Starbucks and the Fed

This is the sort of pathetic story that occurred frequently in the Great Depression:

Starbucks to Begin Collecting Donations to Stimulate U.S. Job Growth

Starting Nov. 1, Starbucks will begin collecting donations of $5 or more from customers to stimulate U.S. job growth through its “Jobs for USA” program. The Seattle-based coffee chain is collaborating with the Opportunity Finance Network, a nonprofit that works with nearly 200 community development financial institutions to provide loans to small businesses and community groups. Starbucks says 100 percent of the donations will go toward loans for firms and organizations that can add jobs or stem job losses.

One only sees this sort of story when there is a massive failure of monetary policy.  Is the Fed the only institution left in America that doesn’t understand that we have a demand problem?

And here’s a gem from a member of the party of Thomas Jefferson, Franklin Roosevelt, and John F. Kennedy:

“There’s no longer any question that China’s unfair trade policies are having a detrimental effect on our economy,” said New York Sen. Charles Schumer in a call with journalists on Friday. “There is probably nothing we can do to create jobs better than by correcting China’s trade imbalance. “

Where’d he get that idea?

And here’s a story that is unintentionally funny.   I will link to the entire story as it appears this morning at Yahoo.com.  It is obviously incomplete, and I anticipate it will be soon corrected, so take that into account:

WASHINGTON (AP) — Federal Reserve Chairman Ben Bernanke is reiterating that Congress should not cut spending sharply when the economy is weak.

Bernanke tells the Joint Economic Committee that lawmakers face a complex situation. While they must avoid making decisions that could impeded the recovery, he says they must eventually go further than the $1.5 trillion in deficit cuts being sought by a special panel.

Bernanke says that the economy is growing more slowly than the Federal Reserve had expected and that the most significant factor depressing consumer confidence is poor job growth. He says the Fed is

Two comments:

1.  Why would there be a problem with fiscal austerity now?  After all, the Fed recently refrained from QE3 because they see no problem with the expected path of AD. 

2.  “The Fed is”  —  That about sums it up.   🙂

Have a nice decade.


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30 Responses to “Starbucks and the Fed”

  1. Gravatar of Steve Steve
    4. October 2011 at 06:58

    “While they must avoid making decisions that could impeded the recovery, he says they must eventually go further than the $1.5 trillion in deficit cuts being sought by a special panel.”

    Statements like these from someone like Bernanke make me want to barf. I believe that the permanent income hypothesis / Ricardian equivalence mostly hold (especially on policy reversals less than 5 years out) and it’s contradictory to advocate stimulus now but austerity in a year or two. Yet the tripe has become the political consensus and Bernanke-san is feeding it.

  2. Gravatar of Kevin Donoghue Kevin Donoghue
    4. October 2011 at 07:18

    Re comment (or question) no. (1): the expected path of AD assumes no premature fiscal tightening, so Bernanke’s caution on that makes sense. He doesn’t want to be put in a position where he has to implement maxi-QE, thereby causing Plosser, Fisher and Kocherlakota to throw tantrums in the boardroom.

    The man prefers a quiet life. Also, he might like to visit Texas someday.

  3. Gravatar of bill woolsey bill woolsey
    4. October 2011 at 07:22

    We need a Reaganite monetary policy.

  4. Gravatar of Kevin Donoghue Kevin Donoghue
    4. October 2011 at 07:23

    BTW is there some reason to suppose Thomas Jefferson, Franklin Roosevelt, and John F. Kennedy would have been nice to China? Jefferson was a bloody maniac; check out his infamous Adam and Eve letter.

  5. Gravatar of Cthorm Cthorm
    4. October 2011 at 07:37

    I’ve been watching the Q&A with Bernanke on CNBC, and literally everything in that Yahoo article is complete BS. Bernanke didn’t say anything of the sort. He hasn’t even touched on fiscal policy other than agreeing with a suggestion that government spending would need to be cut by something closer to $4 trillion over the next ten years. If I could watch anything else, I would (the only channel at work). Watching congressmen question Bernanke is incredibly painful. Democrats are asking him what he thinks about income inequality and the Fed’s role in worsening that problem (!). Republicans are asking him what he is doing about inflation and if he is concerned about current rising inflation (Ben was quick to point out that we’ve had disinflation for the last 6 months). Your idea of turning monetary policy into something that could be run simply by a computer seems like utopia.

