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Nick Rowe
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Yep. But how confident are we that the downward spike in 2008 was all a liquidity squeeze? If in 2008 you thought there was a non-zero probability of a big 1930's style drop in the price level, and you wanted to buy insurance against that risk, you would have shorted indexed bonds. A lot of people were very frightened back then, and scared of something much worse than the recession we actually had. I'm trying to remember my own subjective probability distribution for the future (say 5 year ahead) price level back in 2008. I remember it had a very big variance, and all of that extra variance was on the downside. It was a very skewed distribution, with the mean a long way below the mode. Maybe I would have put a 10% probability on the Fed *totally* failing to respond properly, and the price level falling by 30% or more.
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Three thoughts: 1. Your 4, 5, and 6 *might* be like your 2. 2. Would we say that the US economy goes into a "recession" every night and every weekend? I expect we could. But the symptoms are different from a normal recession. 3. "...if we ever shift from a pure fiat money system back to a system in which liquid cash requires costly resources to produce and can be produced (i.e., gold standard, silver standard, BitCoin mining)." Or if we ever have a workfare system run by the central bank.
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Thanks Brad. Successfully trolled. I will gather my thoughts, and respond later.
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Ah! (And I initially thought is was some new California slang for a national income accounting identity! "Hello! Their spending *is* their income in aggregate!")
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Are academic conferences just rent-seeking? Plus travel and party at someone else's expense? You could read it all on-line, and argue online too. What can conferences do that blogs can't? And blogs are a lot cheaper. Genuine question.
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Thanks Brad. I'm on board with this. On your 3: plus, even if we did accept their argument about the risk of low interest rates, the longer we postpone recovery, and postpone expected recovery, the longer rates will stay low. (Upward-sloping or dynamic IS curve).
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Nah. Just a way to keep them off all the other students.
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Dan: "And what I am proposing is that that would only be the case if the barter economy was so small that these kinds of coordination problems could all be easily solved, but that in a more complex barter economy they might not get solved and the economy could remain stagnant." Totally agreed. A real world complex barter economy would be a total mess. (Unless someone sets up a centralised exchange, which mimics money). Worse than even the worst monetary policy. It takes an absolutely terrible monetary policy before more than a few people resort to barter (but we did see some do it in the US in the 1930's and Greece etc recently). My thought-experiment is of a purely hypothetical frictionless barter economy. A good monetary system ought to run approximately like an imaginary perfect barter system. My argument is that, since an excess of savings (for example) would not cause unemployment in an imaginary perfect barter system, it would not cause unemployment in a good real world monetary system. People would be unable to find a good outlet for their savings (everybody would want to lend and nobody would want to borrow), but that wouldn't stop them working and buying goods. The problem is that people can save by holding money. If that excess of saving spills over into an excess demand for money, then we get a recession.
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Nathanael: suppose there is a terrible drought in an agricultural economy. Output, and probably employment too, would drop a lot, and there is nothing monetary policy can do to prevent a drop. Even a hypothetical perfect frictionless barter economy, with no coordination problem, would see a drop in output. But would it have *all* the symptoms of a recession, where it is hard to sell things for money and easy to buy things with money? I don't call it a "recession" unless it has that symptom. Maybe I am "cheating" a little, by defining "recession' differently. (No true Scotsman fallacy.) But I think mine is a useful definition. The OPEC crisis was a bit of both.
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Sorry Dan. My fault for not explaining myself more clearly. Just frustrated, and taking it out on you.
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Dan: "Well, that might happen in an economy consisting of only three people who can easily solve any economic coordination problems they might be facing with only a minute or two of cooperative chit-chat. But in a real-world economy consisting of many millions of individuals peopling a complex system of production and market exchange, there is no simple way for those millions of people to make a coordinated leap forward out of their relaitively low-production and low-exchange equilibrium into a new equilibrium with higher levels of production and exchange." Of course there isn't! That was precisely MY point. Except I thought it was too obvious to need spelling out. And that's why we use MONEY. And that's why we need a GOOD MONETARY SYSTEM, to help solve precisely that coordination problem. My imaginary world, where it is easy for the 3 women to meet, is a METAPHOR for a good monetary system. It's the classic metaphor, the Wicksellian triangle, with no double coincidence of wants. Way to totally miss my point!
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Sketch of a response to Brad: What is a "root cause" of a recession? I say it is always and everywhere an excess demand for the medium of exchange. In a barter economy, the Keynesian shortage of savings vehicles, or the Minskyian disruption of borrowing and lending, could cause problems, but they would never cause a recession. The unemployed hairdresser who wants her nails done, the unemployed manicurist who wants a massage, and the unemployed masseuse who wants a haircut, would all get together and do a 3-way barter deal. But in a monetary economy, where there's an excess demand for money, neither will spend unless the others agree to spend too. The excess demand for money is the root (essential?) cause. Almost anything could cause an excess demand for money. Some of those things could be bad things. Like robbers, who steal cows, but who can't steal money, which is easier to hide. And hiring more police, not printing more money, is the first-best solution. The central bank can't stop the robbers, but it can stop the recession. Back to Metzler and Minsky: If M and B are perfect substitutes, an OMO of M for B won't work. But an OMO of M for J would work. Think of a continuum of other assets, some more and some less like money, so that the central bank is always at the ZLB for some assets. As it expands M, it moves the ZLB along the continuum, by buying more and more assets. Still thinking, as always, in response to your posts.
