that the public sector has no special rights or treatment.

    If Obama cut public employees, ended regulation, screamed drill baby drill, threw out Davis Bacon, waived the minimum wage, forced the unemployed to take any jobs offered, tied Food Stamps to policies such as my Guaranteed Income… yes you are RIGHT, employment goes down, and Obama is very popular.

    Inflation Hawk, get this through your head…. America is capitalist country, we may be a Democracy.

    IF YOU WANT to reduce unemployment, you will create more capitalists, you will put the public sector in retreat.

    If you don’t do these things – you will doom people to unemployment longer.

    —–

    NOTE: I REALLY can’t wait until Perry takes over and as he does what he does, and unemployment falls (because the Fed will approve and go along with it), you SCREAM how it is bad that people get jobs.

    Then we’ll see the rubber meet the road.

  88. Gravatar of the Economist 「目標の変更 ― 連銀は名目GDPをターゲットにすべきなの?」(2011/08/28) – 道草 the Economist 「目標の変更 ― 連銀は名目GDPをターゲットにすべきなの?」(2011/08/28) – 道草
    28. August 2011 at 06:59

    [...] // (訳注:サムナーのブログのエントリ”Not enough“の8月26日付の追記で触れてた名目GDP目標に関してのthe [...]

  89. Gravatar of the Economist 「目標の変更 ― 連銀は名目GDPをターゲットにすべきなの?」(2011/08/28) – 道草 the Economist 「目標の変更 ― 連銀は名目GDPをターゲットにすべきなの?」(2011/08/28) – 道草
    28. August 2011 at 06:59

    [...] // (訳注:サムナーのブログのエントリ”Not enough“の8月26日付の追記で触れてた名目GDP目標に関してのthe [...]

  90. Gravatar of Full Employment Hawk Full Employment Hawk
    28. August 2011 at 07:00

    Morgan:

    If you want me to reply to your postings you are going to have to address me by the nickname I have chosen.

    I have no intention of engaging in a childish exchange of name calling with you or anybody else.

  91. Gravatar of Martin Martin
    28. August 2011 at 07:52

    Scott: There is a (not very good) article in the NYT on the Fed, including your name and this very post ;)

    http://www.nytimes.com/2011/08/28/sunday-review/dissecting-why-the-fed-does-what-it-does.html

    “But you would also find a sizable group of economists who thought the Fed could and should do far more than it was doing. This group, known as doves, tilts liberal, though it includes conservatives as well. If anything, it can probably claim a larger number of big-name economists — J. Bradford DeLong, Paul Krugman (an Op-Ed columnist for The New York Times), Christina D. Romer, Scott Sumner and Mark Thoma, among others — than the camp that believes the Fed has done too much.”

    “Mr. Sumner has become so dispirited by the Fed that, before leaving on a trip for Italy last week, he left a post on his well-read blog, The Money Illusion, under the headline, “Not enough.” The headline, he wrote, “refers to my reaction if the Fed does something while I’m gone.””

  92. Gravatar of anon anon
    28. August 2011 at 07:56

    Relevant NYTimes.com article–not sure if this has been posted before. It mentions Scott Sumner and includes a brief reference to NGDP targeting. (Full disclosure: it also mentions Christina D. Romer, Prad KruLong and Mark Thoma.)

    David Leonhardt, “Dissecting the Mind of the Fed – Why the Fed does what it does”: http://www.nytimes.com/2011/08/28/sunday-review/dissecting-why-the-fed-does-what-it-does.html

  93. Gravatar of StatsGuy StatsGuy
    28. August 2011 at 08:08

    Morgan

    “NOTE: I REALLY can’t wait until Perry takes over and as he does what he does, and unemployment falls (because the Fed will approve and go along with it), you SCREAM how it is bad that people get jobs.”

    I’m sure you felt that way BEFORE GWB took the helm. Now, after GWB took the helm, you’ve developed a brilliant conspiracy theory about how GWB deliberately spent all the money on tax cuts and medicare part D to deliberately hamstring his democratic successor after deliberately creating a financial crisis – all so the capitalists can roll back those evil socialists… and shrink the ever-growing government (which, if you look at presidents, shrank the most under Clinton than all other presidents since the end of WWII).

    Tell me Morgan, is there any event or data point that (should it come to pass) would cause you to say “well, I must be wrong”?? Or, when reality and your brain clash, does reality always lose?

  94. Gravatar of Ted Harwood Ted Harwood
    28. August 2011 at 08:40

    Actually, the FED has done far too much damage already with excessive money creation, in turn leading to greater uncertainty among investors and savers. This Bernanke interview might be of interest:

    Ted Harwood interviews Ben Bernanke, Chairman of the Federal Reserve’d (for funding Wall Street speculators, foreign banks, and Washington, D.C. spendthrifts) Board of Governors

    August 18, 2011 (Revised on August 21)

    Ted:

    Thanks, Ben, for making time available this morning. I know you’re very busy working to keep that federal reserve liquidity pump moving up and down, drawing more water out of the well to fertilize the economy’s parched earth. Be careful you don’t get a rotator cuff injury.

    Ben:

    You’re welcome. By the way, my arm is just fine. Others here do the heavy lifting. What you refer to as the “liquidity pump” we call the “server farm.” And mainly what’s involved is working the computer keyboard, to get funds flowing around and about the country. It’s basically digital dough-making. And if there’s any risk of bodily injury, it’s probably a carpal tunnel complaint.

    Ted, we’re well past the days of printing those gold-green embossed bonds with etchings of Ms. Columbia with spear and shield, or the American bald eagle, arranged in a heroic pose amidst industrial factory gears, wheat threshing machines, or steam locomotives, to persuade the bondholder that their treasury bond is as good as gold. Getting away from paper bonds saves the taxpayers money.

    Actually, getting away from paper altogether, whether bonds or cash, is a big savings. It costs banks money to handle cash, and so they’d rather you use plastic or the computer, and they will reward you for making the switch.

    Ted:

    Aha, I get it. The vanishing of “cash.” So, what you’re saying is that money is….well, not at all the tangible thing it once was, like the 90% silver Walking Liberty half dollar coin that I carry in my wallet, to remind me of when money was…well, something tangible. Kind of makes you wonder what money is. I can imagine that many of my fellow Americans can get confused when they use a debit card to buy groceries or gas. Is that money, or debt? And if there’s no real money, like gold and silver coins, how do you repay your debt, when a bill for the gas and groceries arrives?

    Ben:

    You can pay by computer, or by writing a check, or you can use a federal reserve tender note, called “cash,” with pictures of long-deceased Presidents and a former Treasury Secretary, to pay your bills, although, as I said above, using paper instruments is less convenient than going through a server farm.

    Ted:

    Well, I guess I’m a bit confused about what money really is nowadays. Is a $20 bill with Jackson’s mug simply a paper-printout of something stored on a computer? And who or what stands behind Jackson? Where does the buck, or the $20 buck, finally stop?

    Ben:

    We can back it up with another liquidity infusion, or other policy support.

    Ted:

    Policy support? Liquidity infusion? You mean, more keyboard strokes to get the server farm ramped up with a new series of “0’s” and “1’s”? That strikes me as very different from the pre-1971 era, when your staffers would have checked the ledgers to determine if enough gold bullion was available to back up redemptions of paper dollars coming back from Europe.

    Ben, somebody recently asked you what a dollar was worth. It’s value was set down in the U.S. Constitution as a set amount of silver (approx. 0.77 ounces by weight). Your answer, as I recall, was that a dollar is worth whatever a dollar will buy. By the way, does anybody still read the Constitution for guidance on how to govern in America?

    It appears, Ben, that the dollar buys many fewer Swiss Francs as we speak today than it bought a couple of years ago, not to mention Japanese Yen.

    Now let’s see if I got this right: isn’t price stability a key function of the Federal Reserve? If dollars, whatever in fact “dollars” really are, swing up and down against the Yen, the SFranc, the Euro or whatever – other fiat currencies that, like our dollar, exist mainly in cyberspace (excepting the fiat-paper printouts that circulate around) — would you score that as a failure of Fed policy?

    And what about the big swings in the prices for gas, groceries or, Ben, the cost to taxpayers of having U.S. Treasury officials and Fed staffers fly business class to meetings in Davos, Switzerland or Jackson Hole, Wyoming where they hobnob with other financial industry heavy weights?

    Ben:

    Agreed. Price stability is one of the Fed’s key responsibilities, and we monitor price signals for signs of rising inflation. I was asked recently at a briefing how we would handle a sudden increase in inflation. I explained that we can boost interest rates in 15 to 30 minutes, to put a brake on inflation.

    Ted:

    Right. You did say that, but that was before you decided you would hold interest rates at near Zero for two more years. How can you commit to holding interest rates constant and also guarantee that you will put the brakes on rising inflation?

    Ben:

    Ted, don’t worry about that. The price increases over the past couple of years that you have witnessed have been and will continue to be transitory. They will have to be transitory because of our policy decision to keep interest rates at Zero for two more years.

    Ted:

    That’s your forecast? Sounds like Alice-in-Wonderland Mad-Hatter logic to me.

    Are you using the same crystal ball that you used back in 2007, the crystal ball that led you to assert that the sub-prime real estate crisis was well contained?

    You don’t have to answer that. We all make mistakes, right Ben? But another item of interest: you’ve leveraged the FED’s balance sheet up to 50+ to one. How does that behavior by the FED set a good example for the investment banking community, which got into trouble with just 30-to-1 balance sheet leverage?

    And just one more final question: your decision to keep interest rates at Zero for two more years was made very shortly after your meeting with President Obama. Did Obama tell you: “Ben, I can’t get Congress to free up more funds to get stimulus spending going again. Sorry, but you’re going to have to do more heavy lifting over there at the Fed. Oh, and by the way, with these deficits that are building up, it would sure help to keep the government’s interest costs as low as possible. I’m sure you’ve been in touch with Tim over at the Treasury about that.”

    Is that how your conversation with the President went?

    Ben:

    This is outrageous. Are you suggesting that the Fed is not independent….that we coordinate closely with U.S. Treasury officials and the Oval Office to make sure cheap money continues to flow to the federal government, including Fannie Mae and Freddy Mac?

    Ted:

    Yes, Ben. I am suggesting that. And, guess what? Many other Americans have the same feeling about you and your digital-server-farm-money-creating operation….”money” that is created out of thin air, backed by the “full faith and credit of the U.S. Government.” Call it “cloud” computing currency.

    Geez, Geithner must be red in the face flying to China to persuade them that their Treasury bills and bonds are “safe.” Good as…..um, gold?

    One last item: out there on the campaign trail, there’s a former boy scout who doesn’t like the way you’ve been mucking around with our “money” (or what’s left of it, whatever it is; saying that a dollar is “worth whatever it will buy” is a kind of squishy definition of the thing).

    If this former boy scout succeeds in chasing that erstwhile community organizer from the Oval Office, I guess you’ll soon be singing a different song.

    Or maybe not. Maybe you’ll continue debasing the dollar, transferring money from our senior citizens, via the “financial repression” of negative interest rates, over to the banks and the federal government, and screaming while you engage in this dollar debasement, “Hey, we’re the Fed. We’re INDEPENDENT and we deeply resent any effort to influence our actions.”

    Independent? Yeah, right. Ben, you and I, along with a growing number of Americans, know that’s just a bunch of bullsh….(think sun-baked Texas Longhorn rump pancakes!)

  95. Gravatar of CJF CJF
    28. August 2011 at 09:23

    I have been a regular Money Illusion reader and think you do a great job with the site. I am from a hedge fund industry background and a serious investor who has launched a website to post view points on specific investments, markets, and economics. I have a background in economics and worked as a research assistant at the Federal Reserve Board in Washington DC right out of school for 2 years. About 1/3 to 1/2 the content on my site will be economic insights with the rest being mostly market or investing related. My traffic has grown rapidly since the site launched and would like to get in the network of “suggested reads”. I am constructing the same section on my site and would like to offer to link in to Money Illusion as one of my reads if you could do the same for my site.

