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What's wrong with: In the aggregate, spending equals income, so other than menu costs, etc., inflation is neutral for the population as a whole. However, it's not necessarily neutral for every individual and I worry that my purchasing power will decline. Therefore, inflation is something I fear.
It's the Inflation Fallacy, duh!
Paul Krugman is wasting his time trying to figure out why the rich and powerful don't like inflation. There's a simple answer, that also explains why the non-rich and non-powerful don't like inflation either. And you don't need any fancy political economy to figure out the answer. If you want to...
I'd say the key was a few months ago when they changed from possibly increasing or decreasing asset purchases to possibly decreasing. With below target inflation and inflation expectations and below target employment and growth, combined with constantly revising its forecasts downwards, one might hope the Fed was thinking of increasing its efforts.
In the penultimate paragraph, "I believe that the Fed has a bias against tapering" should be "I believe that the Fed has a bias towards tapering" or "I believe that the Fed has a bias against asset purchases."
A Bit on the Hawkish Side
I fear I need to re-evaluate my conviction that March is the earliest to expect the Fed to begin tapering asset purchases. That conviction was largely based on the belief that the Fed needed to see both stronger and sustainable data to justify tapering. But the bar might be much lower, with on...
This is obviously why we have to cut Social Security and Medicare
'Billionaires’ Row and Welfare Lines'
Charles Blow: Billionaires’ Row and Welfare Lines, by Charles Blow, Commentary, NY Times: ... It’s a great time to be a rich person in America. The rich are raking it in during this recovery. But in the shadow of their towering wealth exists a much less rosy recovery, where people are hurtin...
Trading permanent changes in Social Security and Medicare for some short-term spending is stupid, both as a matter of policy and politics.
It's long been a mistake to sell your birthright for a mess of pottage.
Democrats Will Have to Swallow Entitlement Cuts?
I honestly can't remember if I voted for Obama or Hillary in the primary, but if I voted for Obama, it was a mistake: Obama's Top Economic Adviser Tells Democrats They'll Have to Swallow Entitlement Cuts, by Joshua Green: This morning, Gene Sperling, director of the White House’s National Econ...
The problem goes much deeper than tax rates - the real issue is that the best off have used government to rig the economy to balloon their income at the expense of everyone else.
For example, trade policies which increase competition for ordinary workers, but insulate doctors, lawyers and other protected interests. For example, patent protection in which the govt lets drug companies charge way over market, transferring hundreds of billions from most of us to a few. For example, too big to fail policies which transfer hundreds of billions from most of us to a few incredibly prosperous bankers.
This isn't the free market, it's deliberate policy choices.
If the argument is over tax rates, the best off have already won - redistribution of their hard earned dollars is a much more difficult argument than how they earned them in the first place.
'Why the 1% Should Pay Tax at 80%'
Emmanuel Saez and Thomas Piketty: Why the 1% should pay tax at 80%, by Emmanuel Saez and Thomas Piketty, theguardian.com: In the United States, the share of total pre-tax income accruing to the top 1% has more than doubled, from less than 10% in the 1970s to over 20% today (pdf). A similar pa...
20 years is not enough time to establish much of anything, especially if you're planning for a long period of time, say 30 or 40 years. You wouldn't even have a single relevant data point.
Are Rationality and the Efficient Markets Hypothesis Useful?
Just a quick note on the efficient markets hypothesis, rationality, and all that. I view these as important contributions not because they are accurate descriptions of the world (though they may come close in some cases), but rather because they give us an important benchmark to measure departur...
I don't have such a rule, but there are investors who have long records of consistently beating the market. Of course, there's no way to tell if that's luck or skill.
There can't be a published trading rule that systematically beats the market, for the same reason all children can't be above average (except in Lake Wobegone).
Anyway, I don't believe a test that asks if I have such a rule is a very rigorous test. But if I had one, it wouldn't survive publication. All of which says, you haven't really specified a practicable test.
Are Rationality and the Efficient Markets Hypothesis Useful?
Just a quick note on the efficient markets hypothesis, rationality, and all that. I view these as important contributions not because they are accurate descriptions of the world (though they may come close in some cases), but rather because they give us an important benchmark to measure departur...
How exactly would you test "no free lunch"?
Are Rationality and the Efficient Markets Hypothesis Useful?
Just a quick note on the efficient markets hypothesis, rationality, and all that. I view these as important contributions not because they are accurate descriptions of the world (though they may come close in some cases), but rather because they give us an important benchmark to measure departur...
