19 ноября, 23:04

Без заголовка

**Should-Read: Jo Mitchell**: [Dilettantes Shouldn’t Get Excited](https://criticalfinance.org/2017/11/19/dilettantes-shouldnt-get-excited/): "The Freshwater version of the model concluded that all government policy has no effect and that any changes are driven by an unexplained residual... >...The more moderate Saltwater version, with added Calvo fairy, allowed a rediscovery of Milton Friedman’s main results: an expectations-augmented Phillips Curve and short-run demand effects from monetary policy. The model has two basic equations.... >The first... aggregate demand... based on an... assumption about how households behave in response to changes in the rate of interest. Unfortunately, not only does the equation not fit the data, the sign of the main coefficient appears to be wrong. This is likely because, rather than trying to understand the emergent properties of many interacting agents, modellers took the short-cut of assuming that the one big person assumed to represent the economy would simply replicate the behaviour of a single textbook-rational individual—much like assuming that the behaviour of an ant colony would be the same as that of one big textbook ant. It’s hard to see how one can make an argument that this has advanced knowledge beyond what you could glean from a straightforward Keynesian or Modigliani consumption function.... >[The second,] the Phillips...

19 ноября, 20:12

How much do government workers cost?, by Scott Sumner

Tyler Cowen directed me to an interesting question raised in his comment section (by "BC"): Do federal employees pay income tax on their wages? I know they do nominally, but that tax goes back to their employer, the federal government. So, doesn't that mean that, while their actual salary may be lower than their official nominal salary, they actually don't pay any tax? (NB: this is quite different from a private sector employee whose after-tax salary is less than the pre-tax salary. In that case, the difference between the two does *not* go to the employer, creating a gap between what the employer pays and what the employee receives.) For example, suppose a private firm and the federal government both value a worker's output at $100k/yr and the tax rate is 20%. The private firm offers the worker $100k and the worker receives $80k after paying taxes. The federal government, however, can offer the worker $125k in nominal salary, *knowing that it will receive $25k back in income tax*. The net result is that the federal government pays $100k and the worker receives $100k after taxes, i.e., the worker earns $100k tax free, $20k more than he or she would earn at the private firm. Another way of seeing this is to note that taxes paid by employees are economically equivalent to taxes paid by employers. So, if employers received rebates for income taxes paid by employees, then the net income tax would be zero. Well, the federal government *does* receive a rebate for all income taxes paid by employees! Doesn't this mean that taxes are doubly distortive? Not only do they discourage employment by creating a gap between what (private) employers pay and what workers receive -- the usual cited distortion -- they also distort the *composition* of the workforce by allowing the federal government to crowd out other employers. This is one of those cases where things look very different if you recall the macroeconomic linkages. Let's start by assuming that the government hires the worker away from a comparable private sector job. In that case, the tax paid by the newly hired government worker would be offset by the tax no longer paid on the job he left in the private sector. To make things simple, assume a flat rate tax system. Then total tax revenue is the tax rate times national income. Thus in order for the act of hiring a government worker to result in more total tax revenue, the act of hiring the worker would have to boost national income. Now we can see that the actual question being asked here is whether or not the act of hiring a government worker causes national income to be higher. Here are some models where that is generally not the case: 1. Monetarism 2. Austrianism 3. Real business cycle theory 4. New Keynesian models with a natural rate of output And here's one model where it may be the case: 5. Primitive Keynesian models of the sort that were discredited during the 1970s The wrong way to think about these sorts of issues is to look at accounting relationships at the individual level. "Follow the money". The correct way to approach the problem is to think in terms of aggregates such as "national income". Does government hiring cause national income to rise? If so, then you get more revenue. PS. In some New Keynesian (and RBC?) models you might get a rise in measured national income, as the government worker would make the country poorer, causing labor supply to increase as a way of preventing an excessively sharp fall in consumption. I'm abstracting from that (second order) issue, which gets into questions about the proper way to measure GDP. (7 COMMENTS)

