Archive for April 2009


Pirates and Global Warming

I know very little about Indian Ocean piracy, but I have always wondered about a couple of points.  First, why don’t ships take a wider berth around Somalia?  Are all these ships going through the Suez Canal?  And after ships are captured, why don’t war planes move over the spot, and sink the pirates’ boat when they leave?  Do the pirates always have hostages, which they later exchange for money somewhere in Somalia?  It seems their boats would be very exposed out in the open ocean.  I’m sure there are simple answers to these questions, but I have been thinking about the issue because of the recent capture of a ship captain who lives in the same metro area as I do.  Here is the Boston Globe story.  The father of the second in command teaches a course on anti-piracy techniques here in Massachusetts—what are the odds of something like that?  It sounds like the crew members were quite courageous.  Hopefully the captain will be released soon, I could even see a Hollywood movie if things turn out well.

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More Reverse Causation

There is a common misconception that zero nominal interest rates make monetary policy ineffective.  In fact, the reverse is true.  Because Paul Krugman is so respected by left-of-center economists, I had assumed that his “expectations trap” was now the accepted explanation of policy ineffectiveness, and that it was generally understood that Keynes’ original liquidity trap argument was faulty.  No doubt most macroeconomists are aware of Krugman’s argument, but as this link shows, much of the debate still revolves around the earlier Keynesian model, as formalized by Hicks (1937.)  To be fair to Brad Delong, I am sure that he understands the distinction between liquidity traps and expectations traps.  And he is merely trying to refute crude monetarist models that also lack rational expectations.  So maybe his exercise is defensible.  I am not a monetarist, but I imagine they might favor having the central bank do unconventional QE in that situation, i.e. buy interest-bearing assets.  But it is clear from his comment section that many of his readers do actually think that Keynes’ liquidity trap still shows monetary expansion to be ineffective at the zero bound.

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What’s the point of fiscal stimulus and QE?

If you were to rely on the press, you’d think that the purpose of fiscal stimulus was to boost real output, to “get us out of the recession,” and the purpose of quantitative easing (QE) is to boost inflation, to “get us out of the liquidity trap.”  I’m sure someone will tell me where I am wrong, but this seems like utter nonsense to me.  I had always assumed that the point of both monetary and fiscal stimulus was to boost AD.  And that in the short run both policies raise both prices and output.  And that the way nominal GDP growth is partitioned depends on the slope of the SRAS curve, not on what caused AD to increase.  Did I misunderstand my macroeconomics courses?

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Welcome viewers

I can’t bear to watch myself on TV, so you’ll have to tell me how awkward I look.  The format presents several challenges, you don’t see the other person, you have a number of topics to cover, and you want to get certain points across (but also seem conversational.)  In addition, the audience is unseen (unlike a seminar) and thus it’s hard to know if the level of discussion is appropriate.  Fortunately Mark Thoma is very friendly and easy to talk to, so despite our occasional policy differences it was a very pleasant discussion.  Of course I later thought of a 100 points I should have mentioned, and thus below I will link to some posts that new visitors might want to look at if they are interested in a more coherent explanation of my views of the crisis.

For a view of what went wrong with monetary policy look here.

For my policy recommendations look here and here.

For some data supporting the reverse causality view look here and here.

For evidence that tight money causes low interest rates look here and here.

For my views on market efficiency look here.

For my views on forward-looking monetary policy look here.

For my views on the General Theory look here and here.

For my views on fiscal stimulus look here.

I also tend to do non-monetary posts on Sunday.  Here is one on neoliberalism and cultural values.

I think that people have a natural level of success, or set point, based on their personal characteristics.  Although it is hard to evaluate oneself, I suspect my economic intuition is above average and my poise and presentation skills are below average.  The intuition works to my advantage in the blog format, but less so on TV.  Of course luck also plays a role in success, and I was fortunate to get some very favorable reviews from people like Tyler Cowen, Will Wilkinson, and Greg Mankiw.  Those reviews might have boosted me from below to above my set point.  We’ll see if my TV appearance puts me back at my natural set point.  (I recall that people used to talk about a “Peter principle,” but I haven’t heard that term recently.)

Here is the link.

Bank Architecture, Financial Architecture

For the past 25 years one of commuting’s little pleasures has been waiting at the traffic light in Watertown Square and admiring the architecture of the local bank (built in 1921.)  Unfortunately the links here and here don’t even come close to doing it justice, as it has the sort of deeply recessed arches associated with Alberti’s church in Rimini.  By the 1950s and 1960s, bank architecture had begun to reflect the aesthetics of the strip mall.  How did that happen?

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