Archive for November 2016


Did Kuroda luck out?

Most people will think this post is sour grapes on my part, but I’ve never cared what most people think.  I simply offer my honest opinion.  I was skeptical of Kuroda’s plan to peg bond yields.  (In this post I suggested that it was a positive step, but likely to have only a very small impact.)  But as of today the policy seems to be working.  The yen has lost about half of the ground gained over the last year. Recall it moved from about 125/dollar a year ago to 100 in late summer.  Now it’s plunged to 112.8.


So was I wrong?  I still don’t think so; rather I think that Kuroda got lucky.  Just after the policy shift, US bond yields started rising, in both real and nominal terms. Rates in some other important countries also started increasing.  This made the pegged 0% yield on 10-year JGBs look increasingly unattractive.  The yen depreciated.  If that change in global debt markets had not occurred, I doubt the policy would have had much impact.  Still, give Kuroda credit, as he was right and I was wrong.  (The markets were also wrong, and I’m a market monetarist.  Hence my incorrect prediction.)

If there’s a silver lining, it’s that I was less wrong than NeoFisherians who think a policy of lowering bond yields is disinflationary (I say never reason from a bond yield).  Keynesians who thought the BOJ was out of ammo were also wrong.  I always thought they had plenty of ammo, I just saw other tools as being more promising.

I’m not going to totally change my views based on this one data point, but I’ll file it away as one argument in favor of Ben Bernanke’s view of monetary policy.  (He’s the one who suggested this idea to Kuroda.)

PS.  If Japan were to hold the yen at around this level, then in the long run Japan would have about the same 2% inflation as the US is likely to have.  Markets currently don’t think the Japanese will do so, and thus they expect lower inflation in Japan.  But it’s entirely up to the Japanese where they want to set the exchange rate, and their inflation rate.  That’s a lesson I hope we can all agree on, except Noah Smith.

PPS.  Here’s another way of explaining my “lucky” argument.  The yen has fallen only slightly against the euro.  Europe also got lucky.


Liar, con man, statesman (Pt. 2)

Just to follow up on yesterday’s post, more good news:

Donald Trump has reversed course on several campaign pledges including suggesting he will reconsider his view on withdrawing from the Paris climate accord, and has shown less confidence in the usefulness of waterboarding and other forms of torture.

DeLong on fiscal stimulus

In recent years, I get the impression that Keynesians are being more and more aggressive in their arguments for fiscal stimulus.  I see economists arguing for stimulus when we are in a deep slump (2009), a sluggish recovery (2011-14) and even full employment (now.)  Here’s an example from Brad DeLong:

When should you use fiscal policy to expand demand even if the economy is at full employment?

First, when you can see the next recession coming: that would be a moment to try to see if you could push the next recession further off.

Second, if it would help you prepare you to better fight the next recession whenever it comes.

The second applies now whether we are near full employment or not.

Under any sensible interpretation of where we are now, using some of our fiscal space would put upward pressure on interest rates and so open up enormous amounts of potential monetary space to fight the next recession. It would do so whether or not it raised output and employment today as long as it succeeded in raising the neutral interest rate . . .

Like Mae West, they seem to think that too much of a good thing is . . . wonderful.  In my view, one of Bob Lucas’s greatest insights is that you need to think in terms of coherent policy regimes, not just gestures that might or might not seem appropriate at a given point in time.  In the standard Keynesian model, fiscal policy cannot be consistently expansionary.  For every year of expansionary fiscal policy, there’s another year of contractionary fiscal policy.  This is due to two factors:

1.  What matters is not the cyclically-adjusted deficit, but rather the change in the cyclically-adjusted deficit.

2.  In the long run the federal budget has a constraint; interest as a share of GDP cannot increase without limit.

In fairness, DeLong is focusing not on the direct impact, but rather the indirect effect on interest rates and monetary policy.  But I’d also make a practical argument here.  Any sort of plausible fiscal stimulus that might have a prayer of getting through Congress today (when the deficit is already $650 billion and rising), is likely to be on the order of a few hundred billion dollars/year, at most.  And that’s simply not going to move the equilibrium interest rate enough to have a meaningful impact on the potency of conventional monetary policy.  Big Japanese fiscal deficits also failed to significantly boost their interest rates.  It will also mean less fiscal “ammunition” in the next recession, when it might be even more necessary (from a Keynesian perspective.)

Nor is the direct impact of stimulus likely to be significant.  The Congress suddenly cut the deficit from about $1050 billion in calendar 2012 to about $550 billion in calendar 2013, and it had zero impact on growth (for standard monetary offset reasons).  Fiscal policy is a waste of time and money.

I explored these issues in more detail in my recent Lake Wobegon post, and in an even more recent post I pointed out that Janet Yellen suddenly seems to have changed her mind, and now agrees with me.

I’d really like these new Old Keynesians to write down a model on exactly:

1.  When do they want the cyclically adjusted deficit to be smaller than average?

2.  And exactly when do they want it to be larger than average?

I think I know their answer to the latter question (always), it’s the former question that has me perplexed.

HT:  Bob Murphy

Liar, con man, statesman

Of all the issues that Trump campaigned on, none got more emphasis that his promise to persecute, I mean to prosecute Hillary and send her to jail.  He was quite passionate on what he would do to that “nasty woman”.  But when a con man appears passionate, that really doesn’t tell you anything about whether he actually cares about the issue:

President-elect Donald Trump conceded Tuesday that he probably won’t make good on his campaign pledge to pursue a new criminal investigation into his political rival, Hillary Clinton.

