About those 4 million jobs
I see that Joe Gagnon’s new housing plan has garnered attention from Paul Krugman and Matt Yglesias. You might wonder why I call it Gagnon’s plan, not Obama’s plan. Here’s why:
Even more important, if the Federal Reserve supported the refinancing boom by purchasing $2 trillion of new MBS, for example, the existing MBS holders would have to find another market in which to invest $2 trillion. This avalanche of money would surely push up stock prices, push down bond yields, support real estate prices, and push up the value of foreign currencies. All of these financial developments would stimulate US economic activity. Based on a recent Fed study (Chung et al 2011) Fed purchases of this magnitude would increase US GDP by more than 2 percent after about two years, creating nearly 3 million additional jobs. This estimate includes only a small part of the effects operating through the mortgage refinance channel discussed above, so that the total effects on the economy would be even larger, perhaps creating 4 million extra jobs or more.
A few comments:
1. I don’t want to get into any “how many angels . . .” arguments here. The plan contemplates massive open market purchases by the Federal Reserve. I’d call that “monetary policy,” you are free to call it whatever you like. Whatever you call it, the decision is up to Bernanke, not Obama.
2. My hunch is that the housing refinance angle wouldn’t create many jobs. I say “hunch” because I’m not really qualified to judge.
3. As you know I am a big fan of Gagnon, so this post shouldn’t be viewed as criticism. I would strongly support a $2 trillion OMP. I don’t really have any idea how many jobs it would create, but it would be worth a shot.
Tags:
25. October 2011 at 06:28
Gagnon is the pragmatic center – his general opinion is “I don’t really care whether you call it fiscal or monetary”. I have not yet seen him formally endorse NGDP targeting, though I may have missed it.
25. October 2011 at 06:36
Another large open market purchase would boost things slightly enough to make everyone complacent about or hateful of the Fed even more.
Expectations seem far more important and relevant than targeting monetary policy at a particular sector of the economy. That wasn’t even popular when we weren’t “printing money” to do it.
This is a truly awful idea and it makes monetary policy look awful too, at a time when it needs to shine brighter than ever.
Poorly played, Joe Gagnon.
25. October 2011 at 07:04
There are 11M people who owe more on than their house is worth.
Only an idiot as big as Obama would think that if they lose their house they are losing something.
THEY HAVE NO EQUITY.
None. Zilch. Zip. Nada.
Look, 11M having to move out is no big deal.
Banks having to sell 11M homes at a loss to smart guys with good credit and 20% down in $1 auctions is GREAT. See #teaparty See #OWS.
The ONLY harm is the ding to the credit of 11M people who lose a house.
FORGIVE THEIR CREDIT DING.
Use MERS violations to justify the removal of the tradeline, and there is no moral harm done to any of those poor 11M.
Propping up homes prices is terrible economics.
25. October 2011 at 07:41
@Morgan
Please do the math – if 11 million houses go under, that could represent likely losses of 100k each house, or a trillion or so dollars. Worse, because if houses plummet on such a fire sale, more go under, and more foreclose.
You’re looking at a trillion in bank losses easily (probably more if a vicious cycle sets in on house prices), which will not merely wipe out bank equity capital, but will hit bondholders and depositors. Welcome to bank run part deux. Who backs all that loss? That’s right, the taxpayer.
So what you’re asking for is a massive transfer of money from taxpayers to your tea party folks, get it? And your jutification is that you are trying to stop a massive transfer of money to current homeowners, right?
As to forgiving their credit Ding – you really think that will happen? In 2005 the party-in-power passed an anti-bankruptcy law that created legal peonage. It’s now nearly impossible to escape federal student loan debt (at 7% plus rates, many of which were issued by colleges that were paid fees to push debt even though debt was cheaper and safer through other banks). In many states, house loans are NOT no-recourse, and can follow debtors for many years.
We are in the process of financially destroying an entire generation because:
Boomers don’t want to see the value of their assets decline
BUT
Boomers don’t want to see the value of their pensions and fixed income decline
The only solution the Boomers will accept is to pile even more debt onto the younger genearation and to cut all public investment of any time (infrastructure, education, police, fire, etc.), although they claim they don’t want to increase the deficit. There is, however, this thing called revealed preference theory.
So what you are saying is this – you want the biggest government giveaway since GWB’s tax cut, then you want Obama out of the Oval Office, THEN you want to inflate the heck out of assets so everyone who bought houses cheaply during the firesale can get a windfall profit.
Very nice.
25. October 2011 at 07:50
@ Mr. Riste
“Expectations seem far more important and relevant than targeting monetary policy at a particular sector of the economy. That wasn’t even popular when we weren’t “printing money” to do it.”