  6. Gravatar of Morgan Warstler Morgan Warstler
    4. October 2011 at 07:45

    http://bit.ly/pqabjw

    Bill, you’ll GET a Reaganite monetary policy as soon as Obama leaves office.

  7. Gravatar of Pacioli Pacioli
    4. October 2011 at 07:49

    “One only sees this sort of story when there is a massive failure of monetary policy. Is the Fed the only institution left in America that doesn’t understand that we have a demand problem?”

    How can you argue that a lack of demand is the result of failed monetary policy? This problem is clearly of a FISCAL kind, not monetary.

    I guess another way to say it is – what would you have the Fed do differently, at this juncture? (not what do you wish they did at XYZ point in the past – what should they be doing NOW)

  8. Gravatar of Cthorm Cthorm
    4. October 2011 at 07:52

    Bloomberg and CNBC are making a big deal of a comment Ben made when he was pressed on whether the Fed was prepared to extend emergency lending to troubled banks. Ben pointed out that Dodd-Frank makes it illegal for the Fed to do so, -unless it was through some broad based lending program-. I wonder what they imagine he intends to do.

  9. Gravatar of Liberal Roman Liberal Roman
    4. October 2011 at 07:54

    This is awful and depressing. I now am pretty sure the Fed will do nothing until it sees massive job losses again.

  10. Gravatar of Liberal Roman Liberal Roman
    4. October 2011 at 07:57

    Watching congressmen question Bernanke is incredibly painful.

    Cthorm,

    I completely understand.

    After discovering this blog, watching pundits and Congressman debate economics is like watching two weatherman discuss if it was Zeus or Thor who caused today’s thunderstorm. It’s just painful.

  11. Gravatar of James in London James in London
    4. October 2011 at 07:57

    More companies doing a Starbucks is a good thing. Good for society. Voluntary charity as opposed to compulsory state charity (aka taxation) should be more common, much more common. Don’t be such a big government, cradle-to-grave, patsy.

    It’s a shame we need charity, but the poor will always be with us. It’s how we deal with them that influences their ultimate numbers. Huge, impersonal, state welfare will be given the runaround and grow, and grow, and grow, as the leg-up becomes the hammock. Multiple, decentralised, voluntary welfare will do a far better job of keeping the numbers down and really helping people return to work. Well done Starbucks!

  12. Gravatar of Nick Rowe Nick Rowe
    4. October 2011 at 08:29

    James in London: there’s the poor who won’t work; there’s the poor who can’t work; there’s the poor who can work but can’t find any; there’s the poor who can work but can’t find any because monetary policy is bad. It wouldn’t cost anything to help that last group, if we did it the right way, with monetary policy.

  13. Gravatar of marcus nunes marcus nunes
    4. October 2011 at 08:38

    Let´s be”intentionally funny” and try to come up with a “fun treory” that could give the correct incentives for the Fed to do “good MP”. For pointers, check this out:
    http://www.youtube.com/watch?v=Qx_8gxh76iM

  14. Gravatar of James in London James in London
    4. October 2011 at 08:53

    Nick. I agree. However, America has become too dysfunctional a country to sort out between those types of poor people, without a crisis. It’s come to that.

    A badly run welfare state is incredibly corrupting of the overall polity. Most are badly run, like most state enterprises inevitably are, and the US is in than basket. The end of Ancient Rome remains the template for when it gets really ugly.

    And blaming the Republicans for playing politics is just naive (Scott). They think they can do a better job in government and won’t help until they get into power. The Democrats are equally to “blame” for not doing what the public will probably soon elect the Republicans to do.

  15. Gravatar of JTapp JTapp
    4. October 2011 at 09:16

    I’d like to mass email your posts to the Occupy Wall Street crowd and encourage them to Occupy the Board of Governors instead.

  16. Gravatar of John Thacker John Thacker
    4. October 2011 at 09:49

    However, the New York Times writeup of his testimony has Ben once again emphasizing that:

    “Mr. Bernanke said that the Fed has not exhausted its options.

    The central bank, he said, “is prepared to take further action as appropriate to promote a stronger economic recovery in the context of price stability.”

    But his emphasis once again was on the need for the rest of the government to act.

