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acerimusdux
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No, I think it holds true either way. That is, unless you are talking about a FOREX devaluation driven by a loss of faith in the ability of the US to pay it's debts. Underlying that would really be a loss in the faith in the currency itself. Yes, inflation driven by such causes would have to be answered by tax increases, regardless of whether wage and employment conditions were favorable. To me, Triffin doesn't apply directly, with a sovereign currency and floating exchange rates, unless this reference is meant to apply only by way of analogy to such a currency crisis. But I wouldn't currently foresee such a crisis right now in a modern industrial democracy like the US or Japan even if debt levels were as high as 500% of GDP. One can certainly imagine though some distopian future wherin our constitutional rights and democratic institutions have so continued to erode, and faith in our system of governance has so deterioated, that the population might be on the verge of rebellion at any hint of further tax increases. In such a case, yes there's a dilemma. But if devalution is driven merely by a shift in desire to invest in US treasury bonds, any loss of domestic demand would be naturally offset by increased exports. The money has to go somewhere. Net imports (exports) have to equal capital inflows (outflows), by way of an accounting identity.
Toggle Commented Jun 30, 2013 on 'Karicature Keynesianism' at Economist's View
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Well who ever did make such a claim? He did get Japan basically right there, and equally relavent is the economic theory is basically the same as that behind his correct calls on the Great Recession. The fact is he was right on the housing bubble, in that there was a bubble and in that it's collapse would send the U.S. economy back into recession. He was also right about the details of what that recession would look like, including liquidity trap conditions, interest rates near zero, very low inflation, and significant excess reserves in the banking system since conventional monetary policy had little traction. He was right about the need for unconventional monetary policy, and that the fiscal stimuslus passed would be insufficient. He may have been right as well about the usefulness of a higher inflation target, something Japan has finally tried. I'm not sure why these specific warnings of what was happening in 2005-2007 should have been published in peer reviewed journals, rather than newspaper columns, when the economics was not new, and the journal publishing process would have insured that the warnings weren't timely. No one is saying he specifically predicted the details of the Great Recession, but the details did turn out to be very consistent with the economics he has laid out over the years in peer reviewed articles, working papers, books, and yes, newspaper columns.
Toggle Commented Jun 29, 2013 on 'Karicature Keynesianism' at Economist's View
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Did you sleep through the Clinton years? Politcal limitations will always be an issue. Both in slumps and in prosperous times, we tend to get less cyclical policy than might be ideally desired. But at least we have been able to get some benefit from Keynesisn cyclical policy.
Toggle Commented Jun 29, 2013 on 'Karicature Keynesianism' at Economist's View
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Maybe you should start with these: Paul R. Krugman, 1998. "It's Baaack: Japan's Slump and the Return of the Liquidity Trap," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 29(2), pages 137-206. Krugman, Paul, 2000. "Thinking About the Liquidity Trap," Journal of the Japanese and International Economies, Elsevier, vol. 14(4), pages 221-237, December.
Toggle Commented Jun 27, 2013 on 'Karicature Keynesianism' at Economist's View
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Darryl: No, debt is not less of a worry if interest rates remain low. If interest rates increase, the value of outstanding debt falls. So whether to borrow or tax is strictly a financing decision. When interest rates are very low, it is more economical to borrow. When they increase, it will be more economical to tax. Hyperflation can always be avoided so long as there is an ability to sufficiently raise taxes or cut spending. Once there is a sign of an overheating economy, you want to run surplusses, not deficits.
Toggle Commented Jun 27, 2013 on 'Karicature Keynesianism' at Economist's View
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Krugman's record speaks for itself. Kind of laughable that anyone would so disparage his overall record. I don't always agree with Krugman, but when I don't, I'm usually wrong.
Toggle Commented Jun 26, 2013 on 'Karicature Keynesianism' at Economist's View
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I'll echo, what 30-year decline? As recently as 2000, we had unemployment dipping under 4%, and GDP growth remained strong right up until then. There has been a 30-year decline in wages as a percentage of income or output, but no such decline in disposal personal income, as any fall in wages was offset by increases in transfer payments. And Paul has written plenty on reasons for falling workers share of income. And about the 30-year increase in inequality. Where else is there a 30-year deline? Inflation and interest rates for sure, but the first 15 years of that were likely a good thing. Trade balance, but some degree of that may be good as well (and obviously related to trade liberalization).