Gagnon’s suggestion and the NGDP target are not inconsistent.
The Fed’s response should be: “We are targeting 5% NGDP, and if it looks like we might not hit it, this is the first thing we will start doing until we do hit it… Just watch us.”
I disagree about the loss of Fed credibiltiy – the Fed is perceived as helping only banks right now; directing QE at housing to support refis (particularly as many ARMs continue to reset) is particularly critical right now.
The Fed could do a lot to help its reputation by being clear about its targets, and forceful in its language. Given the perfectly insulting and derogatory language that people like Plosser have used, Bernanke and other FOMC members would benefit from more forcibly attacking the people attacking them.
25. October 2011 at 07:55
Dear All,
For scientists just trying to learn some economics, please do not use acronyms, however well you understand them.
What is OMP?
Ever yours
Bob Eisenberg
25. October 2011 at 08:53
I’m not sure how anyone can call themselves an economist and support the Federal Reserve buying mortgage backed securities. I thought that already failed with TARP, but what about the moral hazard, what about rewarding losers, what about preventing market readjustments, what about letting housing find a bottom and recover naturally, what about letting market discipline work, what about the government not directly picking winners and losers?
There is so much wrong with a plan like this that it is difficult to know where to start. I guess the most important points to emphasize would be that it’s unfair for the government to directly pick winners and losers and bad for the economy for the government to protect companies from bad decisions.
If you have to do monetary stimulus, find another way! How about ending any supports to the existing zombie banks and finance houses and having the Fed pledge money to create new banks that would be auctioned into private sector control should current banks fail. That would at least get rid of the unfairness and moral hazard.
25. October 2011 at 08:57
@Stats Guy
I thought the whole point of Scott’s NGDP targeting was that the government could let all those houses go under or let big financial firms fail and there would be nothing to worry about.
From a basic economics perspective though, you have to remember the opportunity cost of keeping people in those houses. There are more productive ways to spend money than trying to finance people who are underwater on their mortgages. Let them send in the jingle mail, let housing prices fall through the floor so that buying a house is an exciting opportunity again.
25. October 2011 at 09:02
Statsguy,
Repeat after me: 11M homeowners have NO EQUITY. They lose NOTHING if they lose their home.
What I’m talking about is a trade:
The conservative right (A power) and the reactionary left (C power) gets to see the destruction of banks and the oligarchs (B power).
The conservative right gets to buy houses cheap, cheap, cheap.
The reactionary left is proud that the 11M losers are given do-overs, and they rejoice in the cheap, cheap rents.
Together these two groups (the A power and C power) do not have to ask anyone’s permission to destroy the B power.
—-
Look dude, stop shilling for the oligarchs, stop pretending my idea isn’t the shortest distance between two points.
The underlying policy you are promoting is the Fed’s: that the 11M should be encouraged and given hope to keep handing over $$$ every month to prop up the banks – before they ALL eventually lose their homes anyway.
25. October 2011 at 09:03
Stat guy,
ozz noes Llyod Blankfein, Jamie Dimon and Warren Buffet will lose 1 trillion if tax payers do not bail them out AGAIN. Please don’t let them lose money, anything but that…central planning is the only solution. Statguy and the Vatican have convinced me…worldwide central planning by the banksters is the answer to our problems.
25. October 2011 at 09:46
Anything that pumps money into the economy is good. The more debt that is monetized, or extinguished, and replaced with cash is good in this economy. Yes, I said it. Monetize debt. I worship Satan.
BTW, and I hope Scott Sumner reads this: There is an article in the Nov. 10 issue of New York Review of Books on the book “Moneymakers,” the practice of counterfeiting in the 1700s and 1800s. The book is written by Ben Tarnoff. The review is fun to read, and Tarnoff suggests the counterfeiters did more good than harm. What was called “specie” (gold or silver) was scarce. But if people believed in the paper money, wealth was created.
A case can be made the US economy would have suffocated except for counterfeiters, and some banks that issued paper money freely.
The gold nuts are the enemy of sustained economic growth.
25. October 2011 at 10:04
Ben Cole,
If debt keeps getting monetized, extinguished, or forgiven who is going to be a creditor. That is a plan for a massive capital strike. I don’t know why creditors get such a bad rap; it seems everyone wants to see them expropriated through inflation or debt forgiveness. Why can’t people seem to realize that without creditors, there would be no lending and the economy would grind to a halt.
People also seem to have an antiquated notion of who creditors and debtors are. In the old days of feudalism, the wealthy were generally creditors and the serfs were usually debtors. It seems people still think with that mentality.