    The site is:

    http://www.crackerjackfinance.com

    If you need some time to evaluate my site any consideration and feedback is greatly appreciated.

    Best of luck,

    CJF

  96. Gravatar of Morgan Warstler Morgan Warstler
    28. August 2011 at 12:14

    Stats, when I was 15 or 16 I read an article in the Washington Post Weekly (their old Sunday mag) where David Stockman basically noted that the some elements of Reagan administration viewed the deficit as a necessary evil – since the Dems would spend it when they had power if they could.

    Then when Clinton was running in 1992, I familiar with Frank Luntz’s work on polling on words and phrases. I was a young political junkie (a year later when I got into political consulting I met and spent some time with Luntz (and Norquist)), so I was pretty well attuned to the exact words of the 92 election cycle and spent lots of time thinking through what they meant.

    After “change” the other word most used by clinton was “invest” he used it aggressively.

    What investing means is that you have a REASONABLE assumption that the money you spend will return MORE than you put in.

    SO when in January 1993, Clinton met with Greenspan, put him up on the dias, and basically announced he’d NOT be investing in ANYTHING, I viewed it the same way as Reich and Carville (who went ape shit), except I read it differently.

    Carville said, when he was re-incarnated he wanted to be the bond market – thats where all the power was.

    To me, Clinton got told that if he deficit spent, the Fed would DO EXACTLY like Sumner says, they would effectively neutralize the “growth” because they would be far more conservative on interest rates. Basically Clinton had ot choose between lower short term rates for the private sector without government spending OR higher rates with government spending.

    And Clinton BLINKED. Because in his heart he knew all the stuff he was promising it really wasn’t an investment it was a pay off – to his voters.

    And the fact is if he TRULY BELIEVED it was an investment – more came out the other end, he would have told Greenspan to go screw.

    Here’s the thing: Obama doesn’t REALLY believe it is an investment either – and he doesn’t care. To him this is about some amorphous thing “fairness” – so even if there is NO multiplier effect – to him increasing government spending is always good.

    Clinton lied because he said he would invest, but then chose private growth instead.

    Obama lied because he doesn’t care if it is really an investment or not – even if the private sector dies.

    Whether you like it or not, I have been explaining to anyone who’ll listen for a long long time, that the GOP CANNOT really worry about deficits because until there is a BBA, it is the only way to keep Dems at bay.

    —–

    Now look, if Sumner was right about the giant deficits letting Obama scream crisis of capitalism, and win, I’d be FAR MORE on board with his plan on his terms. I’d not think the spend all the money worked.

    But Stats, I made my prediction early in 2009, when my side was helpless EXCEPT for the well laid groundwork that came before – the debt was massive.

    —-

    One last note Stats, Inflation Hawk said Texas only created Govt. Jobs. He says that’s where the job growth came from.

    I have said, and said again, it grew with population, and that what matters is HOW you treat your public employees. In Texas they can’t powergrab going – we had a deficit, we fired teachers.

    You pride yourself on being a numbers guy – who’s right?

  97. Gravatar of Jim Glass Jim Glass
    28. August 2011 at 13:36

    Obama’s most serious policy mistake has been his failure to fill the two vacancies on the Board of Governors…

    “Mistake” doesn’t begin to cover it. Imagine Harry Truman leaving two vacancies on the Joint Chiefs of Staff for a good two years during the Korean War. This is boggling to me.

    with people who take the Fed’s mandate to achieve maximum employment seriously …[and] have used recess appointments to overcome the Republican obstructionism.

    The Republicans had nobody to obstruct. Obama didn’t even try.

    I blame Larry Summers. Really. Obama knows nothing about economics personally, who called the econ policy shots for him?

    If asked to name the one person most responsible for the lack of recovery, due to the lack of monetary response, I’d say “Larry Summers”. Even now that he’s out of DC, I’ve seen him talk and talk more about fiscal stimulus, but if he’s said anything serious about monetary stimulus, much less pushing for more, I’ve missed it.

    If Summers as soon as he got his job had said, “Fill these empty Fed seats *now* with people concerned about employment, and who support Bernanke’s oft-stated claim that there’s a lot more that can be done, and have them *do* it, and have the WH tell the Fed we *want* them to do it …”, this might have been an entirely different recovery.

    Instead, as far as I can see, Summers has done exactly the *opposite*. I blame Larry Summers.

  98. Gravatar of Steve Steve
    28. August 2011 at 13:44

    Morgan conveniently ignores that the Federal Reserve he is banking on to elect Perry is the very same Federal Reserve that appointed Barack Obama in 2008. It could have been different in 2008, but the Fed slammed the economy so hard Obamacare was assured.

  99. Gravatar of Morgan Warstler Morgan Warstler
    28. August 2011 at 16:38

    Steve, I have said this routinely, the problem is the fed’s equation in 2008 went like this:

    bankers > gop > dems

    they certainly weren’t supporting Obama, they were saving the banks. the base of the gop was FURIOUS the Fed saved itself first. because the base of the gop (the tea party) is the real power in this country.

    what do you think the Tea Party is about? Our side isn’t going to stop until obamacare is gone and wall street is in a box.

    Look, my message isn’t all bad for the left, if your side listens and follows directions we can make it:

    gop > bankers > dems

    This is the formula for distributism, it will aggressively reduce taxes on SMBs and truly raise taxes on the fortune 1000.

    No, we’re not going to have stronger unions, and public employees will continue to eat it, but with the wealth at the top will spread out deeper amongst the top 20%, we will be able to more easily become the service economy that is the American future.

  100. Gravatar of JimP JimP
    28. August 2011 at 17:04

    Jim Glass

    Agreed. It was Summers – plus I think Krugman with his constant crowing about spend spend spend. And his wanting more more in the health care bill. Krugman had (has) this NYT megaphone and he used it to push policies that ruined Obama. And he still is.

  101. Gravatar of JimP JimP
    28. August 2011 at 17:09

    But also – it was Obama.

    I am reading Conrad Black’s biography of Roosevelt – and it is wonderful. And one thing about Roosevelt was his amazing self-confidence. He ditched advice he didn’t like and went his own way – very often. Obama has neither the background nor the experience nor the confidence to do so.

  102. Gravatar of Full Employment Hawk Full Employment Hawk
    28. August 2011 at 17:35

    “The Republicans had nobody to obstruct. Obama didn’t even try.”

    That is the really amazing thing. Obama had the chance to fill the vacancies with full employment hawks and he totally blew the chance. Did Chritina Romer fail to point out the need to do this, or did Obama ignore the advice? And later, when the Republicans were obstructing, he should have used recess appointments. And he is still not trying to do this. With two additional people who take the Fed’s mandate to achieve maximum employment seriously, the austerians who want to keep the unemployment rate high would be totally outvoted.

  103. Gravatar of Full Employment Hawk Full Employment Hawk
    28. August 2011 at 17:41

    “But also – it was Obama.”

    For ordinary working people having a good job and not having to be afraid of losing it, both for themselves and for their relatives and friends, is absolutely essential, and if this is not happening they show their dissatisfaction in the only effective way they have: They vote the incumbents out.

    Unfortunately Obama made the mistake of listening to advisors who are Wall Street oriented and do not understand this, like Geither and, after the election, Daily. So instead of doing everything he could to make the economy grow fast enough so that the unemployment rate were coming down at a solid rate during at least the 6 months before the Fall election, he made only a totally inadequate effort to give the economy a stimulus and then prematurely tilted toward deficit reduction. Now he is paying for this major blunder.

  104. Gravatar of Full Employment Hawk Full Employment Hawk
    28. August 2011 at 17:47

    “plus I think Krugman with his constant crowing about spend spend spend.”

    I disagree. If Obama had listened to Krugman with respect to fiscal policy and made the stimulus the size Krugman wanted, using reconciliation to increase it beyond what could be gotten past the Republican filibuster, the economy would be in much better shape. There is no reason to believe that the Fed would have offset a more expansionary fiscal policy with a less expansionary monetary policy.

    Conservatives would be screaming about the deficit, but with the unemployment rate coming down significantly, and the Obama administration giving the deficit credit for bringing the unemployment rate down, the majority of the public would not care all that much about it. The people for who the deficit is of primary importance vote Republican anyway.

  105. Gravatar of StatsGuy StatsGuy
    28. August 2011 at 18:35

    Morgan, you didn’t answer the question – I suppose this is your political training. What would it take for you to admit you were wrong?

    To answer your question, proportionately jobs have been growing better in places other than Texas – for example, the Dakotas. Consider the possibility of resource endowment. Some 20% of the jobs in Texas were related to oil and gas (and not just in Texas, but also growth in the oilfield services sector, which is strong in Texas). Up to 30% were jobs in services supporting growth in extractive sectors. Much of the balance was public sector growth. I’m skeptical of miracles, although you won’t get an argument out of me defending the public sector in California. I doubt Perry’s claims of Texas growth will go very far.

    BTW, I’d love to see a red stater slash taxes. It will hurt the red states proportionately more than blue states. Don’t believe me?

    http://www.taxfoundation.org/research/show/266.html

  106. Gravatar of StatsGuy StatsGuy
    28. August 2011 at 18:39

    Glass

    Yes, you are right, and many of use have lamented for months. And Larry Summers owns a great deal of blame. Far more, I think, than Krugman. Beyond idiocy. When Obama defenders tell me how he’s done the best given the hand he was dealt, and is really brilliant but dealing with a tough situation, that’s one of the points I bring up. It gets people to close their mouths and think.

  107. Gravatar of Morgan Warstler Morgan Warstler
    29. August 2011 at 05:03

    Stats, I specifically answered your question.

    “Now look, if Sumner was right about the giant deficits letting Obama scream crisis of capitalism, and win, I’d be FAR MORE on board with his plan on his terms.”

    That means had the Tea Party not rose up and put Obama and Pelosi in a box, I’d no longer think I was right about my analysis.

    ALL of my thinking since the mid 90′s would have been wrong.

    There very thing DeKrugman said he screwed up on (he couldn’t believe how it swung back), that Sumner screwed up on – I based my thinking on them being wrong.

    Had I been wrong, I’d be clinging to Sumner as a port in the storm to keep from having the government grow.

    Look, Scott MADE the argument – it was core logic, WHY the right should immediately focus on a level target of NGDP, because “look what can happen!”

    Now admit I answered your question.

  108. Gravatar of Morgan Warstler Morgan Warstler
    29. August 2011 at 05:13

    Jesus, STOP doing selctive reading, there is a SIMPLE equation:

    “Since Rick Perry became governor of Texas, the number of government workers per capita has marginally declined in the state as private-sector employers created 73.5 percent of the more than 1 million additional jobs now found in the state, according to data published by the Census Bureau and Department of Labor’s Bureau of Labor Statistics.”

    “That means the number of people per government worker in Texas has increased by about a third of a person (0.313) since Perry became governor.”

    http://cnsnews.com/news/article/private-sector-not-gov-t-created-nearly

    Look, why grasp at straws???

    I keep saying, we all just watched Texas balance its books… how? fire teachers.

    And those numbers haven’t even been factored into the stats above.

  109. Gravatar of Morgan Warstler Morgan Warstler
    29. August 2011 at 05:18

    Stats, this may come as a shock to you, but I’m not against ALL taxes.

    I prefer consumption / property taxes. And property has to be re-estimated every year. This is crucial to economic development. It basically the forces the cash poor guys in an area to sell.

    IF the government will limit what it spends to 19.5% of GDP, I’m happy with a policy that raises taxes to 19.5% of GDP.

    Right now it is what 27% and 16%? That’s just what starve the beast looks like.

    But you can’t say I’m against taxes going up, its just that your side has to give up 7.5% of GDP in spending FIRST.