19 ноября, 04:46

The third option, by Scott Sumner

Last week I attended the Cato Monetary conference in Washington. Jim Dorn always does a good job of finding interesting speakers. I couldn't help contrasting the event with the Peterson Institute conference that I attended last month. At the Peterson Institute, most speakers correctly noted that insufficient AD was a key problem over the past decade, but also argued (wrongly, in my view) that monetary stimulus was relatively ineffective at the zero bound. At Cato it was almost the exact opposite. I don't recall anyone doubting the effectiveness of monetary policy (I attended 3 of the 4 panels), but there was almost no concern about insufficient nominal spending. Indeed a number of speakers seemed worried that policy was too expansionary. This makes me feel really good about the prospects for market monetarism. Both logic and facts are overwhelming on our side. It seems absurd to claim a fiat money central bank could not debase its currency. Are the Zimbabweans really that much more talented than we are? And when countries like Japan have changed policy the yen has fallen sharply, even at the zero bound. That doesn't happen in the Keynesian model. As for the level of AD, during most of the past decade both inflation and employment have been well below the Fed's targets. It's the (conservative) opponents of monetary stimulus who have a difficult argument to make, not us. This recent article gives a good sense of the weakness of the arguments of our opponents: TOKYO (Reuters) - Premier Shinzo Abe's victory in last month's election may make it difficult for the Bank of Japan to dial back its radical stimulus next year despite the rising cost of prolonged monetary easing, former BOJ board member Sayuri Shirai said on Friday. . . . Shirai said the BOJ should start withdrawing stimulus by hiking its yield target and slowing asset purchases next year, given the rising cost and diminishing returns of its policy. "When the economy is in good shape like now, the BOJ needs to normalise monetary policy so it has the tools available to fight the next recession," Shirai told Reuters. "But the election result has made that difficult," she said. Raising the BOJ's 10-year government bond yield target could trigger an unwelcome yen rise by narrowing the interest rate differentials between Japan and the United States, Shirai said. This quote exhibits a basic lack of understanding of monetary economics. The speaker implies that tightening monetary policy gives the BOJ more "tools" to fight the next recession, whereas the exact opposite is true. When the BOJ tightens monetary policy the natural rate of interest falls. The speaker presumably believes that what matters is the gap between the actual rate of interest and zero, whereas what really matters is the gap between the natural rate of interest and zero. When the BOJ raises the actual interest rate with a tight money policy, the natural interest rate falls. If Shirai were correct, then the Fed could have raised interest rates to 20% in 2008, giving them lots of "tools" to later cut rates and spur the economy when the recession got severe. But that's about as effective as trying to pick yourself up by your bootstraps. This is why I insist that people appointed to the Fed should be experts on monetary economics. I don't care about credential---it makes no difference if they have a PhD---but they need to understand the basic principles of monetary economics. Does Japan need higher interest rates to pop asset prices bubbles? Consider the Japanese stock market, which is about 40% below the peak value in 1991, while the US market has risen almost 10-fold. Or take housing, where prices in Japan are down about 40% since 1990 (lavender line), while they have risen 140% in the US (blue) and 360% in Australia (light blue). Australia's had the highest interest rates over that period (among developed countries), and Japan has had the lowest. So no, rapid asset price increases are not caused by low interest rates, indeed asset prices tend to rise more rapidly in countries with very high nominal interest rates. Japan doesn't have to worry about asset price bubbles. Japan would benefit from higher nominal interest rates, but only if brought about by a more expansionary monetary policy. PS. I should emphasize that there was plenty that I agreed with at the Cato conference. A number of speakers were critical of the war on cash (as am I), and Charles Calomiris was skeptical of the view that China was a currency manipulator. PPS. David Beckworth presented me with a coffee mug. Market monetarism is right on target to becoming the dominant view in macroeconomics; just give us another 10 or 20 years. (10 COMMENTS)

17 ноября, 20:25

Manhattan Retail: The New Rust Belt

Via Global Macro Monitor, Bleecker Street, said Faith Hope Consolo, the chairwoman of the retail group for the real estate firm Douglas Elliman, “had a real European panache. People associated it with something special, something different.” Ms. Consolo, who has negotiated several deals on the street, added: “We had visitors from all over that said, ‘We’ve got to get to Bleecker Street.’ It became a must-see, a must-go.”   Early on, Ms. Consolo said, rents on the street were around $75 per square foot. By the mid-to-late 2000s, they had risen to $300. Those rates were unaffordable for many shop owners like Mr. Nusraty, who was forced out in 2008 when, he said, his lease was up and his monthly rent skyrocketed to $45,000, from $7,000.    – NY Times Retail is not just being Amazoned in Manhattan, retailers are being priced out of business by exorbitant rents. Note to commercial landlords:  Lower your rents!  But,  God forbid, that would be deflationary! Empty Retail Storefronts – Midtown & Upper Manhattan Empty Retail Storefronts – Lower Manhattan Source:  Donut Shorts One response to the neoclassical argument is that, in fact, prices are not perfectly flexible (they exhibit “stickiness”). For this reason, the economy is not self-correcting, at least not in the short run. Wages and prices may be “too high” (and, therefore, result in suppliers offering larger quantities for sale than demanders are able and willing to buy), but not come down quickly and eliminate the market surplus. This view has been widely attributed to John Maynard Keynes, and is, in fact, a key argument in what is known as “New Keynesian” economic theory. –  Dollars & Sense During its incarnation as a fashion theme park, Bleecker Street hosted no fewer than six Marc Jacobs boutiques on a four-block stretch, including a women’s store, a men’s store and a Little Marc for high-end children’s clothing. Ralph Lauren operated three stores in this leafy, charming area, and Coach had stores at 370 and 372-374 Bleecker. Joining those brands, at various points, were Comptoir des Cotonniers (345 Bleecker Street), Brooks Brothers Black Fleece (351), MM6 by Maison Margiela (363), Juicy Couture (368), Mulberry (387) and Lulu Guinness (394). Today, every one of those clothing and accessories shops is closed. Mr. Sietsema, the senior critic at Eater NY, has watched with mild schadenfreude but greater alarm as his neighborhood has undergone yet another transformation from a famed retail corridor whose commercial rents and exclusivity rivaled Rodeo Drive in Beverly Hills, Calif., to a street that “looks like a Rust Belt city,” with all these empty storefronts, as a friend of Mr. Sietsema’s put it to him recently. In the heart of the former shoppers’ paradise — the five-block stretch running from Christopher Street to Bank Street — more than a dozen retail spaces sit empty. Where textured-leather totes and cashmere scarves once beckoned to passers-by, the windows are now covered with brown construction paper, with “For Lease” signs and directives to “Please visit us at our other locations.”– NY Times

17 ноября, 18:45

Без заголовка

**Comment of the Day**: I have evoked some rants from Robert Waldmann... **Robert Waldmann**: [Monday Smackdown: Oh Dear!](http://www.bradford-delong.com/2017/11/monday-smackdown-oh-dear.html?cid=6a00e551f08003883401b8d2bf205d970c#comment-6a00e551f08003883401b8d2bf205d970c): "It isn't exactly Robert Waldmann's critique... >...In 1982 someone told me that he thought macroeconomics had taken a wrong turn and commenced a sterile research program which would last decades and be fruitless. That's a lot more impressive than saying such a thing now. >Who was that guy? Oh yeah, his name was Brad DeLong. >He was explaining why he had chosen history and econometrics as fields. >Experiments? Bah, humbug! >I don't know where to put this, but I have a theory as to why people call simulations experiments: If you are dealing with something you don't understand, you attempt to learn how it works with experiments. The perception that theoretical work assisted by computers is experimental is due to the fact that no one understands what drives the behavior of modern DSGE models. >This is one of their defects. One use of a model is to clarify thought. A model which is mysterious like a cell (or an economy) can't clarify thought. If you need to do numerical experiments to understand the behavior of your model, it has failed one of...