The truth is that today, creditors are by and large average people with bank accounts while the biggest debtors are major corporations, the very wealthy, and the government. Favoring debtors at the expense of creditors rewards the already wealthy and punishes the middle class. That’s what the inflationists are really after.
25. October 2011 at 10:15
Ben Cole,
“The gold nuts are the enemy of sustained economic growth.”
This is precisely the opposite of the truth. How does an economy grow in your magical world? It seems like it only grows through printing and spending money. In the real world, sustained economic growth comes from savings and entrepreneurs who invest those savings in ways that satisfy consumer desires (profitably). Savings are the sine qua non of economic improvement. All the investment in capital goods, which raise productivity and real wages, have to come from society’s pool of savings. Without an accumulation of savings, an economy would be stuck in the same poor position forever.
Which situation do you think is likely to contribute to more savings? Situation A where the government pledges to print enough money to keep spending growing regardless of economic fundametals, or Situation B where the government promises not to devalue the currency? A hard money like gold is much more conducive to saving than fiat currencies which central banks can devalue at whim.
Blowing up the quantity of money can create short-term prosperity, but damages the productive capability of the economy down the road by misallocating resources. It does not create sustainable growth; the truth is exactly the opposite. Friedman recognized this and would never have favored radical inflaionary scenes like buying private debt.
25. October 2011 at 10:21
Let’s get past the idea of housing playing such a significant role in the economy. The argument of propping up housing is like the argument of earlier days to make sure everybody stayed back on the farm, and real wealth is out there if it is just given a chance. Already some in construction are looking at ways to greatly improve production methods, methods that mean less hiring of construction workers who too often could not afford to build their own homes because of the huge expenses of unneccessary labor. It’s time to let production efficiencies become a real part of housing.
25. October 2011 at 10:40
John,
Our skills and the expanding base of knowledge we rely upon are the real gold of the present. Anytime that human skills are measured separately from money (so as not to water down production), there occurs a naturally growing base that follows the growth of civilization itself, rather than the arbitrary amount of gold that may be pulled from the ground. Wealth is possible – growth is possible, through the maintenance of pure monetary production and the parallel economy of human skill.
25. October 2011 at 11:00
Becky,
I can’t think of any practical way to measure the value of human skill, or the value of anything else except in terms of money. Without money prices, it is impossible to assign definite values to anything and therefore impossible to plan and calculate rationally.
The things that allow for growing productivity, knowledge, and civilization in general are savings and economic calculation. Today we are the lucky heirs of people who bothered to pass on present consumption in order to provide more amply for the future (saving and investment). As an economy becomes more advanced, a functioning price system is necessary in order to steer people towards serving the needs of others.
Money, savings, and prices are fundamental to human action. Without them, civilization wouldn’t grow. People wouldn’t be able to afford to go to school, or build scientific instruments, write literature, etc.
This is why I emphasize hard money, market prices, and savings (they all tie together) in nearly every single post I write. Those things are the basis of a thriving civilization and anything that gets in the way slows human progress.
25. October 2011 at 11:09
Morgan:
“Repeat after me: 11M homeowners have NO EQUITY. They lose NOTHING if they lose their home.”
First, please look up the definition of option time value. Second, look up transaction costs.
Third, who’s going to pay the cost of the bad loans when the banks run out of capital to absorb the losses, and who’s going to recapitalize the banks?
Taxpayers.
Also, I do not shill for anyone – Oligarchs or Tea Party.
25. October 2011 at 11:22
@ John
“I thought the whole point of Scott’s NGDP targeting was that the government could let all those houses go under or let big financial firms fail and there would be nothing to worry about.”
Certainly – and I agree with that. However, Scott will also tell you that if we engage in NGDP targeting, many fewer large financial firms will go bankrupt, and many fewer houses will go under – because more people will have jobs and prices (and/or productivity) will be guaranteed to rise relative to fixed rates on residential debt.
In other words, most of the (remaining) bank solvency problem IS CAUSED BY the aggregate demand problem.
The operational question, from the point of view of the Fed, is what actions to threaten to take if NGDP does not hit target. The actions taken, and indeed the actions promised, have a distributional impact that is unavoidable. Buying government debt has a distributional impact – either by reducing debt available (and thereby reducing interest paid to future debt buyers while increasing immediate returns to current debt owners), or indirectly.
Threatening to buy residential MBS is a functional threat (there’s plenty to buy) that targets one ailing sector of the economy.
Recognize that Morgan has an iron in the fire – he does not WANT the Fed to declare an NGDP target until after his political objectives are achieved.
His message is more or less:
“If all of you liberals would simply bend over for me, I could have my satisfaction and you can get back to work.”