  110. Gravatar of Vivian Darkbloom Vivian Darkbloom
    29. August 2011 at 05:35

    “If Summers as soon as he got his job had said, “Fill these empty Fed seats *now* with people concerned about employment, and who support Bernanke’s oft-stated claim that there’s a lot more that can be done, and have them *do* it, and have the WH tell the Fed we *want* them to do it …”, this might have been an entirely different recovery.”

    Of course, that is easier said than done, and who knows what Summers said? Unless there is a recess appointment, the FRB members need to be confirmed by the Senate and to fulfill criteria set out here, the ideal candidate would need to be concerned about employment—aren’t they all?— ok, concerned more about employment than price stability–and also agree with the method proposed here for advancing that agenda. Of course, Obama nominated Peter Diamond who is a labor economics specialist, but it’s unclear to me exactly how he would have translated that background into policy. Of course, Diamond’s nomination was blocked.

    If I had to guess, I would speculate that Obama (or Summers or Geithner, etc) asked Diamond if he would be interested in a recess appointment. Of course, the normal term of the FRB is 14 years and a recess appointment would mean Diamond would have to settle for a term expiring at the end of the next session of Congress, as required under the Constitution for recess appointments. Who wants that? I betcha Diamond said, “I’m not interested in being your patsy for about a year”, especially since the prospect of another recess appointment or even confirmation looked pretty dim, given the decreasing popularity of Obama and Senate Democrats among the electorate. And, I wouldn’t be surprised if other potential candidates having the same set of “qualifications” were approached and said exactly the same thing before any public discussion about nomination could even arise.

    For me, Summer’s reputation is overrated and his “results” speak for themselves. Yet, I would reserve more of my blame for Obama himself. Specifically, I’m sure Summers did not advise him to spend more than the first 1.5 years of the administration trying to sell, that is, eventually “force”— with all the attendant loss of political goodwill; goodwill that could have been used in an appointment process, ACA, a new $1 trillion plus entitlement program. Obama made a conscious decision to put that agenda ahead of the jobs agenda. Summers had nothing to do with that, but he, Romer and that music major posing as economist sure put together a wasteful stimulus package. Putting the ACA before jobs or anything else was the worst mistake, though, and one that Obama is solely responsible for.

  111. Gravatar of marcus nunes marcus nunes
    29. August 2011 at 05:38

    Scott
    At AngryBear they don´t like you much:

    On the other hand the article does contain news for anyone who thinks that Scott Sumner is reality based.

    ”Mr. Sumner has become so dispirited by the Fed that, before leaving on a trip for Italy last week, he left a post on his well-read blog, The Money Illusion, under the headline, “Not enough.” The headline, he wrote, “refers to my reaction if the Fed does something while I’m gone.

    Sumner just wrote that he doesn’t bother to wait to learn the facts, because he already knows the answer. I knew that was true of him (in general) but you aren’t supposed to say so.
    http://www.angrybearblog.com/2011/08/monetary-policy-debates.html

  112. Gravatar of johnleemk johnleemk
    29. August 2011 at 06:41

    I honestly think Angry Bear is making a better case for Morgan’s position of “F*** the progressives, let’s screw the economy and only loosen monetary policy when we get conservatives in office” than Morgan himself. That post is hair-pullingly frustrating.

  113. Gravatar of Morgan Warstler Morgan Warstler
    29. August 2011 at 07:01

    I think Scott is aware of how sweet and sour having his good name stuck in that pile of twaddle is…

    There will come a time when conservatives will be looking to take the gains they make when pendulum swings back and codify them into place.

    Scott is the way they do that. I suspect he knows it.

    Taking out the cleaver and putting it to work on regulation, making deeper real cuts into public employees and rewriting the tax code is going to SO MUCH EASIER if as we begin the process we are sure NGDP will grow.

    What’s more Scott’s policies are a good way for the Tea Party to reduce the importance of Wall Street, because when NGDP runs up over 4%, rates gets raised, and the cost of money increases.

    Cost of borrowing going up is positive thing for the GOP because interest on US debt goes up, and we have to make government even more productive.

    Done properly, Scott’s 4% NGDP target could provide a virtuous cycle, that grows the economy all while remaking government is a true servant of the private sector.

    EVERYDAY we get closer to Scott being CLEARLY different than the other four mental midgets in the article, because the REASONS he’ll have for the right will resonate – we have proof they have before.

    Meanwhile, what is going to be interesting is, as I said above, is when Perry takes over and a good part of left is going to find themselves arguing against Monetary, Scott needs that dichotomy.

  114. Gravatar of W. Peden W. Peden
    29. August 2011 at 10:09

    “why not jut “target” real GDP and cut out the middle man ?”

    Why not rename the site ‘economically illiterate bear’ and save everyone else the time spent reading it?

  115. Gravatar of Patrick R. Sullivan Patrick R. Sullivan
    29. August 2011 at 11:30

    ‘At AngryBear they don´t like you much:’

    Which should be badge of honor, they’re pretty much all left wing politics, all the time, there. I’ll bet they really like Obama’s new CEA Chair too; Alan-let’s pay cash for clunkers and raise the minimum wage–Krueger.

  116. Gravatar of Russ Anderson Russ Anderson
    29. August 2011 at 13:07

    Morgan wrote: “Right now it is what 27% and 16%? That’s just what starve the beast looks like.”

    In FY2010 federal spending was 23.8% and revenues 14.9% of GDP.

    Spending is slightly higher than the 23.5% in 1983, the last time unemployment topped 9%. Revenues are the lowest percentage since 1950.

  117. Gravatar of Morgan Warstler Morgan Warstler
    29. August 2011 at 15:11

    Russ, sorry I was working from memory.

    http://www.usgovernmentspending.com/

    We’re a bit higher than 25%.

    But you still take my point right? Big gap caused by low growth and a liberal government that tries desperately to keep it growing.

  118. Gravatar of JimP JimP
    29. August 2011 at 16:22

    http://www.economist.com/blogs/freeexchange/2011/08/business-cycles-0

    RA says:

    The Scott Sumner view of the downturn, to which I’m sympathetic, accommodates this strange data quite well. In his view, the economy did fairly well at reallocating the lost jobs from construction until late 2007, when nominal spending growth began to lag below trend (thanks, in his view, to the Fed’s lack of attention to the importance of NGDP stabilisation as a policy goal). By the third quarter of 2008, nominal spending was contracting outright. That shortfall helped precipitate the financial crisis—which was, of course, a product of the implosion of housing finance. The crisis, in turn, generated a severe shock to expectations of nominal spending, and the Fed’s failure to respond appropriately delivered the economy into the worst recession since the Great Depression.

  119. Gravatar of JimP JimP
    29. August 2011 at 16:32

    Also – I just re-read this Eggertsson?Woodford paper:

    “The Zero Bound on Interest Rates and
    Optimal Monetary Policy” – linked to recently by Krugman.

    Anyone who has not read this paper and who wants a really good explanation of what Scott is talking about should read that paper. Would that Obama and/or the US Congress would read it.

    As Scott once said long ago – the really sickening thing about the last great depression and this one too is that they could have been fixed by correct policies. There was nothing inevitable about any of the horror we are now in.

    http://www.newyorkfed.org/research/economists/eggertsson/BrookingsPaper.pdf

  120. Gravatar of JimP JimP
    29. August 2011 at 16:48

    And thinking about that – that both the Great Depression and this one were (are) the result of incorrect policies and behavior by the US Federal Reserve – to me that is an amazing and terrible thought.

    It means the horrors of Hitler and WWII could have been AVOIDED – there was nothing inevitable about any of that. Avoided by correct policies and actions by the US Federal Reserve.

    And to me that means that the community of this very blog must should as loud as we can:

    COME-ON BEN – TARGET NGDP.

    Tell us you are doing that and then DO THAT.

    Let the deflationists try to impeach you. They will try – no doubt. And they will fail.

    We need a Roosevelt here. Obama is no Roosevelt – so YOU be one.

  121. Gravatar of JimP JimP
    29. August 2011 at 17:01

    George Magnus is on board. See his point five.

    http://www.bloomberg.com/news/2011-08-29/give-marx-a-chance-to-save-the-world-economy-commentary-by-george-magnus.html

  122. Gravatar of Tyler Tyler
    29. August 2011 at 19:49

    Scott, something to give you confidence in your country’s financial industry:

    http://www.cnbc.com/id/43898638

  123. Gravatar of Jason Odegaard Jason Odegaard
    30. August 2011 at 06:04

    Scott, hope you are having a great vacation. Not sure if you saw this, but Nick Rowe has a post up you may enjoy:

    http://worthwhile.typepad.com/worthwhile_canadian_initi/2011/08/recessions-are-always-and-everywhere-a-monetary-phenomena.html

  124. Gravatar of johnleemk johnleemk
    30. August 2011 at 06:44

    Jason,

    That is perhaps the best on macro I’ve ever read, without compare. Spread it far and wide!

  125. Gravatar of johnleemk johnleemk
    30. August 2011 at 06:44

    * best post, sorry.

  126. Gravatar of JimP JimP
    30. August 2011 at 08:17

    http://ftalphaville.ft.com/blog/2011/08/30/664916/goldmans-qe3a/

    Goldman mentions a possible targeting of nominal GDP and references that Economist article. They say that a NGDP target would be a “radical” action and that they don’t expect the Fed to do so. But at least it is out there.

    to quote from the Goldman report:
    Finally, regarding (3), we have again received some questions about the possibility that the FOMC might move to a nominal GDP target (see “The Fed Discusses Easing Options,” US Daily, October 12, 2010, as well as this week’s Economics Focus in The Economist). It’s important to note that depending on the interpretation, the Fed’s dual mandate (in which policy responds to both employment/real GDP and inflation) already has some similarities with a nominal GDP target (in which policy responds to the product of real GDP and the price level). The key differences are that (1) an announced nominal GDP target is much simpler and therefore more powerful than the hazier dual mandate, which is interpreted differently by different people; and more importantly, (2) the dual mandate is defined in terms of rate of change of prices, while a nominal GDP target depends on the level of prices. (There is not such a clear distinction with respect to the employment/real GDP component, which is typically understood to refer to levels in the dual mandate definition as well.) The implication is that a nominal GDP target, Fed officials attempt to “make up” for past undershooting of inflation via future overshooting. In other words, a move to a nominal GDP target is tantamount to a temporary increase in the inflation target. We believe that the skepticism expressed by Chairman Bernanke’s in his 2010 Jackson Hole speech still applies, and do not expect a move to either a higher inflation target or a nominal GDP target.

  127. Gravatar of morgan warstler morgan warstler
    30. August 2011 at 08:51

    Ah see there! Goldman shows the path of my logic with Scotts best policy argument. You guys need better arguments.

    Notice Goldman could say instead… when GDP goes ABOVE target the fed will be forced to raise rates regardless of unemployment and that is you peoples mistake…

    Stop convincing the unemployed you care convince the tea party you will handcuff the fed and better be able to prove unemployment is structural created by another anti free market policies.

  128. Gravatar of Jim Glass Jim Glass
    30. August 2011 at 13:42

    FWIW:

    Fed Needs More Easing Until Economy Grows, says Chicago Fed President Evans

  129. Gravatar of Mark A. Sadowski Mark A. Sadowski
    30. August 2011 at 18:40

    Robert Waldmann was critical of you Scott.

    Robert wrote:
    “I personally have a strong objection to Leonhardt’s article. He lumps together people who think that the Fed should not cause higher inflation with people who think that the Fed can’t cause higher inflation…..”

    “Note that the group that think that the Fed doesn’t have much power to lift economic growth are lost somewhere between the two paragraphs.”

    http://www.angrybearblog.com/2011/08/monetary-policy-debates.html

    Well, this had me scratching my head. Just who are these influential economists that Robert thinks David left out? Peter Diamond?