Toggle Commented Jun 26, 2013 on 'Karicature Keynesianism' at Economist's View
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@ AldreyN: You should perhaps re-read your own links. The first from Krugman says nothing at all about fiscal policy, and only calls for more agressive monetary policy, both conventional and unconventional. In the second he says nothing at all against structural reform, and only says that desire for structural reform is a poor excuse for bad fiscal and monetary policy. As for Friedman, you have one quote where he was right, about low interest rates being a consequence of too tight money. But he never understood what to do once you get there, believing it was the quantity of money that mattered. His suggestions in that 1999 paper were tried, and failed, in both the US and Japan. Japan has clearly tried expanding the monetary base previously: http://bilbo.economicoutlook.net/blog/wp-content/uploads/2011/09/Japan_monetary_base_1990_2011.jpg What's different this time is the increased inflation target and an unprecedented fiscal stimulus; both policies recommended by Krugman in the earlier 1998 paper, and not mentioned by Friedman in 1999. In addition, the real test of Friedman's understanding of this point is what he himself thought in 2006 right when central banks were creating this problem through clearly too tight money: http://www.econlib.org/library/Columns/y2006/Friedmantranscript.html "My favorite proposal really is a little bit more sophisticated—or less sophisticated if you want to look at it that way—than a straight increase in the quantity of money. I would—if I had my choice—freeze the amount of high-powered money. Not increase it." "I think the real danger of this [the current monetary system] breaking down is there's no danger of it breaking down into a Great Depression. The real danger is it'll break up into an inflation." So he saw no danger in 2006, and was actually calling for tighter policy even when it most needed to be looser.
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AldreyM: You are underestimating Krugman, and misunderstanding him. Since 1998 Krugman has rejected traditional Keynsian fiscal policy alone as a solution for Japan. But he has also pointed out that Friedman's suggestion, purchasing bonds, would also not be enough alone. If all you do is buy bonds, and the markets view that expansion as temporary and easily withdrawn later, then the additional dollars will all simply sit in bank reserves (as has happened with some past attempts at quantitive easing). This is all that Krugman means when he says that "conventional" monetary policy will not work. But his alternative was "unconventional" monetary policy, not just 1960s style Keynesian stimulus. His paper from 1998: http://www.princeton.edu/~pkrugman/japans_trap.pdf On fiscal expansion: "Japan has already engaged in extensive public works spending in an unsuccessful attempt to stimulate its economy. Much of this spending has been notoriously unproductive: bridges more or less to nowhere, airports few people use, etc." On monetary policy: "A permanent as opposed to temporary monetary expansion would, in other words, be effective-because it would cause expectations of inflation" His solution for Japan: "The way to make monetary policy effective, then, is for the central bank to credibly promise to be irresponsible-to make a persuasive case that it will permit inflation to occur, thereby producing the negative real interest rates the economy needs. This sounds funny as well as perverse. Bear in mind, however, that the basic premise-that even a zero nominal interest rate is not enough to produce sufficient aggregate demand-is not hypothetical: it is a simple fact about Japan right now. Unless one can make a convincing case that structural reform or fiscal expansion will provide the necessary demand, the only way to expand the economy is to reduce the real interest rate; and the only way to do that is to create expectations of inflation." Krugman is not really a "Keynesian" of 50 years ago, he's arguably a Friedmanite as much as a Keynesian. More accurately though, I think he's taken the best of both, and then improved on them. He only advocates fiscal expansion be used in liquidity trap conditions, and then only in conjunction with aggressive unconventional monetary policy designed to end the liquidity trap. And now look at what Japan is actually doing. The "three arrows" of Abenomics are: 1. Agressive monetary easing along with doubling the inflation target to 2%. 2. Agressive deficit financed fiscal expansion, especially public works spending 3. Structural reforms to encourage increased private investment That program probably owes more to Krugman than to either Friedman or Keynes. It's increasing inflation expectations, alongside both structural reform and fiscal expansion.