My position is this – monetary policy should not be a political bargaining chip.
25. October 2011 at 11:26
I believe, in this context, OMP is an open market purchase (buying assets, such as government bonds, on the open market).
25. October 2011 at 11:28
John-
Forget gold, silver, or conch shells (once used as currency in Pacific Islands).
Look if we print more money, and people work to get that money, then we are creating wealth. If I counterfeit $200 and pay a guy to paint my house, and then he spends it etc, everyone starts working.
If we are below full capacity, then competition keeps down inflation, even with the $200 in circulation.
Today we live in global economy, so supply siders should be in nirvana—compared to the 1960s-1970s, when in the USA you had to source locally often through unionized shops. You could get bottlenecks or price gougers back in the 1960-70s, but not today. You can source goods, services, capital, even labor globally, and online. That kills inflation–global supply of everything (though we are closing the border to Mexico, I am told).
BTW, what if drug lords decide to migrate to the USA with their $800 billion in Ben Franklins? For some reason, the gold nuts say that is okay, but printing up $800 billion is bad.
The last thing I worry about is inflation, when it is south of 5 percent. Over that, maybe I raise an eyebrow.
25. October 2011 at 11:41
StatsGuy, to see the light, you must open your eyes.
The big banks are going down. WTF do you think End The Fed means in practice?
1. We have 8K local banks, who all long ago SOLD off all the loans they wrote to the big guys to package into MBS.
2. The FDIC goes in an tells depositors to choose one of the local banks to have their money sent to. FDIC banks are now required to KEEP future loans on their books.
3. Little banks LOVE, LOVE, LOVE the Tea Party guys coming in loans for deeply discounted houses with great credit, and 20% on the houses they are buying cheap, cheap, cheap.
Look dude, the houses don’t go anywhere. 11M people become renters. Nothing changes.
Wall Street gets some jumpers, big deal.
The Tea Party become landlords.
The OWS crowd get cheap rents.
Note: you are LYING to the 11M, and you don’t care. They have NO HOPE of getting anything out of their home.
You are only shilling for the oligarchs, don’t try and equivocate the Tea Party into your sickness.
25. October 2011 at 11:41
Larry Summers seems to be onboard:
http://www.ft.com/intl/cms/s/2/bb228716-fb51-11e0-8df6-00144feab49a.html#axzz1bWnXuPrk
‘The Federal Reserve could support demand and the housing market by again expanding purchases of mortgage-backed securities.’
25. October 2011 at 11:46
“My position is this – monetary policy should not be a political bargaining chip.”
ROFL.
Why the hell do you think the Fed was kept “Independent?”
Because the government was liberal scum.
If the government was only conservatives, the Fed wouldn’t be independent.
Dude, the fix was in from the beginning, just like with the Constitution – the hegemony makes damn sure your side fights with the mob tied behind its back.
25. October 2011 at 11:48
John,
We have only recently reached an economic tipping point that makes it necessary to reconsider wealth creation as a whole. Otherwise, as in Scott’s reference: never ending “angels dancing on the head of a pin” arguments as to redistribution and how to connect (so-called)non-optimal human skills to (more)optimal monetary conditions. Lateral skills share is not really impossible. When people work to hone wide skill portfolios, they have the ability to match those skills with others based on variable internal measures of shared worth. Whereas, monetary economies demand agreed-upon skill bars that necessarily limit economic access in monetary terms to a portion of our lifetimes. And in the near future, we may well need to be economically responsible to others for the full extent of our lives.
Businesspeople have warned for at least a decade that they alone cannot do the job of providing economic access to everyone. However, wherever people take back responsibility for social needs through lateral skills share, many businesses can return, which could not function under the load of burdens such as healthcare.
25. October 2011 at 11:50
Stats guy,
When the government provides help for troubled sectors of the economy, it doesn’t help the system as a whole. Why would we want more resources to go into housing and finance at this point? The fact that these sectors have become (or threatened to become without a bailout/TARP/purchasing MBS) unprofitable is a sign that money could be better utilized elsewhere.
Ben Cole,
You haven’t picked up the basic point I’ve been trying to make to you over and over again. If you print up $200 dollars and spend it, you don’t make society richer, you redistribute purchasing power in the direction of yourself and the people who sell to you and away from those who are farther away from you in the spending chain. Society as a whole is no better off, no new resources come into existence with the creation of paper money (this isn’t the case with gold that has non-monetary uses). Looking farther down the road, inflation has detrimental effects on capital formulation.
Counterfeiting is illegal because it is literally stealing through the money system. The fact that the government has the right to do it doesn’t make it beneficial.