    Well, true, Peter Diamond does have a Nobel Prize and he was nominated to the BOG. But honestly, had many people outside of the economics world even heard of Peter Diamond before he was nominated to the BOG? Furthermore, what makes Peter Diamond an expert on monetary policy other than the fact he was nominated to a political position occupied by lawyers, bankers and other similarly unqualified people? Sure, his search model was used by Kocherlakota, but isn’t that the same Kocherlakota that claimed that low interest rates cause deflation? (By logical extension of that argument we can of course claim that it is umbrellas that cause rain.)

    But, honestly, if all the influential economists that thought that monetary policy had absolutely no ability to increase inflation, all gathered together at the same time at the Hockessin, Delaware Quiznos, the town fire marshall would say…”Yeah, fine, that’s no problem.” (Apologies to Jon Stewart.)

    And that’s what really irks Robert. Because this huge public debate over the ability of monetary policy to cause inflation, that David apparently forgot to mention, is all a figment of Robert’s fertile imagination.

    P.S. So nice to know that Obama leaving three BOG seats empty without a nominee for two years was the appropriate thing to do because the Republicans would have thrown a hissy fit. Nevermind that such a similar thing would never happen in the case of the Supreme Court, or that when Obama finally got around to nominating three nominees all but Diamond were approved.

    P.P.S. It’s also nice to know that Obama had the good foresight to nominate someone to a monetary policy position who thought that monetary policy is completely ineffective. It would have been a complete waste to nominate somebody who actually thought it could do something only to have them rejected.

  130. Gravatar of W. Peden W. Peden
    30. August 2011 at 23:47

    Mark A. Sadowski,

    “And that’s what really irks Robert. Because this huge public debate over the ability of monetary policy to cause inflation, that David apparently forgot to mention, is all a figment of Robert’s fertile imagination.”

    I disagree. It’s a live issue… In 1971…

  131. Gravatar of Bonnie Bonnie
    31. August 2011 at 04:29

    Morgan:

    People can be convinced of a lot of things that aren’t necessarily true. Take FDR’s Fireside Chats, for example. People were convinced that we could and did overproduce ourselves into poverty, as an explanation for the effects of deflation, and there was a need for everyone to follow FDRs policies for it to fix the economy. I think it was called the NRA. Now why would anyone want to just go off on their own and overproduce themselves into poverty when they can just cooperate and be fed? If true, there should have been no need for coercion.

    There is too much emphasis on the Fed/currency debasement issues within tea party ranks for our own good. Just like there is far too much emphasis on a Balanced Budget Amendment being some kind of financial salvation, when that’s not what it is at all. There are too many other places to bury the bodies and too many ways for government to make people do what it wants and making someone else pay for it left untouched for it to have any limiting effect at all. The pumping of the housing “bubble” with the recourse rule and the GSE clearinghouses is the perfect example of the kind of calamity caused by off budget government antics. Do we really want more of those?

    I think the idea of the tea party is incredible. It is, however, tainted by as much of a lack of practicality as the progressive movement has been. We have a golden opportunity to correct decades of economic abuse of the average guy, and I don’t have much confidence that is actually what’s going to come out of the whole thing, much less stop the bleeding.

  132. Gravatar of Morgan Warstler Morgan Warstler
    31. August 2011 at 04:54

    Bonnie,

    Get out of the middle of the road, you are going to be run over.

    The Tea Party has the $, the votes, and the guns. The progressives don’t carry the weight.

    Look, it is possible that Mitt wins over Perry, but Obama is cooked.

    If he is not cooked, I’ll change my mind about Sumner’s approach.

    BUT IF I’M RIGHT, all of you WILL stop pretending that economists are not pawns, that Monetary Policy is not yet another tool of the hegemony. And that hegemony is both TRUE and UNFORGETTABLE.

    To many of these theorists want to forget the how and why of politics.

    Bonnie, go check out the new GOP jobs bill coming from the House. What’s it look like? A big giant basket of love to the SMBs.

    Rick Perry isn’t focusing on Small Business in his speeches because it polls well (it does), he’s doing it because he like so much of the Tea Party KNOWS in his bones it is the only way to create jobs.

    Warren Buffett is laughed at – he is SEEN as feathering his nest with tax dollars. GE is a joke. No one thinks this is real economics.

    Ultimately, macro is the bitch of micro. And macro-economists are the bitch of the Tea Party. If that it too crude, just remember this:

    Any policy must be approved of by those with savings / hard assets: both money and government exist for THEM.

  133. Gravatar of JimP JimP
    31. August 2011 at 07:28

    Morgan

    Stop shouting and talking rude – or go away. I am really tired of reading your ignorant insults. This is a decent web community at this site – no flashers – save for you. Whatever cause you are supporting talking the way you do is disgraceful.

  134. Gravatar of Morgan Warstler Morgan Warstler
    31. August 2011 at 08:12

    JimP, find yourself a plugin to remove CAPS.

    Look man, my whole schtick is what you really face. I want you to stop theorizing and accept that you do not get to hypothesize tabula rasa.

    There are powerful groups that built this thing for themselves. And motives matter. Reducing unemployment is not a end good in and of itself.

    The means matter.

    You want to have a polite conversation? Answer my points. Seriously, let’s see your full born logic – answer everything I put out there.

    Stand in the box and take real cross examination.

    Otherwise stop calling me ignorant.

  135. Gravatar of JimP JimP
    31. August 2011 at 08:23

    Morgan

    I am not in the least interested in answering your points. You actually have no idea what my political views are and this site is not a political debating society. And the very last thing I would ever do is stand in a box and be talked to by someone like you.

  136. Gravatar of Morgan Warstler Morgan Warstler
    31. August 2011 at 10:04

    JimP,

    Then please just skip my posts. I mean why waste your time? If you can’t / don’t want to correct me, why read it?

    I don’t care about your political views, I care about how to sell targeting NGDP to the people that matter. This isn’t a debate, this is strategy.

    Quoting you:

    “Scott has always said that the real task is to convince the public, and especially the professional economists community, of the idea of NGDP targeting – that Bernanke cannot and will not get too very far ahead of popular opinion – something Lincoln and Roosevelt were also very aware of.”

    My way is how you convince the public that matters: the Tea Party. And I suspect that if accomplishing Scott’s lifetime policy goal meant doing it my way, you’d suddenly be against it.

  137. Gravatar of JimP JimP
    31. August 2011 at 11:48

    Never can resist an insult can you Morgan.

  138. Gravatar of JimP JimP
    31. August 2011 at 12:24

    Although – as to the tea party – it is true enough that I don’t like them very much.

    But this web posting has helped me understand them somewhat better:

    http://blog.atimes.net/?p=1878

    To quote his last part:
    It may be that the Tea Party, as I said the other day, is the Ghost Dance of American growth, another millennial movement inspired by sinking circumstances. The book to read on this might well be Richard Landes’ new book Heaven on Earth, on millennial movements. America has its history of such things, and the Tea Party–for all its worthy intentions–has a bit of millennial flavor about it.

    With the economy dead in the water, the folks in flyover country have no wind at all in their sails. They are becalmed. As things are going, they will perish slowly; they have an incentive to try to force a big change right away. No Republican mainstream candidate has so much as offered a solution to their problems. So why not pick a fight as soon as the opportunity presents itself?

    Even if the Republicans get their act together and work out a debt ceiling compromise, the world has seen the cracks in America’s social fabric, and things won’t be the same. If you come home, and your spouse is holding a Molotov cocktail and threatening to burn down the house, you will look at things quite differently in the future, even if the threat is not implemented. If not today, perhaps tomorrow. America runs on hope. Obama offered hope and failed miserably; the Republicans haven’t even put the subject on the agenda. Hopeless Americans can turn very nasty indeed.
    end quote

    And Michael Pettis is good on what I personally think is the cause of a lot of this – namely Chinese currency manipulation.

    http://mpettis.com/2011/05/is-it-time-for-the-us-to-disengage-the-world-from-the-dollar/

    And I do recommend that article Pettis links to in his post – the one by Kennith Austin.

  139. Gravatar of anon anon
    31. August 2011 at 12:45

    The FOMC minutes for the Aug 9 meeting are now out: http://www.federalreserve.gov/monetarypolicy/fomcminutes20110809.htm

    Interesting throughout. The was some debate over the relevance of supply-side disruption vs. slack in labor and product markets, but the controversy seems more subdued compared to the previous meeting. The decision to extend the Sep. meeting to 2 days is there, and policy tools for easing are discussed (forward guidance, QE3, Op Twist, ceasing IOXR). The “forward guidance” in the Aug 9 FOMC statement is described as a ‘minimal’ compromise between hawkish and dovish committee members.

  140. Gravatar of pct pct
    31. August 2011 at 13:01

    Scott,
    I would like to second the motion that you take up the extremely interesting FOMC minutes upon your return from Italy.

    Mark A. Sadowski,
    There is a Quiznos in Hockessin now? Economic growth is a wonderful thing.

  141. Gravatar of StatsGuy StatsGuy
    31. August 2011 at 13:15

    Scott,

    As much as I agree with you about the Fed, it’s starting to look like the US (for once) is about to be overshadowed by Europe at least in the short term. Considering UK trade links to the continent, and the UK’s structural heritage (finance dependence), it’s actually weathering quite well – in a few years, we’ll be able to take a look at German GDP vs. UK GDP and get some better proof on monetary policy effectiveness of BoE vs. EC.

    Hey, at least Trichet isn’t running the Fed… For that, we should be grateful.

    BTW, if the Euro bites the dust, the dollar will spike like no one can believe, and the Fed will be forced to become more active than we have ever seen. I think US bond market is heavily telegraphing that right now. Wanna see something cool?

    http://www.tradingeconomics.com/germany/government-bond-yield

    Really stunning when you think about it…

  142. Gravatar of JimP JimP
    31. August 2011 at 14:25

    Maybe this is what the Fed has in mind. It seems very clever.

    http://brucekrasting.blogspot.com/2011/08/feds-plan-rumors-of-news.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+BruceKrasting+%28Bruce+Krasting%29

  143. Gravatar of Morgan Warstler Morgan Warstler
    31. August 2011 at 15:19

    JimP, I didn’t insult you. I quoted your words directly.

  144. Gravatar of JimP JimP
    31. August 2011 at 17:18

    More on Goldman and NGDP targeting – with some links.

    http://macromarketmusings.blogspot.com/2011/08/sharp-expectation-shock-is-needed.html

  145. Gravatar of Morgan Warstler Morgan Warstler
    31. August 2011 at 17:23

    From Pappy on Facebook:

    http://www.youtube.com/watch?v=Io7Yuol8kd8

  146. Gravatar of Joe Joe
    31. August 2011 at 18:56

    Scott,

    goldman for NGDP Targeting…banks suddeenly do not fear the inflation?

    P.S. Morgan does make the site less enjoyable, but I do apprecaite you policy of not deleting posts…

  147. Gravatar of W. Peden W. Peden
    1. September 2011 at 06:05

    Joe,

    Filter out the comments you don’t find interesting. I’ve been doing that since I first started reading here. If nothing else, skim-reading is a useful skill in most vocations and practice is to be welcomed.

  148. Gravatar of johnleemk johnleemk
    1. September 2011 at 06:17

    Strongly second W. Peden; I skim most comments. I think Morgan is not much worse than the MMTers…like them, he adds life to the comments, if at the expense of our noise-to-signal ratio.

  149. Gravatar of Morgan Warstler Morgan Warstler
    1. September 2011 at 09:11

    Again:

    Joe, when you are willing to answer my points, really get down into them, and actually PROVE I’m not logical – apparently, you’d be doing a tremendous service to the board.

    I say economists must deal with reality. They are but structural engineers talking about what building can stand, the world (the powers that be), puts them to use to make policy arguments when it suits them.

    The powers that be DECIDE what buildings get built.

    So I watch a bunch of engineers all argue that that these new materials, this new approach will build buildings that do things other buildings have never quite done.