16 ноября, 20:33

Six Faces of Right-Wing Chain-Forging Economist James Buchanan...

Six Faces of Right-Wing Chain-Forging Economist James Buchanan... Steven Teles inquired why I liked Will Wilkinson's essay [How Libertarian Democracy Skepticism Infected the American Right](https://niskanencenter.org/blog/libertarian-democracy-skepticism-infected-american-right/) much more than I liked **Henry Farrell** and **Steven Teles's** essays [When Politics Drives Scholarship](http://bostonreview.net/class-inequality/henry-farrell-steven-m-teles-when-politics-drives-scholarship) and [Even the intellectual left is drawn to conspiracy theories about the right. Resist them](https://www.vox.com/the-big-idea/2017/7/14/15967788/democracy-shackles-james-buchanan-intellectual-history-maclean) as takes on **Nancy McLean's** Democracy in Chains ... I must confess that I **was** struck by the contrast between the, on the one hand, enormously generous hermeneutic through which [Steve Teles and Henry Farrell] read James Buchanan and the, on the other hand, ungenerous hermeneutic through which [they] read Nancy McLean.... I see at least six James Buchanans: 1. The brilliant academic thinker behind the genius insights of Calculus of Consent . It is worth noting that the framework underlying _CoC_ with its emphasis on unanimity at the constitutional stage for _any_ regime that can be just or justified, has a profoundly egalitarian and even Rawlsian bent—a bent that becomes stronger the thinner you make the veil of ignorance and the more averse to risk you make the people behind it. Thus the fact that Buchanan deduces a profoundly anti-egalitarian politics and built from...

13 ноября, 17:13

Без заголовка

**Comment of the Day: Robert Waldmann**: [Monday Smackdown: Oh Dear!](http://www.bradford-delong.com/2017/11/monday-smackdown-oh-dear.html?cid=6a00e551f08003883401b8d2bdc1ea970c#comment-6a00e551f08003883401b8d2bdc1ea970c): "I object to another word in the sentence—'only'"... >...I will modify it to answer your objection: "The only place that we can do [thought] experiments is in dynamic stochastic general equilibrium (DSGE) models." The assertion is that all models are general equilibrium models. >Now back when I was a student, general equilibrium models were Walrasian models with price taking agents. Perfect competition was one of the assumptions. That's what the phrase meant. Now the equilibrium which is general is Nash equilibrium. Imperfect competition is a standard assumption. The triumph of imperfect competition was the Eichenbaum, Cristiano and Evans model and it was a triumph because it meant that people who worked next to great lakes had admitted that people who worked nearer to the Atlantic Ocean were more nearly correct. >But nothing has ever supported the argument that anything is gained by assuming the world is in Nash equilbrium. There are two problems. By itself the assumption of Nash equilibrium implies nothing at all—it can't impose discipline on our theory. Only if you require plausible assumptions about tastes and technology does it imply anything. Yet, standard models have confessedly implausible...

13 ноября, 08:18

Monday Smackdown: Oh Dear!

A correspondent asks whether or not this is unfortunate: **Lawrence J. Christiano, Martin S. Eichenbaum, and Mathias Traban**: [On DSGE Models](http://faculty.wcas.northwestern.edu/~lchrist/research/JEP_2017/DSGE_final.pdf): "Macroeconomic policy questions involve trade-offs between competing forces in the economy... >...The problem is how to assess the strength of those forces for the particular policy question at hand. One strategy is to perform experiments on actual economies. Unfortunately, this strategy is not available to social scientists. **The only place that we can do experiments is in dynamic stochastic general equilibrium (DSGE) models.** This paper reviews the state of DSGE models before the financial crisis and how DSGE modelers have responded to the crisis and its aftermath. In addition, we discuss the role of DSGE models in the policy process... It is, the **bolded** sentence especially. For one to, in one's fifth sentence, demonstrate that one is unclear about what the meaning of scientific "experiment" _a la_ Galileo is, is, as the Fish in the Pot in _The Cat in the Hat_ would say, "not a good game". Look: new Keynesian models were constructed to show that old Keynesian and old Monetarist policy conclusions and rules of thumb were relatively robust, and were not blown out of the water...

Выбор редакции
11 ноября, 15:24

Quotation of the Day…

(Don Boudreaux) Tweet… is from pages 9-10 of my late Nobel-laureate colleague Jim Buchanan‘s 1966 paper “Economics and Its Scientific Neighbors,” as this paper is reprinted in Moral Science and Moral Order (2001), Vol. 17 of The Collected Works of James M. Buchanan: The physical scientist can, I think, learn much from the economist.  Essentially, he can […]

11 ноября, 13:35

Василий Галин. Как Россия изменила мир

  • 0

Кандидат экономических наук Василий Галин (https://galin.biz/) о значении Октябрьской Революции в России для мировой истории. "Силы XIX века двигавшие развитием человечества изменились и истощились. Экономические мотивы и идеалы этого поколения больше не удовлетворяют нас: мы должны найти новый путь и должны снова страдать от недомогания, и в конце в острой боли обрести новое индустриальное рождение. Что необходимо для европейского капитализма – это найти выход в Новый Мир…" Дж. М. Кейнс. #ДеньТВ #1917й #ВеликийОктябрь #социализм #Ленин #Сталин #большевики #социальнаясправедливость #кейнсианство #русские #славяне #Клёсов #закатЕвропы #Рузвельт #коммунизм

Выбор редакции
08 ноября, 15:25

Game of Theories: The Keynesians

Over the next few weeks our Principles of Macroeconomics class at MRUniversity will offer four “mini-classes” on theories of the business cycle. Today, we begin with the Keynesian theory. The post Game of Theories: The Keynesians appeared first on Marginal REVOLUTION.