You should also read some stories about hyperinflation. Adam Ferguson’s “When Money Dies” is a good book. What makes hyperinflations interesting is that it shows you the problems of small inflation by putting a magnifying glass on the phenomenon. The redistributive effects and explosion in speculation and finance become clearer.
25. October 2011 at 12:00
Becky,
I’m not sure where the argument you’re making is coming from so I’m not really familiar with it and don’t know how to respond. If you’d point me in the direction of where that’s coming from, I’d be happy to read it.
I’m always skeptical about ideas that say we’ve reached some sort of tipping point. The laws of economics are valid across time. Supply and demand, economic calculation, opportunity cost, comparitive advantage, etc., are always valid because they come from the basic condition of scarcity. Like the laws of physics, they’d be valid in other galaxies as well.
When I hear about tipping points, I’m always reminded of the argument about machines killing jobs. Making the argument that machines killed jobs in the past is patently ridiculous since we have more people and many more jobs with greater pay. Because of that, people always so that the introduction of machines was good in the past but bad today. It’s always nonsense disproved by basic economic reasoning.
25. October 2011 at 12:07
No, Morgan – it is you who are lying, and would happily enslave the middle class if you could. Here is the data:
http://trulia.movity.com/rentvsbuy/
In spite of the media hype, unless you live in NYC, LA, or San Fran, you are better off buying if you expect to live in the house for even a modest length of time.
It’s worth noting that Trulia uses fixed rates above 4%, and does not appear to take into account rental price appreciation or a possible mortgage interest deduction.
If you refi a loan for 3% rate (which I refi’d at 2 months ago without any closing costs, since I have equity, a job, savings, a good credit score), the buy/rent ratios are even more in your favor.
It’s ALSO worth noting that rental prices have been going UP lately, while mortgage payments are… well, fixed. Rental prices have already recovered to 2008 levels by end of 2010 and were projected to rise 4.5% in 2011 and 3% in 2012.
So if you factor in rental price increases AND a Fed-subsidized mortgage rate, then home owners are generally MUCH better off staying put UNLESS they are >20% underwater.
The numbers don’t lie. You do.
25. October 2011 at 12:11
John:
“Why would we want more resources to go into housing and finance at this point? The fact that these sectors have become (or threatened to become without a bailout/TARP/purchasing MBS) unprofitable is a sign that money could be better utilized elsewhere.”
That is the best and only argument we should be having over where the Fed should threaten to inject money into the economy. Alternatively, the Fed could buy Treasuries, which gives the federal government incentive/capacity to borrow more money. Or corporate bonds… Choose your poison.
25. October 2011 at 12:40
Statsguy,
The Fed shouldn’t be injecting money into the economy. It doesn’t work. The amount of money we have right now is fine. It performs all the services money has to offer.
Purchasing treasuries, corporate bonds, or mortgage backed securities all distort relative prices. If they have to buy something treasuries are the best just because of tradition. Injecting money into the economy does not stimulate additional economic activity in the long run, and by long run I’m only talking 5-10 years.
25. October 2011 at 13:47
Scott you’re killin me man. How can we debate if I don’t even know what your position is?
I’m sure you’ll say I’m not paying attention, but I swear you are hard to pin down.
OK here are three views I had attributed to you, as of yesterday:
(1) If the Fed used monetary policy to successfully help the economy, we’d see interest rates go up, not down.
(2) The Fed shouldn’t be in the business of bailing out particular sectors of the economy.
(3) QE2 clearly worked, as far as it went, and is responsible for a big drop in the unemployment rate.
Now you are commenting on Gagnon who wants the Fed to buy a ton of MBS so that it will lower interest rates and buoy the housing market. You don’t comment on those aspects of it, express mild support, but say you aren’t sure it will create jobs.
Can you understand why I am confused (besides my obsession with gold)? Can you enlighten us? (I’m not being sarcastic, I don’t know what the heck your position is from one day to the next. You are the Black Box of Bentley.)
25. October 2011 at 13:57
Stats,
Rents are going up because no one wants to buy… because the 12M in shadow inventory is being held up from entering the “coming rental” market.
Let me say this clearly:
When the Tea Party gets 11M new houses they bought a for a SONG to play landlord with… rents will go down.
Look dingus, I have a good buddy in the SoCal market – his fund is now sitting on 500+ houses they have paid cash for at courthouse step auctions.
In more than HALF of the instances, the foreclosed mortgage holder STAYS on as the renter and they are paying 40-50% of what they were paying in the mortgage.
STOP pretending you are trying to help the poor bastard in the upside down house.
Look, if you just don’t get whats really going on out there, SAY SO, but quit hypothesizing into a pretzel.