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Yes. Suppose you have $15 trillion in debt financed at 2% for 20 years. Suppose the 20-year interest rate now increases to 5%. The value of that $15T in bonds on the market falls from $15T to about $8.4T. Whether to borrow or tax is simply a financing decision. If you think interest rates are going to increase, that makes borrowing the better financing decision. It's a much better deal for taxpayers in the above scenario, if tax increases were postponed until after interest rates rose. The only limit to how much debt a government should issue is the ability to raise taxes when needed to pay it off. For countries like Japan and the US, there should really be no worries there for debt levels of less than 500% of GDP.
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But it won't necessarily force the banks to put the money to productive uses. It might cause them to put more into vault cash instead. That said, it is possible, and would have some effect, and some smart folks like Alan Blinder have argued in favor.
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It's not a bubble from a value perspective, but I think there may be one forming from a psychological perspective. I think we have been in a secular bear since 2000, and previous such bears have tended to run for 15-20 years. I'm not convinced we're ready to break out from this one after only 12. I don't think the volume will be there to support that. Also, previous secular bears have resulted in exceptional buying opportunities before breaking free. I don't think we're quite there yet. In addition, after a 4 year bull run, I think the market is going to run out of steam. The market made new highs at the end of 2007 as well, before dropping through 2008. Very tough to call this with certainty, though. I really like it when a value analysis and technical analysis point in the same direction. Much harder call here when the valuation says buy and the technicals say it's due for a drop. It could be better to follow Buffet and not try to time it. But I will anyway. Recent economic news has been positive, helping to extend the run. But two things can go wrong now. One, the economic news could turn. The other, continued economic strengthening could lead to an end to quantative easing, which obviously has functioned through supporting asset prices.
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From news reports on BusinessInsider.com (typepad seems to swallow my posts with links): 'Pope Francis on Wednesday condemned as "slave labour" the conditions for hundreds of workers killed in a factory collapse in Bangladesh and urged political leaders to fight unemployment in a sweeping critique of "selfish profit".' 'The 76-year-old later spoke to thousands of followers in St Peter's Square, urging politicians to fight unemployment and calling for greater "social justice" against "selfish profit". "I call on politicians to make every effort to relaunch the labour market," he said in his traditional weekly address.' 'And then this morning, the Pope Tweeted the following: My thoughts turn to all who are unemployed, often as a result of a self-centred mindset bent on profit at any cost. — Pope Francis (@Pontifex) May 2, 2013'
Toggle Commented May 2, 2013 on Links for 05-02-2013 at Economist's View
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Frank, you aren't getting Lerner here. Read the above again, or the actual paper linked. The inflation is caused only by spending in an economy already at capacity. This is not quantity theory of money, it's supply and demand. 1. Even if you keep your trillion under your bed, it's useless to you unless you intend to spend it at some point. Why should we allow you to think you have more money than you do, when we know that this will only cause you to overspend eventually? 2. If the economy is at capacity, the researchers you hire to cure cancer were already working on curing cancer, you just hired them away from someone else at a higher price to do the same job. 3. If you decide to borrow the trillion in private markets, that will be a trillion someone else can't borrow, and it will effect interest rates. So it will not increase overall spending or cause inflation. 4. No the government can't use the trillion to do anything else, that would be spending. They are burning the trillion, they aren't going to burn anything of value.
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The only needed caveats I see are: 1. The government borrowing has to be in it's own currency, or from it's own citizens. But a sovereign currency here seems to be assumed. 2. In a modern economy, you probably have to add international trade and currency effects. This doens't seem to be a major hinderance, though. Assuming free trade and floating exchange rates, the above might instead end up reading "government should borrow money only if it is desirable that the country have higher foreign captial inflows and lower trade surpluses (or higher trade deficits)". 3. The real risk comes if the public becomes reluctant both to keep lending and to hold the currency. But this is only a risk if the government lacks the sufficient authority to impose the needed taxes, not likely a problem in modern democracies like Japan and the U.S. But this does add one additional case in which taxes might need to be raised apart from an immediate need to control spending, and that is to prevent excessive currency devaluation.
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We're concerned here with real asset prices. Inflation depresses them. You will tend to get the bubbles, in both equities and housing, when inflation and long term interest rates are low. http://research.stlouisfed.org/fredgraph.png?g=hJZ
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Why are they all missing that higher inflation also tends to lead to lower asset prices? If I'm right on that (and I think I am), then there is no paradox. Allowing a higher inflation target would allow you to meet both mandates, while maintaining financial stability. In other words, monetary policy was too tight, not too loose. If we had higher inflation, pushing up nominal long term rates, would the housing boom have really continued unabated? Would equities prices have been unaffected by rising inflation?