31 октября, 07:23

Bad policies lead to bad theory, by Scott Sumner

  • 0

In the past, I've argued that bad economic policies led to the development of Keynesian economics. The two major culprits were tight money during 1929-32 and the NIRA (which both dramatically raised real wages.) If Irving Fisher's "compensated dollar plan" had been adopted in the early 1930s, the US economy would have recovered quickly, and pundits would have seen that as confirmation of Fisher's theory that business cycles were primarily a "dance of the dollar", in other words, caused by monetary shocks. Because this policy was not adopted (until much later, in a watered down form by FDR), and because the NIRA delayed the recovery, the capitalist system became seen as inherently unstable and prone to long periods of depression. Keynesian economics was born. If Fisher's compensated dollar plan had been adopted, he would have been correct. Now we are seeing something quite similar play out. In previous posts, I criticized the view that the recent sub-2% inflation shows that the Fed may not be able to hit a higher inflation target. The claim is silly, as the Fed is actually raising rates to hold down inflation, but seems to be widely held nonetheless. Here's The Economist: Ben Bernanke, chairman of the Federal Reserve during the crisis, proposed a clever approach: when the economy next bumps into the ZLB, the central bank should quickly adopt a temporary price-level target. That is, it should promise to make up shortfalls in inflation resulting from a downturn. . . . If credible, that promise should buck up animal spirits, encourage spending, and drag the economy back to health. Raising inflation targets would reduce the frequency and severity of ZLB episodes. . . . Less clear is whether a central bank could fulfil its promise. The Fed has failed to hit its 2% inflation target for the past five years, after all. Mr Bernanke's proposal would do little good if markets doubted a central bank's ability to fulfil its promise to deliver catch-up inflation. The constraints facing central banks suggest better hopes for the second way forward--greater reliance on fiscal policy. When we think of the cost of the Fed failing to hit its inflation target during recent years, the obvious place to look is employment. The job market recovered more slowly from the Great Recession that would have been the case with 2% inflation, on average, during 2008-2017. But now I wonder if there isn't an even greater cost to monetary policy failure. It has created the incorrect perception that monetary policy is ineffective, even when not at the zero bound. This despite the fact that there are no serious Keynesian models where monetary policy is ineffective at positive interest rates. So strong is the profession's belief in central bank infallibility that they have distorted theory to match so-called stylized facts (of monetary impotence) that do not in fact exist. BTW, the same issue of The Economist says: The IMF reckons that the optimal tax rate on higher incomes, assuming the aim is revenue maximisation, is 44%. Britain's highest rate is already 45%. So the IMF study does not really provide much ammunition for Jeremy Corbyn, the leader of the Labour Party, the main opposition, who wants to raise it to 50%. It is a better argument, perhaps, for Bernie Sanders, the Democrat, since the top American tax rate, before any Trump cuts, is only 39.6%. Where to begin. The phrase "assuming the aim is revenue maximization" certainly caught my attention. When governments maximize revenue from a tax, the marginal cost of the final dollar raised is infinite. It's a bit odd for the normally sober Economist magazine to be assuming that public policies with infinite marginal costs are sensible. And you can't fix the problem by assuming that the marginal benefit of additional consumption for the rich is quite low, as what is being discussed is an income tax, not a consumption tax. Rich people do not consume all of their income. But the bigger problem is that the Economist is wrong in assuming that America's top income tax rate is 39.6%. The top federal rate is 43.4%, and with state and local income taxes included the figure is certainly well over 44%. I eagerly anticipate the Economist's next issue, where they correct their mistake and point out that the IMF study actually calls for tax cuts for the rich in America. (11 COMMENTS)