    Great!

    Now if you want to get to try out your new ideas, you still don’t get to build the building you the way want, you don’t get to design it, you barely even get to live in it, and you certainly don’t get to own it…

    But nobody here wants to hear that. Why not?

    Let’s put it another way, you might invent the nuclear bomb, but you don’t get to decide to drop it, or who do drop it on.

    Meanwhile I REALLY think you’ve got yourself a pretty nice theoretical bomb.

    I want to see that thing used to decimate my enemies! And since that’s the only real chance you have of seeing the bomb go off…

    Don’t you want to focus on getting the bomb into the hands of those who matter?

  150. Gravatar of Morgan Warstler Morgan Warstler
    1. September 2011 at 09:13

    johnleemk,

    not much worse than… you wound me! You are off the pornographic Xmas card list.

  151. Gravatar of Philo Philo
    1. September 2011 at 15:07

    @ David Pearson:

    “[Bernanke] has not made any sweeping claims about the Fed’s power to induce faster RGDP growth . . . .” But can’t one be confident that he accepts such claims? Surely such claims are not controversial (except among a tiny group gathered in Hockessin, Delaware)!

    “Is ‘too-low’ U.S. NGDP the same dynamic as the 1932 deflation, only less so?” Of course; isn’t that obvious?

    @ JimP:

    Thanks for your links; they were very interesting. Even when Scott is away, his commenters make his blog worth reading.

    @ Morgan Warstler:

    Let me second the observation that your style is tiresome.

  152. Gravatar of JimP JimP
    1. September 2011 at 16:58

    Philo

    Thanks.

    I do think of this site as a community – engaged in a really important thing.

    We must do whatever we can to get Scott’s ideas out there – and they are getting out there too. Debated here and presented to wider public opinion. And we all know how important this is.

  153. Gravatar of W. Peden W. Peden
    1. September 2011 at 17:21

    JimP,

    I think of the site as a stoa at which we meet on a fairly regular basis. Then again, I’m not a very communal kind of person.

    Also, this was a depressing interview-

    http://www.bbc.co.uk/news/business-14746328

    - particularly the line about disposable income. “People have too little disposable income for growth, therefore we need less demand.” You have to be either very stupid to say something like that or extremely smart to say something so stupid.

  154. Gravatar of JimP JimP
    1. September 2011 at 17:34

    I think of us here as contra-cyclical. The way the Fed should be.

    Conta Zerohedge. Contra Roubini. Contra Albert Edwards. All the perma-bears who are wishing for and working for financial Armageddon.

    John Cochrane has a theory of asset pricing –

    “all price-dividend ratio volatility corresponds to variation in expected returns. None corresponds to variation in expected dividend growth, and none to “rational bubbles.”
    In the 1970s, we would have guessed exactly the opposite
    pattern.”

    http://faculty.chicagobooth.edu/john.cochrane/research/papers/discount_rates_jf.pdf

    And he says that variation in expected returns is driven by variation in the discount rate. And variation in the discount rate is driven entirely by investor emotion, or investor expectations. And the perma-bears are trying their best to freak investors out totally – with their stories that we are all doomed and there is nothing governments can do.

    And we here are trying to counter that fear – by showing that there are policies that can cure this.

  155. Gravatar of MikeDC MikeDC
    2. September 2011 at 04:51

    Morgan is better than the left-wing fringe here because he’s usually self-aware. :P

    I used to administer sites for big online communities, and it’s simply a given that personalities tend to dominate when news is scarce.

    That Bruce Krasting guy seems onto something in that his plan sounds like just the sort of “too clever by half” plan I picture this administration cooking up. Unfortunately, I could see them giving it a go despite the fact that all of the careful calculations rely on a set of wildly unrealistic assumptions. “Gee, if only we could trick people into doing something they’d never rationally do, we could use that big wad of cash to go deeper in debt, leverage everyone more, and put off disaster for another six months!”

  156. Gravatar of johnleemk johnleemk
    2. September 2011 at 05:05

    The Fed continues to fail its dual mandate: http://www.bloomberg.com/news/2011-09-02/u-s-employment-situation-report-for-august-text-.html

    Krugman needs to shout it from the rooftops, like he did in the 90s: “If you want a simple model for predicting the unemployment rate in the United States over the next few years, here it is: It will be what Greenspan Bernanke wants it to be, plus or minus a random error reflecting the fact that he is not quite God.”

  157. Gravatar of johnleemk johnleemk
    2. September 2011 at 05:06

    Sorry, the HTML looks like it failed to render properly (at least on my browser) — there should be a strikethrough for the word “Greenspan”.

  158. Gravatar of Britmouse Britmouse
    2. September 2011 at 05:25

    Andrew “Hawk till the Death” Sentance was on Reuters TV too:

    http://insider.thomsonreuters.com/link.html?cn=share&cid=258429&shareToken=Mzo1MWQwZGY0MC0wMWIwLTQ3MjgtOTM4NC1jZmNkYTllZWEzY2U%3D

    I vote “extremely smart to say something so stupid”. It is so deeply infuriating. Was there ever a time when nominal wage growth was lagging behind the inflation rate at such a level as today? And yet we must worry about “inflation becoming intrenched”? Argh!

  159. Gravatar of Ravi Ravi
    2. September 2011 at 06:46

    From the Governor of the Riksbank: “To instead base long-term forecasts on market expectations of the policy rate is a method we have already tried and decided to abandon. If we use market expectations of the policy rate as a starting point, it may be difficult to determine how the interest rate is connected to other developments in the macro economy. Our own forecast for the interest rate has the advantage that it is produced together with the forecasts for GDP, inflation, employment and so on. Moreover, market expectations can vary substantially over time, which can lead to the information content in the macro forecasts as a whole declining.” Thoughts?

  160. Gravatar of Morgan Warstler Morgan Warstler
    2. September 2011 at 07:41

    This morning on the treadmill, I read DeKrugman’s post here:

    http://krugman.blogs.nytimes.com/2011/09/01/cantor-counters/

    He’s complaining the NOW we have to do pay-as-you-go. And I thought my god he just misses GIANT gaping holes in logic.

    And then a couple of hours later, someone he actually reads points out that SIZE OF DEBT matters.

    And DeKrugman reponds:

    http://krugman.blogs.nytimes.com/2011/09/01/cantor-irene-and-interest-rates/

    “But here’s a more substantive point: Cantor wants to emphasize the horribleness of the debt, because $8 trillion is no big deal while $14.6 trillion is catastrophic; and we know this because …. well, just because.”

    And this is where you see one of DeKrugman’s lies has to stack on top of another…

    See, we on the right KNOW that eventually the size of debt does matter, it is a function of two things:

    1. Tax Revenue.
    2. Interest rates on debt. Debt has to be rolled pretty routinely.

    We on the right LOVE his reality, because it means that once you reach X debt based on 1 & 2, neoliberalism dies.

    Neoliberalism dies for two reasons:

    1. because there is no stomach in our culture for higher taxes on a majority of the LIKELY VOTERS.

    2. because the MOMENT we have economic growth, we have rate increase, and the % of tax revenues that the government has to pay to roll debt goes up.

    DeKrugman ACTS like he can shrug off the difference between $8T and $14.2T.

    The problem: Neo-liberalism cannot shrug off the increase in the % of tax revenue that an increase in interest rates will cause.

    It is check and mate: no matter what happens there is going to be less money to spend on the neo-liberal agenda.

    And that is the answer to DeKrugman’s “just because.”

  161. Gravatar of Morgan Warstler Morgan Warstler
    2. September 2011 at 08:15

    Proof I’m right:

    http://news.yahoo.com/obama-halts-controversial-epa-regulation-143731156.html

    Obama halts $90B smog regulation from EPA.

    THIS IS DIRECT PROOF: Waiting to do QE3, has UPSIDE.

    Now you can all go back to pretending I’m not right.

  162. Gravatar of Morgan Warstler Morgan Warstler
    2. September 2011 at 08:38

    Guys I’d love you feedback on Mundell:

    http://www.economist.com/blogs/freeexchange/2011/09/robert-mundell-global-finance

    1. Obama makes Bush tax cuts permanent.
    2. Cuts corporate taxes.

    Basically Obama apologizes, says he was wrong.

    In Europe:

    1. Cut pensions in Southern states.

  163. Gravatar of MTD MTD
    2. September 2011 at 10:21

    Regarding so-called Angry Bear. He/it/they is/are nothing more than bomb-throwing anonymous cowards. It take no guts to hit someone while in disguise.

  164. Gravatar of Ron T Ron T
    2. September 2011 at 10:56

    Some basics for Scott Sumner and people on this blog on how the monetary policy actually works and what the Fed can and cannot do.

    http://pragcap.com/operation-twist-qe3-style

  165. Gravatar of Philo Philo
    2. September 2011 at 13:10

    Mundell (in the Economist video linked to by Morgan) prescribes sensible fiscal measures, but has to be pushed to talk about monetary factors (other than exchange-rate volatility post-1971). Right at the end he strongly condemns the Fed’s behavior in 2008-09; why didn’t he mention that earlier, and bring his critique down to the present?

  166. Gravatar of StatsGuy StatsGuy
    2. September 2011 at 13:11

    @Ron

    The US is going to need to swallow some cost-push inflation. Competition for resources (oil, grain, etc.) is driving prices, combined with inelastic supply.

    Preserving the price of the dollar vis-a-vis oil is essentially pricing debt in oil, but pricing labor not in oil. That’s the crux of it.

    Monetary policy is not driving cost-push inflation. Developing country demand is driving cost-push inflation. Monetary policy, however, is ensuring that the adjustment to increased input prices is born entirely by working labor in order to preserve the value of bonds and fixed income.

    Inflation lowers the price of DEBT AND LABOR against costly inputs (oil), as opposed to holding the value of debt steady while killing labor (through nominal wage declines).

    I think we get it – but the PragCap meme of “monetary policy has done all it can” is winning anyway. I think the correct thing to say is “monetary policy has done all it can without accepting a moderate amount of inflation as the price for avoiding decades of stagnation (and ultimately sovereign crisis)”.

    But, everyone has their own agenda to push I suppose

  167. Gravatar of Morgan Warstler Morgan Warstler
    2. September 2011 at 16:39

    Philo,

    Because Mundell is a FAR SMARTER Macro Economist than others hereabouts.

    He knows when the main thing right now is bad Fiscal policy, and he knows what the purpose of money if for.

    I’m actually kind of shocked over at David’s Uneasy Money how badly David gets it.

    Mundell is very simple, we can have:

    1. free floating capital. check we want that.
    2. we can have stable prices. check we want that too.
    3. we can have autonomy over our currency. well, we’ll have to give that up.

    We can only pick 2. So #3 gets it.

    Mundell is soooo easy to understand. When we form Free Trade Agreements, we are agreeing essentially to a currency peg, we are giving up #3.

    People want stable prices, they don’t want the fed screwing around with the price level.

    I think other Macroeconomists resent Mundell because he makes them all worthless.

    What’s a macro economist to do when the goal becomes getting to one single currency?

    With Mundell at the helm, macroeconomists are basically buggy whips.

  168. Gravatar of MikeDC MikeDC
    2. September 2011 at 18:03

    Morgan,
    I think Mundell is obviously right on the big picture issue of growth, but obviously wrong that his two simple steps will get it. As best I’ve ever been able to tell, the formula for growth is quite simple:
    1. Avoid war (it destroys resources).
    2. Stable and sustainable finance and government system (we don’t either of these, and rendering the temporary tax cuts permanent without any corresponding spending cuts will make it worse)
    3. Health and education of the population. At the convergence level, this simply means getting better, but at the upper edge of the envelope, where we’re at, it means our people are getting good education and getting healthier so they can be more productive (both of these seem to increasingly be socialist boondoggles).
    4. Limiting rent seeking (nope, increasingly crony-capitalist here).