“It’s just not something that I feel very strongly about,” he said Tuesday afternoon in an on-the-record discussion with reporters from The New York Times.

Nor does he feel strongly about trade, the steel industry, immigration, ending Obamacare, or a host of other issues.  What does he feel strongly about?  Trump. How do his fans feel about this betrayal?

Earlier on Tuesday, Trump’s senior adviser Kellyanne Conway had indicated that the president-elect was likely to renege on his promise to jail Clinton, a sharp departure from the “lock her up!” chants that Trump encouraged at his campaign rallies, immediately drawing the ire of some conservatives.

Breitbart News, the alt-right news organization formerly run by Steve Bannon, Trump’s chief strategist, headlined the lead story on its home page “BROKEN PROMISE.”

For once I agree with Breitbart.

And Judicial Watch, a conservative watchdog agency that sued to get more of Clinton’s State Department emails released, urged Trump on Tuesday to “commit his administration” to investigating Clinton, while promising to continue its own litigation and investigations to help uncover possible scandals.

For Trump to refuse to do so “would be a betrayal of his promise to the American people to ‘drain the swamp’ of out-of-control corruption in Washington, DC,” Judicial Watch President Tom Fitton warned in a statement. “President-elect Trump should focus on healing the broken justice system, affirm the rule of law and appoint a special prosecutor to investigate the Clinton scandals.”

These people better get ready for a lot more “betrayals”.  When you hitch your wagon to a skilled con man, don’t expect to avoid being conned.

PS.  What’s my point?  I’m guessing that most of my readers won’t get it, but I’m writing these for the select few out there who do get it.  (Hint: reread the title.)

PPS.  As usual, my macro posts are over at Econlog.

PPPS.  One day earlier:

During the election campaign, Trump repeatedly claimed that the [Trump University] lawsuits were baseless, and vowed that he would never settle. But on Friday, just ten days before one of the cases was due to go to court in San Diego, he agreed to pay twenty-five million dollars in restitution and fines.

Don’t you love the term “vowed”?  Remember when that word meant something? Like a “wedding vow”?  At least the Trump U. students will get restitution for Trump’s education scam.  But where will the American people look for relief?

PPPPS.  Do you think those 13 women are quaking in their boots about Trump’s “vow” to sue them for libel?  I’m sure Trump looks forward to having to appear in court 13 times as President, having one woman after another describe in graphic terms his abuse.  I look forward to Trump to fulfilling that vow:

At a rally in Gettysburg, Pennsylvania on Saturday, Trump declared, “all of these liars will be sued after the election is over.”

Yeah, I can’t wait to see that.

PPPPPS.  It’s time to stop bashing Trump for his campaign missteps.  It doesn’t matter whether he is a racist.  From now on I will focus like a laser on what he does today.  Let’s see if he fulfills his campaign promises.  That’s what matters.

Stop shaming Trump voters

An article in The Guardian says that Trump voters should be publicly “shamed”.  Just one more example of how politics takes 30 points off everyone’s IQ.

Here’s why the arguments for public shaming are wrong:

1. “Trump advocates lots of very evil policies.”  I agree but so does Hillary.  Do we publicly shame Hillary voters too?

2.  “Trump’s views are even more evil than Hillary’s”  I agree, but lots of very smart and well-meaning people feel otherwise.  Because you see the world in a certain way, doesn’t mean that’s the only way to see the world. Politics always leads to other people holding views that we ourselves find almost incomprehensible.  Trump’s an extreme case, but not the only one.  You and I may think his anti-Hispanic and misogynist rhetoric is outrageous, but that’s no reason to shame the millions of hardworking Hispanics and tens of millions of women who voted for Trump.  They simply saw his rhetoric in a different light from the way you and I saw it.

3.  “By voting for Trump you are endorsing his vile racism.”  Not at all.  Most people I know who voted for Trump don’t like the guy—indeed they often suggest they only voted for him because they dislike Hillary even more.  Voting is not about “endorsing”, it’s about lesser of evils.  Voting for Hillary was not an endorsement of her vile opinions regarding the War on Drugs.

4.  Public shaming increases the divisions in our society, making Trump-like figures even more likely in the future.

5.  Public shaming of Trump voters is completely inconsistent with the left wing (near religious) belief that the shaming of the “Hollywood 10” back in the 1950s was a disgrace.  You can’t have it both ways.  The Hollywood 10 also had vile political views.

6.  Public shaming of Trump voters also fails on utilitarian grounds; it lowers aggregate utility.  That’s because anger directed at people lowers their utility by more than it raises yours.

7.  Public shaming of Trump voters risks distorting public opinion polls, making it less likely that people like Hillary Clinton will be aware that they need to pour money into advertising in states like Wisconsin and Michigan.

8.  Public shaming risks driving a wedge between friends and family members.  In the old days, people took religious belief way too seriously.  They’ve mostly stopped that, but replaced their stupid religious bigotry with stupid political bigotry.

So for all you people who want to shame voters with different opinions than you hold, I say shame, shame, shame on you!

(If you want to shame Trump himself, that’s fine. But don’t shame Trump voters.)