22 октября, 05:32

A breath of fresh air from John Cochrane, by Scott Sumner

Over at TheMoneyIllusion I've been running a series of posts that are critical of popular views of inflation. I claim inflation is determined by shifts in the supply and demand for money, and that factors like the Phillips curve and interest rates are not central to the inflation process. Think of money supply and demand models as fundamental, and Philips curve and interest rate models as contingent. John Cochrane makes some similar arguments, although he uses a very different theoretical framework: Why is it so hard? The standard story goes, as there is less "slack" in product or labor markets, there is pressure for prices and wages to go up. So it stands to perfect reason that with unemployment low and after years of tepid but steady growth, with quantitative measures of "slack" low, that inflation should rise, as Ms. Yellen's first quote opines. That paragraph contains a classic economic fallacy, that of composition; the confusion of relative prices and the level of prices and wages overall. If labor markets get "tight," companies finding it hard to find workers, then yes, one expects wages to rise. But one expects wages to rise relative to prices. You only tempt workers to move to your company by offering them wages that allow them to buy more. Similarly, if there is strong demand for a company's products, its prices will rise. But those prices rise relative to other prices and to wages. Offering a company higher prices when its wages, costs, and competitor's prices are all rising does nothing to get it to produce more. This is one of those cases of two things that look superficially similar but are actually radically different, like eels and snakes. When money became very tight in 1921, 1930, 1938 and 2009, the equilibrium price level fell sharply. Nominal wages also needed to adjust downwards. Unfortunately, nominal wages are sticky, so wage growth slowed much too gradually to prevent high unemployment. Thus even though nominal wage growth slowed in all four cases, real wages actually increased sharply. Cochrane's right that the wage changes we see in this sort of labor market have nothing to do with microeconomic models where a high level of demand means rising prices and a low level of demand means falling prices. Those micro models refer to real or relative prices, not nominal prices. So why do wages often rise quickly during "tight labor markets"? One reason is that because wages are sticky, when they are rising they (paradoxically) tend to be too low, and when they are falling they tend to be too high. Suppose 10% of worker contracts are adjusted to equilibrium each month. Then if a sudden monetary shock causes the equilibrium wage to immediately rise by 4%, wages would rise 0.4% after one month, 0.8% after two months, and reach the new equilibrium after 10 months. Again, when you see wage growth accelerating then wages are often too low, and when you see wages falling they are often too high. Now we can see the connection between rising wages and tight labor markets. When wages are rising they are too low---and those excessively low real wages cause companies to want to hire more workers---hence the high level of employment. It has nothing to do with tight labor markets causing higher wages---as Cochrane says that's an example of the fallacy of composition. And that's why it's not a reliable model of inflation--it's not a causal factor. There are many more gems: By the way, the oft-repeated mantra that "inflation expectations are anchored" offers no solace. In fact, it makes the puzzle worse. The standard Phillips curve says inflation = expected inflation - (constant) x unemployment. Variation in expected inflation is usually an excuse for a Phillips curve failure. Steady expected inflation means the Phillips cure should work better! And this: Is policy tight or loose right now? You'd think this were an easy question. The newspapers ring with "years of extraordinary stimulus" and "unusually low rates." And indeed, interest rates are low by historical standards, and relative to rules such as John Taylor's that summarize the successful parts of that history. But ponder this. What does a central bank look like that is holding interest rates down? Well, it would be lending out a lot of money to banks, who would turn around and re-lend that money at higher interest rates. What does our central bank look like? Our central bank is taking in $2.2 trillion from banks, and is paying them a higher interest rate than they can get elsewhere. Right now, the Fed is paying banks 1.25% on their reserves. But Treasury bills are 1%. Even commercial paper is 1.13-1.2%. It looks every bit like a bank that is pushing rates up. And has been doing so for a long time. It's good to finally see a prominent economist point out that monetary policy has not been easy, a point I've made about 1000 times since 2008. Cochrane ends with this: If you just plot inflation and interest rates, they seem to move together positively. Teasing out the notion that higher rates lower inflation from that graph takes a lot of work. My best guess, merging theory and empirical work, is that higher rates -- moved on their own, not in response to economic events -- temporarily lower inflation, but then if you stick with higher rates, inflation eventually rises. And vice versa, which accounts for very low inflation after interest rates have been stuck low for a long time. Maybe yes, maybe no, but even this much is not certain. Finally I've found something to criticize. This paragraph perfectly encapsulates what's right and what's wrong with NeoFisherism. Cochrane is right that higher rates often are associated with lower inflation in the short run, but higher inflation in the long run. But he stills falls a bit short in my view. Let me start by quibbling over a minor point---Cochrane's reference to interest rates moving "on their own". I think I know what Cochrane means, but I'm going to throw a temper tantrum anyway, and then explain why. Interest rates never move around on their own, as the economy is not some sort of Ouija board where things happen "on their own" without there being an "economic event", to use Cochrane's terminology. Now I'm pretty sure that what Cochrane meant by "on their own" was a change in the interest rate caused by monetary policy. But that doesn't help as much as you might assume. When Cochrane said that higher interest rates may initially reduce inflation, he probably had in mind a contractionary monetary policy. But in that case it's not the higher interest rates that lower inflation, it's the monetary policy. Thus a sudden decrease in the monetary base is contractionary, and may lead to both higher interest rates in the short run and lower inflation. Ditto for a higher interest rate on reserves. (The interest rate paid on reserves is not really a market interest rate, it is an administered price (subsidy).) For any given monetary base, a higher fed funds rate is inflationary, as it boosts velocity (assuming no IOR). When Cochrane refers to a policy of "sticking with higher rates" he runs into problems. As noted, he seemed to start by considering a contractionary monetary policy that led to higher interest rates in the short run. But if you "stick with" a contractionary monetary policy then rates will end up lower over time. It makes no sense to talk about "sticking with" higher interest rates, because interest rates are not a policy, they are the effect of various other policies. To get higher rates to persist you'd need to switch from a very contractionary to a very expansionary policy. But that switch will often temporarily depress interest rates, before causing them to rise. A good example occurred in 1967, when rates temporarily fell (easy money) before rising to semi-permanently higher levels during the Great Inflation of 1966-81. That persistent inflation is what NeoFisherians have in mind when they equate a high interest rate policy with high inflation. It's a valid point, and an important critique of Keynesian economics. But unless and until the NeoFisherians fully incorporate both the liquidity effect and the Fisher effect into their models, the analysis will remain frustratingly incomplete. And to do that we need to return to monetarist economics, something neither Cochrane nor his New Keynesian critics seem to have any interest in doing. HT: Tyler Cowen (5 COMMENTS)