    Maybe this is a folk presentation, but at heart it’s pretty much what you get if you cut through all the math in, say, the Romer textbook I learned from. And the bottom line is that we’re fail, fail, failing and the Mundell prognosis at best obliquely touches on these issues.

  169. Gravatar of StatsGuy StatsGuy
    2. September 2011 at 18:19

    Morgan, mundell isn’t the first to observe this, and a lot of people question whether we want 1 and 2. (obviously, you do)

    Also, you are indulging a classic fallacy of question framing – you are presenting a rigid choice, instead of a continuous tradeoff. It is, I suppose, the typical ploy of a political hack.

    We could, for instance, impose a pigouian tax on capital movement (Brazil has one on hot money). This doesn’t prevent capital movement, it merely slows it down. We could engage in NGDP targeting, which is a flexible tradeoff between 2 and 3.

    But, you and your ilk prefer the absolutes – total victory. You will probably win, too, mostly because the guy in the oval office is horribly incompetent. If it was eisenhower, or truman, or roosevelt, you’d have lost. It is pretty much impossible at this point for Obama to win (if you believe historical models) – it would require a miracle. He miscalculated catastrophically, and I still think he doesn’t get it. Unless Perry cheats on his wife or sodomizes some intern in the next 12 months, he’s probably got the nomination. And Obama just alienated his most loyal supporters (environmentalists) today. If he was going to cave to the right, he should have caved completely, but he does everything half-2ssed.

    Congrats, you win. So, tell me, are you paid by the post, or by the responses to your posts? What other names do you write under, and how much do they pay you per hour?

  170. Gravatar of Full Employment Hawk Full Employment Hawk
    2. September 2011 at 20:59

    The jobs report today shows how right Scott’s title to this thread is.

    This is the time for the Board of Governors to reduce or eliminate the interest on excess reserves. The great thing about doing this is that this decision in in the hands of the BOG, not the FOMC, so that the three anti-jobs Fed presidents do not have a vote on this.

  171. Gravatar of Full Employment Hawk Full Employment Hawk
    2. September 2011 at 21:05

    “Obama halts $90B smog regulation from EPA.”

    This is a major political blunder on the part of Obama because it validates the incorrect right-wing frame that it is regulations that are responsible for the economy not recovering, instead of lack of demand. Instead Obama and all of his spokeperson should keep emphasizing that it is lack of demand that is the problem, not regulations. They should be pointing out that we had a regulatory meltdown under the Bush administration, who, in dealing with regulations put the foxes in charge of guarding the henhouse. All this lack of regulation did not prevent the Great Recession.

  172. Gravatar of Morgan Warstler Morgan Warstler
    2. September 2011 at 22:17

    Stats, since The Well (1987?), everywhere I go online, the most paranoid guy accuses me on being paid.

    You are much smarter than most, and paranoia is a heightened sense of reality, and I’m really good… but nah, I’ve just heard all the arguments from some of the very best living arguers, and I HAVE to have something take my mind off work – every hour.

    With Scott, he’s really on to something – we’re all privileged to discuss it with him, but I mean c’mon, you do get that the REASON he’s compelling is that there is nothing in him for liberals at all, right?

    He’s got both feet firmly planted in wanting Obama done, over, kaput, AND oh btw, the way he does it with Monetary.

    I know you and others dislike that I pee in the Cheerios, and make this whole thing about the difference between Scott and DeKrugman, but is Scott is to soar DeKrugman has to go down.

    They are what’s called mutually exclusively.

    To the facts: jesus dude, I’m not “framing” anything, I’m TELLING, I’m STATING…

    The people who run this country have decided that of Mundell’s choices:

    We want stable prices. We want freely moving capital. So, that means we lose Autonomy. The Fed is weak on purpose… this is WHY.

    Now there is a back door consolation prize for us with Mundell…

    Afterall, other countries are going to give up with autonomy too…

    So the most powerful country CAN get all three! Not total autonomy, but the US can have favored nation status in the new world order, can’t we?

    Anyhoo, don’t you feel silly when you use Brazil as evidence?

  173. Gravatar of Morgan Warstler Morgan Warstler
    2. September 2011 at 22:20

    Inflation Hawk,

    The word is not “validates” – Obama ADMITTED the problem is regulation.

    He outright admitted that if we kill the hippies, we all get jobs.

  174. Gravatar of StatsGuy StatsGuy
    3. September 2011 at 07:14

    Full Employment Hawk…

    I think the right has played this well. If Obama had set out to destroy the center and help out the right, he could have done no better. First he endorses corrupt bailouts, then he makes a big deal of implementing all these “progressive” programs, but in every single case he implements them so badly (and so half-way) that they are doomed to fail, and their failure proves that center progressive policies were all bad. In the process, he creates a “massive” stimulus, but fails to even bother to appoint two Fed governors until 14 months late, and even then allows seats to sit empty rather than using a recess appt. Honestly, the Dems deserve this. Not only did the latest suck up to the anti-regulation folks alienate his core, but it will win him nothing other than proving he doesn’t really believe what he says. In any case, if there is ONE group of regs that SHOULD stand, it’s the air quality regs which are conclusively linked to negative health effects, and have clear ROI. Maybe he should repeal the entirety of No Child Left Behind instead, since if he doesn’t the states will do it for him by default.

    Also, Obama is a terrible public speaker – something I’ve always maintained. He’s boring to listen to, and contorted in his message, and comes across as an arrogant twit. Perry also comes across as an arrogant twit too, but watching him is kind of like watching reality TV.

    BTW, enjoy Labor Day. While it lasts.

    http://www.cnn.com/2011/09/02/opinion/davis-labor-day-history/index.html?hpt=hp_t2

  175. Gravatar of StatsGuy StatsGuy
    3. September 2011 at 07:17

    OH, Scott, before you endorse Obama’s bending-over-the-barrel backtrack on coal plant regs, let’s think a bit about what Singapore might have done.

    http://law.nus.edu.sg/apcel/publications/pub/kohkhenglian/Singapore_Clean_Air.pdf

    Singapore isn’t “less government”, it’s just better and more efficient government that’s less corrupt and costs less.

    BTW, I truly hope the science is wrong on global warming, because we’re going to find out.

  176. Gravatar of Full Employment Hawk Full Employment Hawk
    3. September 2011 at 07:29

    “that the REASON he’s compelling is that there is nothing in him for liberals at all, right? He’s got both feet firmly planted in wanting Obama done, over, kaput, AND oh btw, the way he does it with Monetary.”

    (I consider myself a progressive, rather than a liberal because the term “liberal” is higly misleading. The original meaning of liberal was someone who was in favor of laissez faire, and the term is still used in that sense in Europe.)

    Cleary I am on this site because there are definitely things Scott wants that I strongly favor: A much more agressive use of expansionary monetary policy to bring the the unemployment rate down.

    And if the monetary policy Scott advocates were followed right now, it would still be able to have the unemployment rate falling at a significant rate by the Fall 2012 election, which would help Obama. That is why Quasi-Monetarism cannot get any traction among most conservatives and Republicans. They want to keep the unemployment rate as high as possible by Fall of 2012 in order to defeat Obama, so Scott’s policies are counterproductive for them.

  177. Gravatar of Full Employment Hawk Full Employment Hawk
    3. September 2011 at 07:35

    “but is Scott is to soar DeKrugman has to go down.”

    Brad DeLong has pointed out on a number of occasions that proptly failing to fill the vacancies on the BOG was a major blunder on the part of the Obama adminstration. Krugman supports a more expansionary monetary policy by the Fed and has criticised them for backing off from this.

  178. Gravatar of johnleemk johnleemk
    3. September 2011 at 08:45

    FEH,

    I still assign substantial blame to Krugman and DeLong. Most lay readers of their blogs/columns will never take away that more monetary stimulus is needed. Their tone is always Oh well, monetary stimulus might help, but man, the Republicans sure suck! They get too caught up in their own politics to clearly communicate the need for good monetary policy, which consequently has hardly any constituency, either on the left or right.

  179. Gravatar of MikeDC MikeDC
    3. September 2011 at 09:40

    I’m tired of hearing about how the other side is so bad because they’re withholding the wonders of easy money. It’s a cowardly and hypocritical argument, and what’s more, it’s simply stupid on its face to expect your opponents to go out and jump on a grenade just to give you political cover you certainly wouldn’t give them.

    “Oh, but it’s the right thing to do!” Well, if it’s the right thing to do, the party in control should do it (because, after all, they’re the guys in control), weather the criticism for it, and be vindicated.

    The truth of the matter not filling the BOG spots wasn’t just some sort of isolated blunder. 2008 Obama spouted nonsense about needing a strong dollar and surrounded himself with a boatload of economists who, even into 2009, were committing themselves to the “strong dollar policy”.

  180. Gravatar of MikeDC MikeDC
    3. September 2011 at 09:43

    Shorter version of my last post – if Obama had filled those BOG posts in 2008, his track record suggests he would have filled it with hawks.

  181. Gravatar of morgan warstler morgan warstler
    3. September 2011 at 09:52

    Stats when you have the nerve to accept Singapore or nothing for progressives you’ll win me over…

    As long as the choice is Obama and unions vs. Perry you vote perry.
    And when the choice is perry vs Singapore ill vote Singapore.

    The problem is until public employees are servants I’m against dems.

    In all things I want high quality low cost and in a flip I go cost.

    Unilateral dems become “productivity experts” ill hate them and you should too. The stats don’t lie.

  182. Gravatar of Full Employment Hawk Full Employment Hawk
    3. September 2011 at 11:43

    “I still assign substantial blame to Krugman and DeLong. Most lay readers of their blogs/columns will never take away that more monetary stimulus is needed.”

    Neither DeLong nor Krugman are arguing against more expansionary monetary policy, like the leading Republican presidential candidates.

  183. Gravatar of W. Peden W. Peden
    3. September 2011 at 13:45

    MikeDC,

    An interesting and sobering proposition.

  184. Gravatar of Morgan Warstler Morgan Warstler
    3. September 2011 at 14:06

    Inflation Hawk,

    DeKrugman approves QE3 as a tax on rentiers.

    He doesn’t think it helps, he just like inflating away people’s money. He’d much prefer to more directly steal it with taxes. And if he can’t do that, he’d like to just deficit spend and give away free shit to poor people. And then oh by the way… print money.

    You are a vapid human being. Who isn’t HONEST every day and every way about what he is after.

    Deal with it.

    I don’t think you are any different from him… if you COULD get higher taxes on rich people and a giant fiscal stimulus, and all you had to give up was QE3…

    You’d snatch that deal in a minute.

    Sumner’s policy agenda is not your consolation prize.

    We’ll be doing it when you are defeated and walking home.

  185. Gravatar of StatsGuy StatsGuy
    3. September 2011 at 15:52

    MikeDC

    “The truth of the matter not filling the BOG spots wasn’t just some sort of isolated blunder. 2008 Obama spouted nonsense about needing a strong dollar and surrounded himself with a boatload of economists who, even into 2009, were committing themselves to the “strong dollar policy”.”

    True.

    Morgan

    “Stats when you have the nerve to accept Singapore or nothing for progressives you’ll win me over…”

    I would take Singaporean economic policy any day over what we have here. I would prefer something in between, but if the choice were as binary as your thought processes, Singapore. So, do I win now?

    I suspect we won’t get Singapore – we’re going to get a return to crony capitalism and robber barons. In the long view, the US may become an extractive economy, unless technology intercedes and devalues extractive resources. Of course, technology may intercede on the other side and continue to displace labor to the point that wages fall below “replacement cost”.

  186. Gravatar of Morgan Warstler Morgan Warstler
    3. September 2011 at 16:45

    wait, you skipped my “binary” formula:

    Singapore > rick perry > obama

    which means if you can’t have Singapore you root for rick perry, and if I can have Singapore I choose it over rick perry.

