This is reason's Typepad Profile.
Join Typepad and start following reason's activity
Join Now!
Already a member? Sign In
reason
Recent Activity
"Capital investment and deficit-financed fiscal policy mitigate the fall in real interest rates and the severity of the slump." And what does money printing financed fiscal policy do?
1 reply
I think we need to start to question international capital flows. I must admit, I am guilty - I hold an international portfolio of assets (not directly by through fonds). But persistent payments deficits are poison to the real economy, because they drain financial wealth out countries running deficits, making them vulnerable to crises and they distort domestic relative prices. Keynes was right, we need a system in place that penalises countries running large trade surpluses (rather than the current system that periodically dumps on deficit countries while surplus countries think they are morally superior). If you are part of the problem, then the solution will hurt you.
Toggle Commented Apr 9, 2016 on 'The Case for a Grand Bargain' at Economist's View
1 reply
On the Vox piece, I'm sort of puzzled about why they choose to emphasize productivity. I think the story with investment is probably more important.
Toggle Commented Mar 28, 2016 on Links for 03-28-16 at Economist's View
1 reply
intermediate goods?
1 reply
You can't "throw money at a problem". You spend money on a plan to combat a problem. That is something quite different. It does matter what the plan is.
1 reply
"The only reason that this process is not well understood is that economic models that claim to be "stochastic" are not really stochastic in the right place, so the importance of uncertainty and volatility tolerance and buffers and resiliency is not built into the models." To understand what I mean here, consider that a 5% fall in GDP does not mean that the income of everybody in the economy falls by 5%, what it means is that the income of some people is unchanged and other people experience a fall of 80% or 90% or even 100% or more. When that happens and these individual people do not have financial reserves they change states and the model becomes non-linear (and there are also nock-on effects on other people). A properly stochastic would model the probability of these sort of state changes happening to people.
1 reply
pgl I know what arrow said, but what is the relevance to my comment on the other side of the coin and "first move DISADVANTAGE" in competitive markets. In particular, I think this refers to when the innovation is not on the product side but on the production side. I actually used this little model when thinking about why regulation sometimes doesn't increase marginal costs but actually lowers them (because often lowering emissions can be achieved by using newer more efficient machines), and why the innovations involved were not introduced spontaneously. The reason is, that there is no advantage in a competitive market of being the first to move because of learning costs.
Toggle Commented Mar 17, 2016 on Interview of Kenneth Arrow at Economist's View
1 reply
Stiglitz's piece is very well written. No real answers in it, but a good summary of the situation. https://www.project-syndicate.org/commentary/new-generation-gap-social-injustice-by-joseph-e--stiglitz-2016-03
Toggle Commented Mar 17, 2016 on Links for 03-17-16 at Economist's View
1 reply
P.P.P.S. Note from the above that the US Government deficit has actually a role in the current world economy. I think this is unfortunate and the balanced budget amendment brings it even more in focus. US Government economic policy affects the world economy (through the reserve status of the USD), but US policy makers act as though only domestic concerns matter. In a way, it is a general problem with the structure of the world - I sort of wish Keynes had won when he wanted a international financial reform to avoid specifically this problem. http://www.theguardian.com/commentisfree/2008/nov/18/lord-keynes-international-monetary-fund
1 reply
P.P.S. There is of course an alternative to the process of the government filling the household sector financial wealth tub, it can be filled by foreign governments (which the US government has been doing for a long time now). This is the mercantilist solution (put up your hand Germany). The problem with this of course, is that not everybody can do it at the same time.
1 reply
This can't be said enough - if you want a stable, steadily growing, real investment oriented society SPREAD MONEY AROUND. The more money (and here I mean net money - net of debt) is concentrated the less healthy the economy will be (because otherwise large parts of the economy will be constrained by either liquidity or by debt).
1 reply
P.S. I get the general feeling that Brad Delong has a feel for this from economic history, but doesn't really have a good model of the process.
1 reply
Paul Mathis, the logic of this is easy if you consider the importance of household financial wealth as insurance (and so as providing resilience). If the government is running a surplus it is taking more money/bonds out of the private sector than it is giving, so to the extent that private sector households have more money/bonds it is matched by an increase in private sector debt elsewhere. That is, if household sector net financial wealth is a bath, the bath is being drained faster than it is being filled. Of course there is a point of diminishing returns where more government debt has little more value as private sector insurance, but as debt sinks the marginal value of more government debt as household insurance increases (especially if government spending is widely spread - and for some reason "austerity" always seem to fall hardest on the least well to do). The only reason that this process is not well understood is that economic models that claim to be "stochastic" are not really stochastic in the right place, so the importance of uncertainty and volatility tolerance and buffers and resiliency is not built into the models. Economic models are often like a ship built only for fine weather.