14 октября, 17:15

1967 and 2008: Two botched policies, by Scott Sumner

I've occasionally done blog posts explaining how it's possible to prevent recessions from occurring, even after they have begun. That's because a recession is dated from the point where output starts falling, but it's not considered a recession unless the decline persists for a considerable period of time. This is one reason why economists are so poor at predicting recessions. During the past three recessions, a consensus of economists failed to predict the recession until it was well underway. It occurred to me that I failed to provide an example of a recession that was prevented after it had already began. Today I will do so. In 1966 the Fed tightened monetary policy to slow inflation, which had recently been increasing. As a result, industrial production fell by 1.9% between October 1966 and July 1967. But that's much less than the nearly 8% decline observed during the 1970 recession, which was itself fairly mild. We had no recession in 1967 because the Fed sensed a slowdown, and eased policy in the spring of 1967. Because of this action, unemployment merely nudged up from 3.6% in November 1966 to 4% in October 1967, before renewing its long decline. Now let's look at industrial production during late 2007 and early 2008: After peaking in November 2007, industrial production fell by only 2.2% over the next 7 months. Then after June 2008, output fell sharply, and by June 2009 was more than 17.3% below pre-recession levels. June 2008 is considered a recession period whereas July 1967 is not, primarily on the basis of what happened later. Unlike in 1967, the Fed decided not to ease monetary policy in the middle of 2008, despite growing signs of recession. Indeed policy was actually tightened sharply, as the fed funds target was held at 2% from April to October, despite a rapidly falling natural rate of interest. If the Fed had eased aggressively in June 2008, then they might have entirely prevented a recession that technically began in December 2007. It wasn't too late! The decline in output from late 2007 to June 2008 was too small to constitute a recession. Yes, the NBER eventually declared that the recession began in December 2007, but there would have been no recession to date in the first place if industrial production had risen in the second half of 2008, as it did in the second half of 1967. (I would add that the post-Lehman crisis might also have been milder, indeed Lehman might not have even failed.) Ironically, the Fed made the wrong call in both 1967 and 2008. In 1967 the Fed should have allowed a (very mild) recession to occur, in order to prevent the "Great Inflation" of 1966-81 from occurring. That inflation did far more damage than a rise in unemployment to, say, 5% in late 1967. Indeed, a mild recession in 1967 might have made the 1970 recession unnecessary. In contrast, the Fed should have prevented the 2008 recession. In 1967, the Fed was too worried about unemployment and not worried enough about inflation, whereas the reverse was true in 2008. The solution is to ignore both inflation and unemployment, and focus on keeping NGDP growing at a stable rate. Even at the low point of the second quarter of 1967, 12-month NGDP growth was running at over 5.4%. There was no reason at all for the Fed to ease monetary policy. By the 3rd quarter of 1968, 12-month NGDP growth had soared to 9.9%---the Great Inflation of 1966-81 was underway. Now look at NGDP growth in early 2008: In the second quarter of 2008, the 12-month NGDP growth rate was only 2.7%. Admittedly this data was not yet available to Fed officials in June 2008, but even the first quarter data showed only a 3.05% NGDP growth rate---far below trend. So why did the Fed (passively) tighten policy in mid-2008, by keeping rates at 2% as the natural rate of interest plunged sharply lower? In a word, inflation. An economic boom in developing countries such as China pushed global oil prices to a peak of $146/barrel in mid-2008. In the US, 12-month (PCE) inflation rose to a peak of 4.2% in July 2008, far above the Fed's 2% target. (CPI inflation reached 5.5%). Even though the Fed was aware that oil prices were distorting the data, they were so frightened of losing credibility on inflation that they allowed monetary policy to tighten sharply. The Fed should have focused on NGDP growth, which was falling to dangerously low levels. As long as NGDP growth is kept at a modest level, any rise in inflation due to soaring oil prices will be transitory. Indeed by the end of 2008, the 12-month PCE inflation rate had plunged to below 0.4%, far below the Fed's target. So one of the many causes of the Great Recession was the focus on inflation, when the Fed should have actually been focusing on NGDP growth. Indeed this mistake is now so obvious that it goes a long way toward explaining the rapid increase in support for NGDP targeting. PS. I am indebted to Robert Hetzel for educating me on the situation in 1967. However he is not to blame for any mistakes in this post. PPS. I recently read a very interesting Time magazine article from December 1965, entitled. "We are all Keynesians now". It's amazing how confident people were back then that we had it all figured out. (12 COMMENTS)

Выбор редакции
11 октября, 08:00

How Labour could lead the global economy out of the 20th century | George Monbiot

The rupture of 2008 presents a chance to throw out our iniquitous system that busts the planet – here are some ideasWe are still living in the long 20th century. We are stuck with its redundant technologies: the internal combustion engine, thermal power plants, factory farms. We are stuck with its redundant politics: unfair electoral systems, their capture by funders and lobbyists, the failure to temper representation with real participation.And we are stuck with its redundant economics: neoliberalism, and the Keynesianism still proposed by its opponents. While the latter system worked very well for 30 years or more, it is hard to see how it can take us through this century, not least because the growth it seeks to sustain smacks headlong into the environmental crisis. Continue reading...

05 октября, 03:58

Roger Farmer on NGDP futures targeting, by Scott Sumner

I had the good fortune of meeting Roger Farmer last year, when he was still teaching at UCLA. We had a great discussion of Keynes's ideas. (I seem to recall we both thought he was misunderstood, and that the General Theory focused more on wages and nominal spending, rather than prices and real GDP.) Unfortunately I've been so busy with two book projects that I haven't had much time to revisit his work, which includes a fascinating recent book called "Prosperity for All". Cloud Yip recently interviewed Farmer as part of his "Where is the General Theory for the 21st Century?" series, and the interview included this interesting passage: When they started intervening in the MBS market, the stock market began to rise. When they stopped intervening in the MBS market, the stock market slowed down again. A policy of this kind can and should be pursued in the future. There is more than one way to intervene and I am not sure which is the best way. I have advocated intervention in the equity markets, but others, Scott Sumner and Bob Shiller, for example, have advocated instead that we create a market for GDP futures. That market doesn't exist yet. If it did exist, it would be a good substitute for operating in the stock market. Q: Do you think that the central banks buying and selling NGDP futures would be a better policy, compared to interventions in the stock market? F: If you could create a thick enough market for NGDP futures, then yes. There is a lot of skepticism over whether that would be feasible. The reason for both kinds of interventions is related to the connection between the asset markets and consumption. Traditional Keynesians think, or thought, that consumption depends on income. In the 1950s and the 1960s, with the work of Milton Friedman on the Permanent Income Hypothesis and Franco Modigliani on the Life Cycle Hypothesis, we learned instead that consumption does not depend on income, it depends primarily on wealth. The asset markets are highly developed in western economies, and those people who would be buying and selling NGDP futures will also be buying and selling stocks. Arbitrage opportunities would cause interventions in one of those markets to spill over to all of them. When wealth fluctuates and stays up or down persistently, those wealth changes feed into consumption, and consumption feeds into employment. Asset price fluctuations, caused by animal spirits, become self-fulfilling. In my view, intervention in the asset markets operates through wealth effects. I remain eclectic as to the best way to intervene in these markets to stabilize asset price movements. I don't agree with everything in Farmer's book (I am more sympathetic to natural rate models, for instance), but it's exactly the sort of thought provoking, outside the box work that we need more of. The last thing the profession needs is a new DSGE model with a slight twist, which tells us almost nothing about how the profession was so far off base in 2008. One of the things I like best about Farmer's work is the focus on asset prices. I believe that an increased focus on asset prices offers a way forward for macro in the 21st century. PS. Bloomberg recently quoted me in a piece on liberal/conservative opposition to appointing Kevin Warsh as Fed chair: "It is not obvious why he would be a good choice," said Scott Sumner, the director of the monetary policy program at the Mercatus Center, a free-market oriented research center at George Mason University in Fairfax, Virginia. "He was given a chance to do a good job at a lower level, and did poorly." Reporters must boil down long interviews to single quotes, so let me mention that I also pointed to the fact that he did not have any qualifications for a job in monetary policy when he was appointed to the Fed in 2006. I'm not someone obsessed with credentials, and I'd be willing to support someone lacking normal credentials if there was some other evidence of their ability. What's so troublesome about Warsh is that he did very poorly in his time on the Federal Reserve Board. No credentials and a poor track record---do we give that man the most important economic policymaking position in the world, or keep the woman who is highly talented and is doing a decent job in getting the economy close to the Fed's inflation/employment targets? (10 COMMENTS)