    The point being you claim to like singapore, but since you actually will accept obama AS IS, that is who you are.

    And posts where you lament that Obama isn’t singapore are PURE NOISE.

    Because after all, you aren’t willing to vote agaisnt Obama, since he is not Singapore.

    Your ode to purity is wasted blather. Either you are so dedicated to Singapore you will accept nothing less, or you are really just sad you couldn’t “obama” America.

  187. Gravatar of Morgan Warstler Morgan Warstler
    3. September 2011 at 18:22

    DeKrugman’s latest intellectual spooge over the face of thinking people:

    http://krugman.blogs.nytimes.com/2011/09/03/broken-windows-ozone-and-jobs/

    “And now you can see why tighter ozone regulation would actually have created jobs: it would have forced firms to spend on upgrading or replacing equipment, helping to boost demand. Yes, it would have cost money — but that’s the point!”

    This is why the man is either third chromosome dumb or evil…. and it gets to the VERY ROOT of my point here over and over and over.

    MY PLAN is to cut SMB taxes to nothing, so that private sector piranha enter the water and force the Fortune 1000 to spend money.

    In this regard the WINNERS are not the ones who dance to the government’s SHITTY TUNE.

    In DeKrugman’s the winners are whoever best does whatever the government (and vis a vis DeKrugman) says.

    ——

    My plan favors job creating SMBs in a policy of distributism.

    DeKrugman’s plan favors Fortune 1000 folks who somke good government pole.

    ——

    Reread that. Here’s the point: DeKrugman COULD come up with my plan, he could figure out how to get to cause Big Companies to spend money, not on scrubbers, but on new tech to survive the onslaught from small business ripe with new super low taxes.

    But. He. Doesn’t.

    DeKrugamn REFUSES to be the beta. And we all KNOW he is.. whatever he wants “more money spending” – he will only get it the way a genie gives wishes.

    He’ll get what he wants, but it won’t be what he REALLY wanted.

    All the world’s problems are solved, when Dekrugman takes whatever he can get, the way it is given to him.

  188. Gravatar of Russ Anderson Russ Anderson
    4. September 2011 at 07:49

    Something to consider on the money supply front.

    This chart (http://www.shadowstats.com/alternate_data/money-supply-charts) show year-over-year % change by month of M1 +20%, M2 +10%, and M3 +2%, a rather dramatic increase since mid 2010. Does this indicate more NGDP on the way?

    With QE2 winding down, is this the result of other Fed actions, or something else, like an increase in velocity? Could it be that the European banking system is providing monetary stimulus by shifting deposits from Euro banks to the US? (http://streetlightblog.blogspot.com/2011/09/europes-banking-system-transatlantic.html)

    Do the smarter minds in this forum think this is something or nothing? (no Morgan, this does not mean you)

  189. Gravatar of malavel malavel
    4. September 2011 at 09:31

    Here’s an article about Rogoff’s inflation boost argument. But nothing about price or ngdp level targeting.

    http://articles.boston.com/2011-08-28/news/29938939_1_inflation-rate-financial-crisis-economy

    Harvard economist Kenneth Rogoff has spent his career fighting inflation. Now he thinks it might just save the economy.

  190. Gravatar of Full Employment Hawk Full Employment Hawk
    4. September 2011 at 19:38

    “And now you can see why tighter ozone regulation would actually have created jobs: it would have forced firms to spend on upgrading or replacing equipment, helping to boost demand. Yes, it would have cost money — but that’s the point!”

    Once one recognizes that it is lack of demand that is responsible for the economy remaining depressed and that the Fed is unwilling to correct the lack of demand with more expansionary monetary policy, this is a valid argument. The expenditures that firms will have to make to comply with the regulations will have a strong, stimulative effect on aggregate demand and therefore increase output and decrease unemployment.

  191. Gravatar of Full Employment Hawk Full Employment Hawk
    4. September 2011 at 19:52

    “we can have stable prices. check we want that too.”

    Who is this we? For most working people, who constitute the majority of voters, having a secure, well paying job and not having to be afraid of losing it, both for themselves and their relatives and friends is much, much more important than absolute price stability and if a moderate increase in the rate of inflation is the price that they have to pay, they are willing to pay it.

  192. Gravatar of Morgan Warstler Morgan Warstler
    4. September 2011 at 22:33

    Inflation Hawk, noise.

    Let’s make a regulation that every company must hire a currently unemployed person and make them the CEO!

    Don’t be stupid.

    My point crushes yours. It is OBVIOUS that IF you want to force Fortune 1000 companies to spend money, the correct way, you lets 1M SMBs have the tax advantages and regulatory advantages that the Fortune 1000 have, and take it away for the Fortune 1000.

    You just reverse rolls.

    The problem you have with that is that in order to favor the 1M SMBS, the government has to truly STFU.

    And you don’t want the government to have to STFU, the idea of that happening pisses you off.

    Obama doesn’t count. This will not be over until you admit it.

    No to tax credits for hiring. Yes to unconditional surrender.

    When SMB owners get to treat their profits like capital gains instead of income, and Wall Street treats their capital gains as income….

    You won’t get to be the boss, BUT atleast the oligarchs will eat it.

    That’s the ONLY upside available to you, the joy of watching the oligarchs eat it… what you’ll hate is 1M SMB owners who already have big houses and country club memberships, and own half the the main street in their small town, they are going to be MORE POWERFUL locally than they are today.

    They are all going to feel less threatened by the strong central power of DC. Isn’t it GREAT!

    And they will want more haircuts, dinners out, caddies, yoga lessons, liposuction, private school, yard work, etc. than they want now.

    Look, the top 5% BUY 37% of consumer goods – I read that today from Robert Reich.

    What I want is for the 90-99% to buy far more than the top 1%, than currently happens.

    Why are you against that?

  193. Gravatar of Morgan Warstler Morgan Warstler
    4. September 2011 at 22:40

    I mean it seriously Inflation Hawk, I’m trying to create class war amongst the people who actually have $$$.

    It is called divide and conquer, and your side TRIED it, your side BELIEVES in it…

    You just chose the wrong side to conquer! You CHOSE to suck up to the oligarchs.

    Look I know you want to pretend you can attack ALL of the wealthy, but you can’t. You need some wealth behind you.

    CHOOSE Tea Party wealth. Side with them. Agree to leave them alone, and together go rip down the oligarchs.

    Yes, the Tea Party SMB wealthy will get more than you do out the deal, but you will still get more than you get now.

  194. Gravatar of Jason Odegaard Jason Odegaard
    5. September 2011 at 11:10

    Humorous: http://twitter.com/#!/mattyglesias/status/109731566682513408

  195. Gravatar of Steve Steve
    5. September 2011 at 11:18

    Getting back to monetary policy:

    http://www.ft.com/cms/s/0/58abc6a2-d7dd-11e0-a5d9-00144feabdc0.html#ixzz1X6UZxFJZ

    “My sense is that more monetary stimulus at this point would likely show up almost entirely in higher inflation with very little constructive influence on growth,” said Jeffrey Lacker, president of the Richmond Fed.

  196. Gravatar of Full Employment Hawk Full Employment Hawk
    5. September 2011 at 12:16

    “said Jeffrey Lacker, president of the Richmond Fed.”

    The presidents of the individual federal reserve banks are chosen largely by banks and not the elected representatives of the people. There can be no justification in a representative democracy for letting bankers decide on the monetary policy of the country. Since the individual federal reserve banks play an important part in the conduct of monetary policy, the presidents of the individual federal reserve banks should be chosen by the Board of Governors. Or, as a second-best solution, control of open market operations should be given to the Board of Governors.

  197. Gravatar of Full Employment Hawk Full Employment Hawk
    5. September 2011 at 12:25

    “My sense is that more monetary stimulus at this point would likely show up almost entirely in higher inflation with very little constructive influence on growth,” said Jeffrey Lacker, president of the Richmond Fed.”

    The idea that an increase in aggregate demand, or in a dynamic setting, in NGDP growth will result mostly in inflation at a time when there are massive amounts of idle resources, both plants and workers is very difficult to justify with any solid, realistic model not based on the fallacious assumption that unemployed workers are voluntarily unemployed because they are choosing leisure. While Lacker is not currently a voting member of the FOMC, his view undoubtedly do influence the FOMCs blatent unwillingness to abide by its congressional mandate to achieve maximum employment.

    This is why the Fed’s next stimulus should be to reduce or eliminate interest on excess reserves. This decision is made by the BOG and the anti-full employment bankers’ representatives do not have a vote.

    It also again emphasizes that the failure of the Obama administration to promptly fill the vacancies on the BOG with people who take the Fed’s mandate to achieve maximum employment seriously is its most serious policy blunder.

  198. Gravatar of Lorenzo from Oz Lorenzo from Oz
    5. September 2011 at 13:35

    Just to show that Central Bank politics happen everywhere, this piece shows the current Oz Federal Government punishing an RBA Board member for getting it right. Of course, neither side of Oz politics would ever lead RBA Board member positions vacant: apart from anything else, the economic commentariat would savage them for blatant incompetence …

    Also, a nice post on the Oz CPI and what a changing beast it is.

  199. Gravatar of Full Employment Hawk Full Employment Hawk
    5. September 2011 at 13:47

    Brad DeLong is now supporting NGDP targeting. In his latest post, he states that

    “I think Obama should: 1.Apply a full-court press to the Federal Reserve to get it to target nominal GDP to close the spending gap”

    See the following link: http://delong.typepad.com/

  200. Gravatar of Jim Glass Jim Glass
    5. September 2011 at 15:05

    Perhaps not as off topic as it may at first seem…

    Gallup: Government ranks dead last in public opinion, below lawyers, bankers, oil companies and the real estate biz. Positive 17%, Negative 63%.

  201. Gravatar of StatsGuy StatsGuy
    5. September 2011 at 16:01

    @Steve

    Lacker is a fool, or a knave. Or both. If the issue is debt, which even Rogowski now agrees it is, then inflation BY ITSELF is a good thing, and will aid future growth. Lacker and others continue to operate under the assumption that distributional issues do not impact growth. Simply, they do, and admitting that inflation BY ITSELF would help growth by reducing the real debt burden is “radical”. Rogowski now calls his own theories radical.

    IMHO, that is why monetarists continue to stick by this notion that the mechanism by which inflation improves real growth is by reducing real wages which are “sticky”. That is currently the secondary mechanism. The primary mechanism is, simply, altering the balance sheets of consumers and real investors. The longer term structural mechanisms largely involve export support (something the neoliberals also hate to discuss) and import substitution. Them’s fightin’ words at the world bank.

  202. Gravatar of JimP JimP
    5. September 2011 at 18:19

    FEH

    Good for DeLong.

    A “full court press to the Fed.” Exactly. Obama should publicly support and demand that the Fed do NGDP targeting. Of course Obama will be accused of being an inflationist – an accusation he should accept and welcome. I think the only chance Obama has for a second term is to debate the Republicans on inflation (better called NFDP targeting or income targeting, obviously) v. deflation. That is a debate Obama can win. The debate on stimulus spending is obviously long lost.

    Now there is DeLong and (sort of) the Economist. If only Krugman would take it up – full throat.

  203. Gravatar of Steve Steve
    5. September 2011 at 18:31

    Charles Plosser views from Bloomberg Radio interview:

    “Inflation expectations are contained until they’re not and then it’s too late [laughter].”

    Need lower tax rates and a broader base

    Need to restructure entitlement programs

    Stock market has forecast 9 of the last 5 recessions — Plosser not worried about a declining stock market

    Fed has been very aggressive — “How much more can we do to alleviate structural imbalances?”