The houses change hands. 11M upside down mortgage holders becomes renters with new money to spend elsewhere… ending their suffering, and the banks have a stroke
25. October 2011 at 15:21
CLEAR data from CBO supporting my A, B, C power analysis and my read of SMBs vs. Fortune 1000.
http://www.cbo.gov/doc.cfm?index=12485
COMMIT that stuff to memory boys and girls!!!!
What you see is the A power… the backbone of the Tea Party the top 2%-10% of SMB owners…. the 81-99% LOST NOTHING when the C power (the bottom deciles and their progressive keepers) cut deals with the B power (the top 1%).
Instead the B power sucked gains away from C power.
—–
Now look at that chart again, and ask yourself what % of those in the top 40% of America VOTE?
—–
Look at it another way, as pure game theory, say you are in the bottom two deciles and you REALLY, REALLY want to get it back from the top 1%…
Look at the chart.
Look at it.
The SMARTEST thing you could do is go suck up good and tight with 81%-99% and even the 61%-80% and agree to follow their lead.
What tard at the low end of the spectrum, unless he’s being manipulated by George Soros and Matty’s keeper Tony Podesta thinks it is smart to make war on the Tea Party????
Stats, I’m talking to you.
If you want to gut the 1%, you NEED the 80-99% on your side, so you have to ask this question:
What can the folks at the bottom do, to win over the 80-99%?
In any rational game, you’d immediately intuit the right strategy Stats, what keeps you from seeing it now?
25. October 2011 at 15:37
Morgan:
“I have a good buddy in the SoCal market… ”
Yes, and if you look a the Trulia data, that’s one of the handful of markets where renting beats owning. I’m afraid your sample is a bit narrow.
But even if your view was backed by good data (it isn’t), I do not see how such a political horse trade could ever be successfully pulled off.
25. October 2011 at 15:37
John,
The ideas are mine. My essays are far from complete because it took years to understand the language in my own head and it may take me years to understand all the languages I am taking in now. I believe that machines have not taken away our jobs but freed us to do the jobs we want to do the most. Most of the economic theories I am finding (books and blogosphere) are indeed quite valid. But one basic element has been hard to find, that is central to my thought: production can only fund services to a minimal point and then we have to do the rest. Can anyone point me to further work on that theory besides what Baumol did and even he seems to have abandoned the earlier work.
25. October 2011 at 15:38
Morgan:
“I have a good buddy in the SoCal market… ”
Yes, and if you look a the Trulia data, that’s one of the handful of markets where renting beats owning. Your sample is very narrow.
But even if your view was backed by good data (it isn’t), I do not see how such a political horse trade could ever be successfully pulled off.
25. October 2011 at 15:57
“I believe that machines have not taken away our jobs but freed us to do the jobs we want to do the most.”
True if:
1. Most everyone has to have a boss.
2. There must be ROI generated from your labor by your employer.
You aren’t allowed to be an anthropologist and demand society (government) care enough about your cause to employ you.
Auctioning the Unemployed is the way to go.
—–
Stats,
the chart is meaningless. rents are up because no one wants to buy. no one wants to buy because 11M houses haven’t flooded the market at $1 auctions to lure the rightful buyers into become become landlords.
Auctioning the Houses is the way to go.
25. October 2011 at 16:14
Becky,
I liked Bob Murphy’s “Lessons for the Young Economist” for going over the basics. If you’re up to it you should check out a little of either “Human Action” by Ludwig von Mises or “Man, Economy, and State” by Murray Rothbard. Their works immediately cleared up the issues in my mind after years of brainwashing in college. In any case, I’ve never read a more clear compelling case than what those guys put forward.
25. October 2011 at 16:15
Becky,
I forgot to mention that all those things are free and online at mises.org.
25. October 2011 at 17:05
John-
You keep saying inflation is theft.
But only if you keep your money in a mattress. I suppose deflation is theft also, by the same coin. Why don’t people put their cash into interest-bearing accounts, or property or real estate. In fact, inflation stimulates investment, by this token, rather than mattress stuffing.
But let;s accept your view, and we cannot endure inflation, any of it. That means we must adopt a money supply and currency that somehow remains stable, in the face of wildly evolving goods and services, demographics, wars etc. Or, we can all carry around little packets of gold. (Or gold bricks if you are rich!) I am not sure how you even measure absolute price stability (as you may know, many say now the CPI overstates inflation).
Obviously, we are going to use paper currency. If we inflate the supply to spur growth and investment, the only losers are people who hold large amounts of paper currency, and that is drug dealers.
Oh, boo-hoo for drug dealers.