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Metzler, short version: in a world where there are no nominal bonds, and all prices are flexible, helicopter money will be neutral, because M/P will not change. But if the central bank is owned by a foreigner, who issues new money by buying shares, money will be non-neutral. Proof by contradiction: assume it is neutral, so M/P is unchanged. But the real stock of shares in public hands will be smaller, because the foreigner now owns some. So it is exactly as if the foreigner stole some of the shares, which will have real effects, including, in general, on the rate of interest. The first paragraph on page 112 gives the intuition, where he compares an open market operation to a capital levy.
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Re-reading Metzler, after many decades. Typo? "Such expansions of B would drive the interest rate i down [should be *up*?] further, and with enough bonds the interest rate would be high enough..."
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Owen: "Let's make government spending decline over time, until the threat of recession is past" Is that fiscal "stimulus", or "austerity"? Woodford says it is stimulus. Would you agree? Or can't you see the difference? You need to make up your mind about this, Owen, and stop ducking the question.
Toggle Commented Jul 25, 2014 on Links for 7-24-14 at Economist's View
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Which policy? What united state action? Increase G? Or reduce Gdot? When you Old Keynesian and New Keynesian guys figure it out, let us know. And explain why the other policy is wrong.
Toggle Commented Jul 25, 2014 on Links for 7-24-14 at Economist's View
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djb: "so where does rowe get this from" I get it straight from the New Keynesian IS curve. In the Old Keynesian IS equation, the *level* of private demand (consumption and investment) is a negative function of the real rate of interest. Which means the natural rate of interest is a positive function of the level of government spending. Which agrees perfectly with what you are saying. But in the New Keynesian IS equation, the *expected growth rate* of private demand is a *positive* function of the real rate of interest. So you get a very different result.
Toggle Commented Jul 24, 2014 on Links for 7-24-14 at Economist's View
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Rubenstein and Piccione miss the time inconsistency point. The Hobbesian jungle equilibrium is the "discretion" equilibrium. What we call "society" is the "rules" equilibrium. We draw some line in the sand where we are both better off staying our own side of that line rather than wasting resources by discretionary self-cancelling pushes against each other, and we enforce that line by following rules like tit for tat. [But the "rules" equilibrium is *not* Pareto-preferred over the "discretion" equilibrium.]
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Canadian unemployment rate is currently 6.9%. But we measure it differently to the US. It would be lower if we used the US definition. (I saw the exact number recently, and think it was below 6%, but I can't remember exactly.) Our (Conservative) government increased infrastructure investment during the recession. (And gave subsidies to municipalities and universities etc to do the same. My university grabbed the cash and built two new large buildings). Now the recession is mostly over they are tightening up fiscal policy again. It is not obvious (to me) whether we need more or less infrastructure investment. But I think it was obviously right to have done the extra spending we did during the recession. You don't have to be a keynesian to argue you should invest more when real interest rates are very low and builders are cheap.
Toggle Commented Dec 14, 2013 on Links for 12-14-2013 at Economist's View
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Women live longer than men. And if these studies are to be believed, an extra dollar spent on men's health will have a bigger effect than an extra dollar spent on women's health. Both equity and efficiency argue we should therefore spend more on men's health relative to our spending on women's health. Men should go to the front of the line at the doctor's office.
Toggle Commented Dec 14, 2013 on Links for 12-14-2013 at Economist's View
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Andy Harless' post = Samuelson 58 + assets differ in risk. My post = Samuelson 58 + assets differ in liquidity. The two posts are complementary and closely related.
Toggle Commented Dec 14, 2013 on Links for 12-14-2013 at Economist's View
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Chris: "But I'm trying to get at something here - that we're not just products of our genes and/or class, but also of our age." Hang on. There's age, and cohort. And a big multicolinearity problem distinguishing the two. I think you are talking about cohort.
Matt: you missed the point of my post. My title was ironic. And it's got nothing to do with heteroskedasticity of anything. And if money *did* have high(er) utility, that would make it *more* likely inflation would fall.
Toggle Commented Nov 29, 2013 on Links for 11-29-2013 at Economist's View
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YEP! It's working! A big THANKS to whoever did that for me. BTW, the people I really ought to be blaming for all this are the spammers. Why can't some of those teenage hackers do something socially useful for once, like taking down all the spammers?
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Hang on! Something's happened! I think maybe Typepad have whitelisted me, or something! Because I managed to post a comment on Mark Thoma's blog. And now just managed to post one here, under Nick Rowe with a space! (And I think I managed to re-set my Google password! Fingers crossed...
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