1 reply
djb And oh yeah "wealth" is another term that leads to massive confusion (and I repeat again the MMT people are talking about financial wealth, i.e. money, bonds and that part of equity value reflecting cash holdings and you are talking about something completely different). But please do tell me, where do you find your "net production" (some environmentalists might describe that as an oxymoron - they prefer to think in terms of throughput, natural wealth is always depleted, only the pace changes) in the national accounts.
Toggle Commented Mar 17, 2016 on 'MMT: Not so Modern' at Economist's View
1 reply
djb "Investment equals the difference between income and consumption" No it doesn't. You need to go back and study the national accounts again (particularly the bit about the government sector and the foreign sector and the bit about depreciation).
Toggle Commented Mar 17, 2016 on 'MMT: Not so Modern' at Economist's View
1 reply
P.S. For people who don't understand my comment about the balanced budget amendment implying the demise of the USD - they need to understand the ratchet involved, a surplus will lower the outstanding government debt and a balance will leave it unchanged, so eventually government debt - and with it the base on which the money supply is built will disappear. A deflationary currency is useless for commerce (because it incentivises hoarding) and so the USD will become unattractive for use (and will be replaced by something more plentiful).
1 reply
P.S. For the mathematically literate amongst you - you can make two corollaries to the post above 1. I think government investment should increase during recessions 2. I think accumulated government investment should at least keep pace with GDP.
1 reply
New Deal democrat - I'm sort of attracted to the German constitutional rule that limits deficits to the size of government investment. I think we need to keep the debt/GDP roughly constant (otherwise an increasing share of the money supply will consist of private debt, and an increasing share of the money supply consisting of private debt is in my view destabilizing).
1 reply
djb Let's put it this way "savings" is household sector income not spent on goods and services that are (to some extent arbitrarily) deemed consumption. This is driven by spending that is (also somewhat arbitrarily) considered net investment, net government deficit and net foreign income all of which affect one another. I'm not at all sure what you mean by "net production" by the way - could you explain it? It is always best to think of national accounts as referring to MONEY flows, with the real values being deflated money flows, thinking in real terms will get you confused.
Toggle Commented Mar 16, 2016 on 'MMT: Not so Modern' at Economist's View
1 reply
djb I hate this sort of discussion - it always gets confused about the terms (and your discussion is just another case of that). When MMT are talking about wealth here, they are talking about net financial (i.e. monetary) wealth and you are talking about real wealth (and S doesn't equal I in general by the way - ignoring for the moment the crucial Keynesian distinction between ex-ante and ex-post). I wish economists would ban the term "savings" it always ends up spreading confusion.
Toggle Commented Mar 16, 2016 on 'MMT: Not so Modern' at Economist's View
1 reply
HankG No, I prefer Thomas Palley's http://www.thomaspalley.com/docs/articles/macro_theory/mmt_response_to_wray.pdf He highlights the problems I always have with the MMT people (I'm not sure that is the same thing as having a problem with MMT). Their indifference to balance of payments issues and their support of an employment guarantee. I think these policy ideas (and what else matters) are bad ideas. On the other hand, pointing out the consequences of accounting identities (especially the dynamic consequences) is a useful thing to do.
Toggle Commented Mar 16, 2016 on 'MMT: Not so Modern' at Economist's View
1 reply
Sandwichman, maybe the congress is instead aiming to do away with the USD (which would be the logical consequence).
1 reply
The only positive thing about a balanced budget amendment would be that it would force more active use of the balanced budget multiplier (i.e. increasing taxes on those with stock of inactive money and spending the money in high velocity ways).
1 reply
Re Kevin Drum, well yes, but what about the experiment of just about the same duration in "supply-side" economics. When will the excuses stop. Failure is failure.
Toggle Commented Mar 16, 2016 on Interview of Kenneth Arrow at Economist's View
1 reply
P.S. Note "first mover disadvantage" (has to come from a software developer who has been cut by the "bleeding edge"). There are costs to being the first to try something, often much greater than the benefits.
Toggle Commented Mar 16, 2016 on Interview of Kenneth Arrow at Economist's View
1 reply