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What foolishness. I can't think of any reason, social or economic, that we should want people who already have $3M in savings to save even more. (p.s. maybe he should ask Greenspan or Bernanke how this will affect the Global Savings Glut)
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The multiplier for tax cuts, which made up much of that stimulus, is lower than 1.4. Infrastructure spending made up only $100B of that package, spread over several years. Many sources, including the model used by Moody's Analytics, estimate higher multipliers for spending than for tax cuts. For example: http://www.cbpp.org/files/2010-12-6econ.pdf
Toggle Commented Feb 3, 2013 on It's All About The Baseline at Economist's View
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How about this? "because the only way monetary policy can affect growth or employment is by engineering a higher-than-expected rate of inflation." I guess they haven't heard of NAIRU.
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Long term growth models are generally supply side only. That is, they model output as a function only of available supply (capital, labor, resources, technology). In the short to intermediate run, output is determined by both supply and demand. In the long run, you are basically assuming something near to full employment, and so then long run growth models apply (growth is limited by the available labor, capital, technology, mutifactor productivity, etc.) As such, it doesn't make sense to me to take data from a rather brief period when you know there is likely an output gap (post financial crisis) in one or both countries, and then to try to fit that with a regression analysis to an equation that essentially assumes there is none. Wouldn't it make more sense to use dummy variables to exclude periods such as financial crisis or wars from a long term growth analysis, rather than highlight them? I would guess that the pre crisis period estimate of convergence at 1.03 time US per capita GDP is about as good as you will do for an estimate of Japan's long term growth destiny.
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Worth a link, Steven Perlstein's "I am a job creator: A manifesto for the entitled": http://tinyurl.com/9djvyvt
Toggle Commented Sep 30, 2012 on Links for 09-30-2012 at Economist's View
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From your link above: "The annual rate of increase for the MMI is down 0.5% from 2010 to the lowest rate since the inception of the MMI, but is still in excess of spending increases for most other sectors of the economy." So clearly the rate of increase is slowed. And clearly you are only looking here at private plans. The annual rate of increase (12 month moving average) for the Medicare index from your S&P link above was only 2.27%. The CPI data from the link I provided includes everything, and shows overall costs increasing at under 4% for the last two years.
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Did you miss the above: "And for the last two years, health care spending has grown under 4%, for the first time in 50 years." That seems pretty well supported, for example: http://research.stlouisfed.org/fredgraph.png?g=afs http://research.stlouisfed.org/fredgraph.png?g=aft Granted, we aren't talking about costs falling, just a reduced rate of growth. But I think that was understood. And true, most of that reduction isn't going to be in private costs. From your link above: “Since the beginning of the year, we have seen some volatility in the annual rates of change in healthcare costs, but the one consistent feature that stands out is the gap between the growths in costs covered by commercial versus Medicare plans. As of June 2012 their annual growth rates differ by more than 5.8 percentage points” "The chart below depicts the 12-month moving average for the Composite, Commmercial and Medicare Indices. As observed in the past, medical costs funded by commercial insurance plans significantly exceed those funded by Medicare." But the whole point of the Romney plan seems to be to shift more people into the commercial plans, where costs will be higher and less controlled. And an important point here is that some of the most significant cost controls have yet to even go into effect, including the Payment Advisory Board for Medicare and the tax which will be imposed on high cost private plans. The ACA is still being phased in.
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http://www.thenation.com/article/169751/washington-posts-feckless-fact-check "Perhaps the elite journalistic disease of “on-the-one-hand-ism” has eaten away at Kessler’s brain to the point where he no longer understands the meaning of the word “fact.” Much like the financial rating agencies that signed off on Ponzi schemes and criminal accounting practices during the run-up to the 2008 financial crisis, the Washington Post’s “fact-checker” is charged with ensuring the integrity of the system he judges but has chosen to enable its corruption instead. Glenn Kessler is a veteran reporter, and one who had a decent reputation before he undertook this assignment. Today he’s the perfect example of a well-worked ref: an unwitting weapon in the Republicans’ war on knowledge and, sadly, a symbol of the mainstream media’s failure to keep American politics remotely honest—or even tethered to reality." Eric Alterman September 5, 2012
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