02 октября, 20:55

Links for 10-02-17

Mergers Are Bad for Innovation - ProMarket Shifts Get Real: Understanding the GOP's Policy Quagmire - Paul Krugman China’s Exchange Rate Policies and U.S. Financial Markets - FRBSF #ILookLikeAnEconomist and so do you … – macromom blog The gender disparity...

02 октября, 20:44

Return of the Tooth Fairies

(as referenced by Larry Summers, quoted in this post). As I watched Secretary Mnuchin on Meet the Press (before discussing his taxpayer funded trip to view the recent eclipse) state : …the president is not going to sign something that he believes is going to increase the deficit. I was struck by an overwhelming sense […]

01 октября, 15:00

Моя старая статья: Хазин: мирового правительства нет! И правда нет. Есть мировые регуляторы.

Оригинал взят у bulochnikovВот тут  Хазин доказывает, что мирового правительства нет.Я, кстати, с ними согласен: нет мирового правительства. Мир до этого ещё не доразвился. Но из этого не следует, что мировые процессы никем не координируются. (Как это доказывает Хазин). Привожу его аргументы со своими комментариями.Во-первых. Для того, что регулировать такую сложную систему, как современный мир, необходимо иметь адекватную систему параметров, которую, к тому же, нужно не менее адекватно воспринимать. Я имею опыт работы в системе государственной статистики, как России, так и СССР и могу с полной ответственностью сказать: даже задним числом, даже имею мощнейшие инструменты, использующие опыт тысяч специалистов высокого класса, невозможно более или менее четко понять что происходит «здесь и сейчас». Только тенденции и только с течением времени. А это значит, что «управляющие» не могут не сталкиваться с серьезными проблемами, в частности, разные их представители могут совершенно по разному интерпретировать показания тех параметров, которые они смотрят, в том числе и совершенно ошибочно. Со всеми вытекающими последствиями.Ошибка математика: хочет всё просчитать. Современный мат.аппарат и вычислительная техника не могут просчитать и запрограммировать даже движение автомобиля. Однако, человек, даже совершенно чуждый математике и вычислительной технике прекрасно рулит автотранспортом.А ошибки? Конечно ошибки бывают. В том числе и на дорогах. Чему мы все бывали свидетелями.Второе. Пусть даже у нас в какой-то момент есть универсальные гении, которые все понимают правильно. Но они не вечны. Значит, им нужна смена. Но кто ее будет готовить? Они сами? На это практически нет времени, в лучшем случае, они могут «довести» уже подготовленного специалиста до высшего уровня мастерства. Мы сегодня, в «Неоконе», сталкиваемся с этой проблемой: если пришедший к нам практикант не имеет хорошего институтского образования, то мы его не можем вывести на необходимый нам уровень, с ним приходится расставаться. Так вот, в нашем случае, кто готовит этих управленцев? Понятно, что классическая экономическая теория, кейнсианство, монетаризм, марксизм они придумали специально, чтобы запудрить голову «быдлу», чтобы было легче им управлять. Но сами-то они на каком языке говорят, формируют командные сигналы, кто этот язык хранит и передает следующим поколениям «управленцев»? Ну ладно, чисто идеологически можно придумать, что все «зашифровано» в Библии (или еще где) и людям, принятым в «верхний» слой управленцев, просто дают соответствующие шифры. А с экономикой как?Я много лет преподавал, как в школе, так и в ВУЗах, и могу смело сказать: такая система не может оставаться в тайне, она так или иначе должна как-то «прорываться» в общество. Ведь речь идет не только об обучении новичков, но и о развитии самой теории управления. В самом деле, еще 200 лет назад банковской системы в современном ее понимании просто не существовало, кто-то же должен был все это придумать и в соответствии с задумками выстроить на практике. Так вот, с кем этот кто-то все обсуждал и обсуждает сейчас?Хазин противоречит сам себе. Он однажды писал, что искусство составления межотраслевых балансов в экономике практически утеряно в современном мире. Дай бог, говорит он, чтобы несколько человек ещё умели его делать. А ведь раньше этим занимался целый Госплан с тысячами людей. И в тайне свои знания никто не держал. Даже в ВУЗах людей обучали. А потом ещё у себя практиковали.Что же эти знания не «прорвались» в мир, не стали всеобщим достоянием?А кто готовит, нет, не гениев, а управленцев для элиты? А хер их знает! В прошлые времена детей бояр и дворян – прежнюю элиту - готовили перипатичесики. Тоесть, от учителя к ученику. В приватной обстановке. Может, и сейчас так? Где, например, люди обучаются аппаратной интриге? В университетах нет такого курса. А ведь некоторые достигают в этом искусстве высочайших вершин.