    Ben does really seem to be worrying about inflation, otherwise it’s hard to understand his “we could do more, but won’t” claim in the context of an AD shortfall.

  17. Gravatar of Benjamin Cole Benjamin Cole
    4. October 2011 at 10:11

    Please Mr Bernanke, read Scott Sumner’s blog. If you are a staffer to Bernanke reading this, won’t you bring this blog’s attention to Mr. Bernanke?

    Surely, somebody in the Fed is reading this blog. Or, is the Fed that insular?

    Indeed, has the Fed ever even acknowledged the Market Monetarism school of thought?

    Oh, that?

  18. Gravatar of Morgan Warstler Morgan Warstler
    4. October 2011 at 10:39

    Nick Rowe,

    1. “there’s the poor who won’t work”
    2. “there’s the poor who can’t work”
    3. “there’s the poor who can work but can’t find any”
    4. “there’s the poor who can work but can’t find any because monetary policy is bad.”

    4 CAN ONLY BE TRUE, if 1 and 3 are being solved for with policy changes.

    This is for sure… you monetary discussion helps to suck all the oxygen out of real discussions on solving 1 and 3 with say a plan to auction all “excess capacity” in $40 per week auctions.

    http://biggovernment.com/mwarstler/2011/01/04/guaranteed-income-the-christian-solution-to-our-economy/

    Whether you do it on purpose is up for debate, to judge this… I use a simple metric of how often I see an economist call for TRYING to unstick wages.

    Have you written at length on how we can crush public employee unions? End Davis-Bacon?

    Since not doing 4 makes us more likely to solve for 1 and 3, surely there is a moral argument for demanding real efforts on the real problem, and not the debatable money printing stuff.

  19. Gravatar of John John
    4. October 2011 at 11:05

    NGDP, RGDP, the CPI, consumer spending, and government spending are all up since the pre-crisis highs in 2007. It is certainly NOT obvious that it is an aggregate demand problem. What has failed to recover since 2007 is net private investment; everything else has recovered. Any theory of why the recovery has stalled should address this and the AD theory doesn’t do that.

  20. Gravatar of John John
    4. October 2011 at 11:09

    Nick Rowe,

    I know a lot of wealthy, becoming formerly wealthy people who have been out of work for a year or more. These guys are former financial advisors, real estate developers, investment bankers, stockbrokers, etc. The current problems are affecting white collar jobs just as much as blue collar jobs for the “poor.” The plight of formerly well off people is something that really sets this recession apart from others.

  21. Gravatar of Steve Steve
    4. October 2011 at 11:32

    John wrote:
    “NGDP, RGDP, the CPI, consumer spending, and government spending are all up since the pre-crisis highs in 2007”

    HUH??? RGDP never reattained its 2007 peak. It’s still lower, and with recession beginning in Q3/Q4 2011, it will still be lower in 2012. Check the data first.

  22. Gravatar of Scott Sumner Scott Sumner
    4. October 2011 at 12:13

    Steve, Very good point. Fiscal stimulus affects expectations, just like monetary stimulus.

    Kevin, I think that’s exactly right. One criticism I get is that Bernanke says fiscal stimulus is still needed, so how can I say monetary policy will offset more or less fiscal stimulus. And I see their point. But it’s not clear whether Bernanke is saying the Fed won’t do so, or doesn’t want to so so because he’ll get flack (but in the end will anyway.)

    Bill, I agree.

    Kevin, I just mean that the Dems used to be associated with the free trade position.

    Cthorm, Yes, it’s painful to watch Congress interview him.

    Pacioli, I recommend new commenters look at my FAQ tab on the right, which gives something of my views, and further down the link to key posts and papers. Money is tight relative to what’s needed for adequate NGDP growth. They need a higher nominal target (inflation or NGDP.) And level targeting.

    Liberal Roman, Good analogy.

    James, You said;

    “Don’t be such a big government, cradle-to-grave, patsy.”

    I can’t figure out why after all these months you still have no idea what I’m advocating. It certainly has nothing to do with charity, it’s steady NGDP growth at 5%. I like small government.

    Nick, Well put.

    Marcus, I like that idea.

    JTapp, The Fed, or the elite econ departments, where faculty tend to support the Fed, and think Bernanke’s doing a good job.