BTW, read this weeks New York Review of Books, there is a fascinating article on counterfeiters in America’s early years. Also state banks issuing currency left and right. hundred fo such banks, Lots of competition to issue currency! Yahoo! Some say they literally created wealth out of thin air. Without paper currency, no one had the resources to develop the land. You had a very inefficient barter economy, and no capital. But nirvana for gold nuts!
26. October 2011 at 04:16
logic always kinda escapes me…. 2 Tn for 4 Mn jobs is 500k/job. yeah i know we want to stay within the bounds of “conventional” policy, but the total stock of GSE mortgage debt is something like 7Tn. 500k/job does not seem like a good tradeoff. If the fed GAVE everyone 1/10 of that (credit everyone’s checking account) to use however they want, including writing down debt, it would do a lot more for the economy and work a lot faster.
26. October 2011 at 06:16
John–you said on a previous post that you don’t want to remain anonymous. Are you John T., by chance? Your writings sound very similar to another astute member of the blogosphere with the same name.
26. October 2011 at 08:01
Morgan,
I thought about your interesting juxtaposition: auction the unemployed, auction the housing. While at first people think of auctions as declines in value, that would mostly be true for assets which have lost utility given present day circumstances. However, the individual is not a set of given options in the same way as a fixed asset, therefore more amenable to growth potential in relation to the actual needs of others.
Plus, in regard to our skills, we have the capcity to be our own bosses. Marginal utility often works better individual to individual in present circumstances than it does for would-be employers because of the extreme levels they have to go to in the present to maintain profit.
26. October 2011 at 11:31
Becky, this is my plan:
http://biggovernment.com/mwarstler/2011/01/04/guaranteed-income-the-christian-solution-to-our-economy/
At the end of this, you see my suggestion on the GI pay schedule:
http://biggovernment.com/mwarstler/2011/01/31/guaranteed-income-part-ii-a-real-end-to-illegal-immigration/
“However, the individual is not a set of given options in the same way as a fixed asset, therefore more amenable to growth potential in relation to the actual needs of others.
Plus, in regard to our skills, we have the capcity to be our own bosses.”
If you want to call their customers their bosses, then I don’t care if the 2%M all work for themselves.
That’s actually what my plan is all about.
At the low end of the earning / skill / talent pool, there is little or no signalling about which jobs are worth $3 per hour vs. $7 per hour in a meaningful supply demand situation.
The REASON we are seeing all these farm jobs in Georgia and Alamaba go empty, crops rotting, etc.
In the short form: we aren’t forcing Americans to work for their assistance checks.
But in the long from: Until everyone is engaged in what I’ll call household labor: babysitting, cooking, doing laundry, cleaning lawns, handyman… and then call center, etc. etc.
We can’t really figure out what farm labor has to pay as a premium to get people out there picking.
We might find that as a society, we choose to robot the farms simply because at $12 per hour, there aren’t enough takers, and they’d all rather earn $8 in less stressful stuff.
BUT, figuring that out is crucial to really marshaling an efficient use of American labor and capital.
The other side of it, is the “hot potato” to steal a phrase of human productivity from having a GIANT labor pool of low wage earners to shuffle your mundane tasks on to.
Tim Ferris has a great book called “Four Hour Work Week” to go with “Four Hour Body” both of which are packed with good advice.
The main thing about 4hrwkweek is to outsource everything.
And when talented mommies can go to the office earning less because the cost of daycare has dropped 50%:
1. their skills don’t diminish, they improve.
2. they increase the GDP.
When 10 households in a neighborhood can split the $200 a week bid to each get a half a day of a laundress coming over and doing their laundry… ten family can each go leverage that time savings in ways that matter.
When the folks at the bottom are no put to work for the folks just above them, the folks just above them are the BIG LOSERS.
26. October 2011 at 14:19
Ben Cole,
You haven’t understood the point I’ve been trying to make at all. When you print money, you redistribute purchasing power in the direction of you and those who sell to you at the expense of those who get the newly created money later. That’s why it’s theft your literally taking things away from other people in a complicated sense. I know it’s a mental exercise.
Tom,
Thanks for implying I was astute. To answer your question, my last name is Becker. There are a lotta people named John out there so I should probably use my full name on here. I’ve just been commenting as John. Since my arguments usually differentiate me from everyone else, I haven’t felt the need to use my last name.
26. October 2011 at 15:30
You haven’t understood the point I’ve been trying to make at all. When you print money, you redistribute purchasing power in the direction of you and those who sell to you at the expense of those who get the newly created money later. That’s why it’s theft
Everybody understands that simplistic notion. But you don’t addresses the assumptions behind it.