Третье. Оперативное управление. Если наши гипотетические управленцы действительно контролируют все и вся, то конечно, Обама готов выполнять любые их действия. Всё и вся контролировать невозможно, да и не нужно. И никакой человек, даже Обама не будет беспрекословно выполнять чьи то приказы. Даже Наполеон – диктатор Европы предостерегал: нет более опасной ошибки полководца, чем строить свои действия из предположения, что подчинённые будут их выполнять беспрекословно и как задумано полководцем. Однако, Наполеон как то управлял огромной империей. И даже одно время достигал больших успехов в этом. Так вот, вопрос, что ему сегодня делать, ужесточать денежную политику или смягчать? Если смягчать, то банки получают много денег и не банкротятся. Но зато растут цены, причем издержки реального сектора растут быстрее, чем его доходы. В этом случае рано или поздно неизбежно крушение реального сектора и всего государства. Вы скажете, что какое дело управляющим до этого, они всегда могут переехать в другую страну? Не совсем так, США это не только «быдлонаселение», это еще и ядерное оружие, и авианосные ударные группы. Кому они достанутся, как управляющие смогут управлять без этого, они же всю свою модель управления выстраивали под существование такого оружия? Отметим, что вывести все это вооружение в другую страну они не смогут: управление они осуществляют не непосредственно, а посредством офицеров и солдат армии США, которые с конспирологическими теориями не знакомы и слушать будут только команды верховного главнокомандующего американской армии. Как только они решат, что тут какой-то заговор, последствия могут быть самые неожиданные.Конечно, Обама может «по приказу» и ужесточить денежную политику. Но тогда нас ждет «чистый» вариант «Великой» депрессии, с распадом банковской системы и массовым голодом и безработицей. Итог – примерно такой же, как и в случае со смягчением денежной политики, резкое падение уровня жизни населения. Да, конечно, управленцам на «быдло» наплевать, но есть проблемы: при существенно меньшем ВВП становится крайне трудно содержать все вышеупомянутые военные структуры, опять же – как «рулить» обществом? Теоретически, нужно переходить к диктатуре фашистского толка, но это требует радикального пересмотра всей модели управления – диктатор-то все знает, кто и как управляет и у него всегда найдутся рычаги, чтобы с себя эту зависимость снять, раз и навсегда. Примеров в истории было множество ...Опять ошибка. Например, Китай уже создаёт альтернативные арсеналы. В том числе и авианосные ударные группы. А американские арсеналы без соответствующей подпитки сгниют и развалятся в течении полувека. Почему бы мировому управляющему центру плавно не перетечь в тот же Китай? Причём, необязательно всем Уол-стритом вместе со всеми его евреями и неевреями. Создастся альтернативный центр, который включит в себя некоторых наиболее гибких представителей старой элиты. А старый центр постепенно утратит влияние.Хазин мыслит текущим моментом. А здесь надо мыслить веками.Четвертое. Уже понятно, что «управленцы», кто бы они ни были, где-то 15-20 лет назад совершили ошибку. Людям свойственно ошибаться. Хотя здесь ещё надо посмотреть! Это выглядит ошибкой, если исходить из того, что миром правит США. А если исходить из того, что миром не правят, а на мир ВЛИЯЮТ Демиурги, которые только базируются в США, но не фатально к ней привязаны, то это может быть и не ошибка, а просто приспособление в изменяющейся реальности. Хазин опять мыслит государственно, а не планетарно. Я уже об этом писал в статье «В чём ошиблись Хазин и другие предсказатели кризиса?» Но эта ошибка уже вошла в их управленческие прописи. Вопрос: кто будет ее исправлять, хотя бы на теоретическом уровне? Причем это нужно делать быстро, иначе можно выпустить вожжи из рук. А если это произойдет, то никакие деньги не помогут: любой толковый диктатор в условиях хаоса просто переловит всех «управленцев» и утопит их в море. Можно даже привести исторический пример: Зиновьев и Каменев, которые реально рулили «процессами» не только в СССР, но и на половине Земного шара в 20-е годы прошлого века (Про Зиновьева и Каменева не знал. Как, интересно, они могли править половиной мира?), совершили только одну маленькую ошибку – и были уничтожены. А, скажут конспирологи, так они были несамостоятельны, ими самими рулили. А какая разница? Мы же описываем пример, который может повторить в другом месте.Да хер с ними, с США. Пусть диктатор, буде такой заведётся, хоть их всех там перетопит. Есть такое правило в менеджменте: не пытайся реформировать устаревшую структуру. Создавай новую в паралель. Что Демиурги уже неоднократно проделывали в своей истории.В общем, пока ответов на заданные вопросы я не получу, говорить о конспирологии считаю малоинтересным, смысла в этом нет. Хотя это вовсе не значит, что я считаю, что все управленческие системы находятся на виду. Но об этом – в следующий раз.Опять нестыковка. Хазин говорит, что продолжать малоинтересно, однако, продолжает.Ну и я продолжу, если не будет малоинтересно.

Выбор редакции
29 сентября, 08:00

FX Intervention in the New Keynesian Model

Working Paper No. 17/207

03 сентября 2016, 06:00

Antoniusaquinas.com: Джон Мейнард Кейнс “Общая теория”: Восемьдесят лет спустя

2016 год ознаменовал восьмидесятилетнюю годовщину публикации одной из самых влиятельных книг по теме экономики когда-либо увидевших свет. Эта книга – “Общая теория занятости, процента и денег” Джона Мейнарда Кейнса – нанесла непоправимый экономический и политический ущерб Западному миру и другим… читать далее → Запись Antoniusaquinas.com: Джон Мейнард Кейнс “Общая теория”: Восемьдесят лет спустя впервые появилась .