    John Thacker, Either he’s worried, or he needs to cover for his colleagues, and not publicly stab them in the back. It’s hard to say which.

    Ben, We know Christy Romer read it, it’s on her Berkeley university reading list. Don’t know about the Fed.

    John, NGDP normally grows by 15% over 3 years. It’s about about 4% since mid-2008, or about 1% per capita over three years. You think that’s enough demand for full employment? It’s the worst demand shock since 1938, for God’s sake. If we don’t have a demand problem now then there has never been one ever–which is what some RBC-types think, despite all the evidence they are wrong.

  23. Gravatar of Scott Sumner Scott Sumner
    4. October 2011 at 12:14

    Steve, Thanks for correcting John.

  24. Gravatar of Patrick R. Sullivan Patrick R. Sullivan
    4. October 2011 at 13:18

    Howard Schultz has a lot of good ideas, read about them here:

    http://www.amazon.com/Pour-Your-Heart-Into-Starbucks/dp/0786883561/ref=sr_1_1?s=books&ie=UTF8&qid=1317762951&sr=1-1

    Ignore his current political enthusiasms. He should stick to creating jobs, that’s what he’s good at.

  25. Gravatar of John John
    4. October 2011 at 13:21

    Steve,

    Your right about RGDP, I apologize for the sloppiness on my part. However, I’m conceding too much by mentioning those stats. Employment has nothing to do with the volume of spending. The final statement economics can make on employment is this; “labor factors will always be fully employed on the free market to the extent that laborers are so willing” (Rothbard). Unemployment is either voluntary or a result of institutional factors like minimum wages.

    A big part of the reason for voluntary unemployment are incentives to unemployment like foodstamps, unemployment insurance, and welfare. If politicians were to eliminate these types of institutional factors, unemployment would disappear and the economy would be healthy and more productive going forward. Inefficient government spending and monetary tricks do not provide this type of healthy and sustainable improvements.

    The bottom line is that policy should look to create a healthy long term economy over a series of quick fixes and these institutional factors have to be addressed.

  26. Gravatar of johnleemk johnleemk
    4. October 2011 at 13:31

    “If politicians were to eliminate these types of institutional factors, unemployment would disappear”

    Gold.

  27. Gravatar of James in London James in London
    5. October 2011 at 08:37

    I don’t get what you are saying? Don’t call what Starbucks are doing a “pathetic story”. That is a big government, socialist, response to private charity.

    It also helps ease the pain of downward nominal wages. No use calling nominal wages sticky downwards if when society moves to help make wages more flexible you call it “pathetic” and want big government and its tame central bank to inflate nominal demand to eliminate the “problem”.

  28. Gravatar of Scott Sumner Scott Sumner
    5. October 2011 at 17:32

    Thanks Patrick.

    John, And what does Rothbard think caused 25% unemployment in 1932, before minimum wage laws existed, and when welfare was less generous than today.

    And how about high unemployment in 1921?

    James, Pathetic relative to the size of the problem.

  29. Gravatar of Philo Philo
    9. October 2011 at 16:13

    I have read that “The Federal Reserve Act . . . gives America’s central bank a mandate of ‘maximum employment, stable prices, and moderate long-term interest rates’.” ‘Stable’ and ‘moderate’ are vague terms, but ‘maximum’ is not: it is quite definite, and perfectly extreme.

    The Fed is currently giving us a gently rising price level (by the standard measure), and extremely low long-term interest rates; it is not clear whether what it is doing in these respects is consistent with its mandate. (I would say the interest rates are *not* “moderate,” but perhaps that term was intended to mean *not extremely *high**.) But it is perfectly clear that the Fed is failing to produce *maximum employment*.

    Of course, the Federal Reserve Act does not specify how to make trade-offs among these objectives. But it seems to me that the Fed is practically ignoring the *maximum employment* mandate; why isn’t there more of an outcry about this? People must think the Act does not mean what it says; or perhaps they think that, by analogy with the “living Constitution,” we have a “living Federal Reserve Act,” which has now been re-interpreted.

  30. Gravatar of ssumner ssumner
    10. October 2011 at 09:40

    Philo, Lots could be said on this, but the bottom line is that most people don’t think the Fed can do anything, so they don’t blame them.

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