  204. Gravatar of MikeDC MikeDC
    5. September 2011 at 18:31

    Heh, did anyone catch the bit from Lacker’s Richmond Fed about “Zero Marginal Product Workers” the other day? I actually wrote about it on my blog, which I pretty much never bother to do. The jist of the paper they put out was “gee, monetary policy won’t work because workers are simply unemployable and unproductive”. Now, I might not be the sharpest tool in the shed, but the ZMP worker argument has struck me as pretty dumb from the getgo, so maybe using it as dressing for Fed inaction is just par for the course. Still… depressing.

    As far as DeLong, he would (and might, before it’s all over) advocate human sacrifice if it bolstered the Democrats’ chances in the next election.

  205. Gravatar of Steve Steve
    5. September 2011 at 18:38

    MikeDC,

    Doesn’t the FOMC employ several zero marginal product workers?

  206. Gravatar of Full Employment Hawk Full Employment Hawk
    5. September 2011 at 19:56

    “Need lower tax rates and a broader base. Need to restructure entitlement programs”

    The recession was not caused by increases in tax rates or a narrowing of the tax base. Nor was it caused by an increase in entitlement programs. It was caused by contractionary monetary policy at a time the financial system was under serious strain, causing a near collapse of the financial system. The recession was not caused by structural problems and therefore eliminating structural problems will not bring about a recovery.

    Plosser is an idiot savant. He is very technically skilled, but does not have a clue about how the economy works when there are massive idle resources. This man only has a voice in making monetary policy because bankers chose him for the job and in a representative democracy has no business making monetary policy.

  207. Gravatar of Full Employment Hawk Full Employment Hawk
    5. September 2011 at 19:58

    “How much more can we do to alleviate structural imbalances?”

    True, but totally irrelevant because the economy is in a lesser depression because of lack of demand. The Fed can do a lot about increasing demand.

  208. Gravatar of Full Employment Hawk Full Employment Hawk
    5. September 2011 at 20:06

    “Lacker is a fool, or a knave.”

    Agreed. I had the opportunity to ask him a question at the Kentucky Economic Association meeting last Fall and asked him if he thought the Fed was complying with its mandate to achieve maximum employment, and his answer was “yes.” This is another representative of bankers, instead of the people and should not be allowed to make monetary policy.

  209. Gravatar of Steve Steve
    5. September 2011 at 21:13

    James Bullard also was interviewed on Bloomberg. His views:

    “I prefer to look at headline inflation. I think it’s a better way to look at inflation.”

    “But if you want to look at core inflation, core inflation is up substantially from where it was last year, it hit a low of maybe 0.6%. It is now up quite a bit from that depending on which measure you look at it MORE THAN DOUBLED.”

    Inflation picture is different [than last year when we announced QE2], easing is a tougher call.

    Regime switching models are not forecasting a recession.

    Should be careful about basing policy too closely on what employment is doing.

    (Citing a BIS paper from Cecchetti), Bullard said US debt/GDP ratio should be come down to 40 to 50%.

  210. Gravatar of StatsGuy StatsGuy
    6. September 2011 at 05:20

    “Bullard said US debt/GDP ratio should be come down to 40 to 50%.”

    And, how exactly does that happen in a deflationary environment? My guess is this: Bullard, Plosser, et. al. are trying to send a strong message that they want serious fiscal austerity before they agree to more easing. And, they want to see that fiscal austerity reflected in the deflation numbers so they feel very safe.

    I happen to agree with Bullard about headline vs. core inflation to some degree – headline (food and fuel) may tend to better reflect the distribution of expenses among certain households.

  211. Gravatar of MikeDC MikeDC
    6. September 2011 at 05:53

    Statsguy,
    Could you walk me through the implications of the Fed targeting headline inflation? In my head, I’m thinking that means the Fed sitting there and going “look, food and fuel prices are rising due to market conditions, and we target inflation, so therefore we shouldn’t increase the money supply because we’d then head over our 2% when we combine cost inflation with the purely “monetary inflation” we can generate.

    Won’t targeting headline inflation cause us to undershoot the optimal amount of money creation to ease the rigidity and balance sheet problems? And conversely, since “monetary inflation” would raise everyone’s nominal incomes by X%, yes, the overall inflation rate then be higher, but the relative cost inflation for F&F wouldn’t change (if it were 2% before, it’d be X+2% under monetary stimulus)? Or am I off the reservation?

  212. Gravatar of Morgan Warstler Morgan Warstler
    6. September 2011 at 05:57

    “distributional issues”

    Stats, does this mean you agree with me that tax law should favor SMBs over everyone else?

    MikeDC, Scott must actually believe the ZMP thesis too.

    At current labor prices MANY people are not worth employing. There is no possible ROI on many Americans at minimum wage + health care + regulatory + cost of training, etc.

    That’s why we need a Guaranteed Income, where government auctions off labor of unemployed.

  213. Gravatar of Morgan Warstler Morgan Warstler
    6. September 2011 at 06:04

    “My guess is this: Bullard, Plosser, et. al. are trying to send a strong message that they want serious fiscal austerity before they agree to more easing.”

    Gee, who’s been saying this to you guys for 6 months?

    QE3 is being conditioned on more people being put out of the wagon and pulling.

    It is after all very simple: you can say the problem is sticky prices, but only if laws aren’t written to cause sticky prices.

    But I don’t hear many cheers here for pay employees less!

  214. Gravatar of Full Employment Hawk Full Employment Hawk
    6. September 2011 at 07:12

    “At current labor prices MANY people are not worth employing.”

    This is a misdiagnosis. At the current inadequate demand, many people are not worth employing. With greater NGDP growth creating greater demand, those people would be worth employing, just as they were before the economy went into recession. The near meltdown of the financial system did not suddenly cause all these workers to lose their skills. But if the economy remains in depression long enough they eventually will. The longer the depression goes on, the lower potential output will be when the economy returns to potential output. Hysterisis is a real phenomenon.

  215. Gravatar of Full Employment Hawk Full Employment Hawk
    6. September 2011 at 07:13

    Correction:

    That should read “With greater NGDP growth creating greater demand, those people would be worth employing AT CURRENT WAGES, just as they were before the economy went into recession.”

  216. Gravatar of Full Employment Hawk Full Employment Hawk
    6. September 2011 at 07:24

    “My guess is this: Bullard, Plosser, et. al. are trying to send a strong message that they want serious fiscal austerity before they agree to more easing.”

    In other words, they are trying to misuse monetary policy to further their right wing political agenda. All the opposition to more expanionary monetary policy seems to be coming from the presidents of the individual federal reserve bank. I would conjecture that all of these are Republicans. Since all of these people were largely appointed by bankers, and not by the elected representatives of the people, this is an undemocratic usurpation by the banking industry of a function of the government. The Constitution does not provide for an independent central bank. It give the autority to regulate the value of money to Congress. Therefore when the Congress gives the Fed a mandate, the Fed is legally obligated to abide by it. This, once again, shows why the failure of Obama to promptly fill the vacancies on the Fed with people who take the Fed’s mandate to achieve maximum employment seriously was his greatest bluder. If those positions had been filled, these political bankers’ representatives would have been easily voted down and would not be able to misuse monetary policy to further their right-wing agenda.

  217. Gravatar of Full Employment Hawk Full Employment Hawk
    6. September 2011 at 07:26

    “QE3 is being conditioned on more people being put out of the wagon and pulling.”

    People cannot pull when there are no ropes to pull on (i.e. jobs) available. What QE3 does is create more ropes.

  218. Gravatar of Full Employment Hawk Full Employment Hawk
    6. September 2011 at 07:34

    “Should be careful about basing policy too closely on what employment is doing.”

    Since the Fed has a mandate to achive maximum employment montary policy should be based closely on what employment is doing.

    Maximum employment, its not just a good idea, ITS THE LAW!

  219. Gravatar of Full Employment Hawk Full Employment Hawk
    6. September 2011 at 07:40

    “at minimum wage + health care + regulatory + cost of training, etc.”

    Those are not significantly differnt than they were before the economy went into the recession and those people were employed with those costs. It is lack of demand, not costs, that make them unemployable and faster NGDP growth is the solution.

  220. Gravatar of StatsGuy StatsGuy
    6. September 2011 at 11:29

    @FEH – at current labor prices, the cost of labor is below the replacement rate, as Marx might say.

    Mike – I didn’t say the Fed should target headline inflation. I don’t think it should target inflation, I’m just saying that as a measure of the real cost of living, the truth is probably somewhere between headline inflation and core inflation. That’s simply because the wealth distribution has an upward SKU, and the items that most influence core inflation most affect people at the bottom of the distribution.

    Morgan, – I don’t think I ever disagreed with you on that point, the question is threefold:

    1) You say monetary policy responds to fiscal, but the reverse is true – fiscal cuts are night impossible without strong commitment of monetary response. Which leads? Neither fiscal nor monetary authority trusts the other.

    2) Why is Bernanke asking for short term fiscal action?

    3) Technically, if the monetary authority is doing that, it’s illegal.

  221. Gravatar of Full Employment Hawk Full Employment Hawk
    6. September 2011 at 14:22

    “Why is Bernanke asking for short term fiscal action?”

    Perhaps because he does not have the votes on the FOMC to engage in the expansionary monetary policy he feels is needed.

    Hint to Bernanke: Eliminate the interest on excess reserves. That can be done by the BOG and the anti-full employment fed presidents do not have a vote.

  222. Gravatar of Scott Sumner Scott Sumner
    7. September 2011 at 03:42

    Everyone, 221 comments is way too many for me to respond to. It took me over an hour just to read them, and I did read them all (well, I skilled Linus’s treatise). Bring them up again in new posts if there is a specific point you want answered.

    JimP, Thanks for those links. The Canadian link was very interesting–I hope they go for price level targeting. Woodford’s right that the Fed needs to get more specific. QE3 would have even less effect than QE2.

    Ravi, Svensson seems to be talking about the circularity problem. If you are interested I published two academic papers in 2006 that discuss that problem. Bottom line is that it’s a problem for some types of “target the forecast” policies, but not others.

  223. Gravatar of Morgan Warstler Morgan Warstler
    7. September 2011 at 04:41

    Inflation Hawk,

    Look, those of us on the right KNOW money was too loose 2002-2008. The dollar plummeted. This propped up FOR A LONG TIME jobs that should not have been propped up. House WERE built that should be be built. More people SHOULD live at home. There are people not worth hiring because there ARE people in other countries who will work cheaper.

    Look, I start with: money flows – which means labor IS going to get their wages driven down along with their prices. We are going to meet China somewhere in the middle.

    I don’t like it, but I accept it. Surely, I’m acutely aware of the kinds of low end jobs that have a natural “local” advantage… service jobs. So I want to have as many high end workers from around the globe move here to get their hair cut, and need more waitresses, etc.

    What’s more, I even agree that Americans deserve more than they are worth, so I promote my guaranteed Income plan.

    But you are DAYDREAMING when you make a lot of wrong footed tacit assumptions of “well those people used to get jobs at current wages”

    China exists. The decision on free flowing capital has been made. And Greenspan ran hot for a long long time.

    Assume those, and you’ll figure it out.

    Stats,

    1) You say monetary policy responds to fiscal, but the reverse is true – fiscal cuts are night impossible without strong commitment of monetary response. Which leads? Neither fiscal nor monetary authority trusts the other.

    Scott says it. I agree. I think we both want the Fed to be far more explicit about its policy recommendations.

    2) Why is Bernanke asking for short term fiscal action?

    LOWER TAXES. Why is it so hard for you guys to remember this part. Greenspan did the same, he went and sat in Congress and TOLD them to pass Bush’s tax cuts.

    Nowadays Ben would probably really applaud Tax Reform. Which is the same thing. When the GOP talks tax reform it means lower taxers for the Tea Party, and higher taxes for all those companies that sucked up to Dems to get loopholes. I know you kinda skip over it when I make points like this, but I’m not joking: tax reform that lowers the taxes of the Tea Party but raises revenues is 100% ACCEPTABLE to the GOP.

    3) Technically, if the monetary authority is doing that, it’s illegal.

    rofl.

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