1) When the new money adds to purchasing power in a world of underused and unemployed resources, spending it will bid some of those into use, with the real benefit of increasing production and employment. The increase in the size of the real economy offsets the increase in the money supply. To the extent it does, inflation does *not* result. In principle, inflation can actually decline. (As per the changing slope of the short-run aggregate supply curve).
Why do you assume the increase in the real economy has a value of $0 relative to your assumed increase in inflation?
Why do you assume significant inflation will result at all in an economy of underutilized resources? What model predicts that?
2) There is no theft in a voluntary exchange. When “those who get the newly printed money later” do so via voluntary exchange — how else will they get it? — in which they deem the money to be worth *more* than what they traded to get it (else why would they have made the trade to get the money?) by what definition can they plausibly be considered “victims of theft”?
I’ll also note that if one believes the trivial rate of inflation we are talking about today (market expectation: 1.4% annual over the next 10 years) is theft that destroys savings and thus investment, then it seems one should think that by the same mechanism the 25% deflation of the Great Depression was great and generous boon, in particular one to savers that spurred saving and surging investment. But how’d that work out? Why didn’t it?
26. October 2011 at 18:34
Statsguy, yes, he seems moderate.
Kevin. A year ago when Krugman was raving about Gagnon, I did a post pointing out that Krugman’s policy views were actually closer to mine than Gagnon’s.
I agree that the focus should be on expectations, not buying lots of bonds with interest bearing reserves. But if that’s all that’s on offer, I’ll support it and hope for the best.
Bob, OMP is open market purchase (issuing base money.)
John, Aren’t they talking about GSE debt, which is already effectively Treasury debt? Or am I mistaken?
Benjamin, I once read a couple books on counterfeiting. Then I discovered that one was plagiarizing the other. The plagiarist was pro-counterfeiting. ironic, eh?
Becky. I agree that housing is overrated.
Bob, I don’t agree with everything Gagnon says. Just because I comment on a post doesn’t mean I agree with it.
I still believe what I always believe about QE2, although I don’t think I ever argued that it had a large impact on unemployment. I said there was nothing in the unemployment numbers that suggested it “failed.” From the very beginning I argued it was a relatively weak policy, so don’t expect much.
The effect of QE depends on future policy expectations, so one episode might be very different from another. That’s why I’d prefer the Fed use tools other than QE–try to shape expectations directly.
Does that clear things up?
BTW, I don’t favor subsidizing housing. I assumed the debt was GSE debt, already effectively Treasury debt (the damage has been done.)
26. October 2011 at 20:08
Jim Glass,
I’ll address the second point first since it’s a real pinata. The people who suffer from a loss of purchasing power due to counterfeiting never voluntarily agree to their loss of purchasing power. They can easily be considered victims of theft. You shoulda thought that one through more carefully.
In regards to the first point, unused resources, if we’re talking about capital goods, represent an entreprenurial error. In many cases, it may be best just to write them off. If they’re convertible (can be moved around and used in new lines of production), then market prices should be allowed to work to channel them into their proper use. If we’re talking about unused labor, all unemployment in a free market is voluntary. In any case, it’s best to let prices shuffle around workers to their most productive uses. This is easier than ever with our increased mobility and internet job postings.
“The increase in the size of the real economy offsets the increase in the money supply. To the extent it does, inflation does *not* result.”
By printing money and spending it, you are by definition robbing purchasing power from other people whether prices observably rise or not. You didn’t offer any goods and services in exchange for the goods and services you bought when you print money, there was no “effective demand.” That’s why it’s better to define inflation in terms of increases in money and credit rather than prices. Rising prices, what the mainstreamers call inflation, is just a consequence of large increases in money and credit. By this, sensible definition, inflation can never decline when new money gets issued.
“Why do you assume the increase in the real economy has a value of $0 relative to your assumed increase in inflation?”
Wrong. I just “assumed” that creating money didn’t create new resources (consumer or capital goods).
“Why do you assume significant inflation will result at all in an economy of underutilized resources? What model predicts that?”
The modified Phillip’s Curve for one; by that I mean ones that take account of Friedman’s critique. It shows that without increasing bursts of money, unemployment will stagnate or increase.
Forget the models, real life shows that significant inflation can result from monetary increases in a “slack” economy. The 1970s in the U.S. is one example. Zimbabwe in 2008 is the best example. They had unemployment over 90% and inflation as high as it can get. Real life discredits the idea that inflation and slack can’t occur together.
Scott,
I read MBS on your blog and Krugman’s. Even if it is GSE’s, it’s still bad economics and profoundly unfair.
28. October 2011 at 18:38
John, GSE debt was nationalized long ago, the damage has been done. I’ve been trying to abolish the GSEs for decades, so I have no disagreement there.