How would one test EMH?
Originally, it seemed to mean market prices are correct, but they only way to test that would be to have a reliable method of determining correct prices. If we had such method, why wouldn't everyone use it? The idea of a reliable formula to check the accuracy of market prices seems silly.
Now EMH seems to mean it's hard to beat the market. No fooling. Of course it's the case that only a small number can beat the market. Lake Wobegone anyone?
Are Rationality and the Efficient Markets Hypothesis Useful?
Just a quick note on the efficient markets hypothesis, rationality, and all that. I view these as important contributions not because they are accurate descriptions of the world (though they may come close in some cases), but rather because they give us an important benchmark to measure departur...
Where was this Larry Summers when Obama was saying families are tightening their belts, therefore so must government? Where was this Larry Summers when the administration pushed a much too small stimulus?
Lawrence Summers: The battle over the US budget is the wrong fight: Why We Should Be Focusing on Equitable Growth : Noted
**Lawrence Summers:** The battle over the US budget is the wrong fight: >There is a chance future historians will see today’s crisis as the turning point when American democracy was to shown to be dysfunctional…. The substance being debated in the current crisis is only tangentially relevant to t...
"After all, small businesses and families are tightening their belts. Their government should, too." Obama, November, 2010.
Not exactly how I understand counter-cyclical spending is supposed to work.
I Do Find, More and More, Increasing Evidence That Barack Obama Does Not Understand What His Job Is...
His job is not to hang Larry Summers out in public for two months as a Fed Chair nominee unless he has--personally, personally--had the conversations with Sherrod Brown, Elizabeth Warren, and Jeff Merkley on the Senate Banking Committee and saying: "I may well decide that this is who I need at th...
I suppose the good news about a government shutdown would be that it would push the default date further into the future.
Does the GOP have any tentacles grasping reality?
The Trillion Dollar Coin--or, More Sensibly, 10000 Hundred Million-Dollar Coins--Is the Only Way for Obama to Fulfill His Oath of Office
"I, Barack Hussein Obama, do solemnly swear (or affirm) that I will faithfully execute the Office of President of the United States, and will to the best of my Ability, preserve, protect and defend the Constitution of the United States." The Constitution tells us that to faithfully execute the of...
Dean Baker has done some very nice writing on the need to focus on pre-tax income rather than tax and transfer payments. Laws and policy heavily favor the best off, such as an intellectual property system that transfers hundreds of billions to pharma, media, etc., monetary policy that tilts towards capital rather than labor, too big to fail policies that transfer hundreds of billions to the finance sector, etc., etc. http://www.cepr.net/index.php/publications/books/the-end-of-loser-liberalism
Brad DeLong Smackdown: Larry Mishel: What Do We Want? More Worker Bargaining Power! When Do We Want It? Now!: Noted
**Larry Mishel:** A Brad DeLong Smackdown of Sorts: >While Brad buries the goal of equitable wage growth in the grander category of “obtaining substantial equality of result right now,” I think economists and policymakers must explicitly focus on generating broad-based wage growth when discussing...
As many have said, it would be great if we could get the author of Japanese Monetary Policy: A Case of Self-Induced Paralysis?, 1999, as Fed Chair.
Since that person no longer exists, Yellen is the right choice from the shortlist.
Yes, I Am Now Strongly on Team Janet as Far as the Federal Reserve Is Concerned. Why Do You Ask?
And we are live at the *Financial Times*: Why Janet Yellen is now best choice to lead the Federal Reserve: There is, in my view, now only one candidate to be chair of the US Federal Reserve. Janet Yellen, the current vice-chair, stands head, shoulders and torso above the rest of those on the sh...
Why should we focus on existing economic messes when we can focus on possible problems more than a decade out? It's good to know this country has a sense of priorities.
We Simply Do Not Have a Deficit Problem for at Least the Next Three Presidential Terms
That is all. The Congressional Budget Office:
You are likely right regarding the Fed's actions, but I would have hoped that with unemployment an existing crisis, GDP growth too low, inflation currently running under a too low target and inflation expectations well under control (e.g., 2.1% 10 year nominal-TIPS spread), the Fed would be considering doing more, not doing less.
FOMC Week
You can almost smell the excitement in the air - this week we have a two-day FOMC meeting to look forward to, culminating on September 19 with not only the policy statement, but also a press conference by Federal Reserve Chairman Ben Bernanke. Does it really get any better than this? It does, ...
BTW, Tim Duy agrees with Brad that "if you are looking for a candidate of change, Yellen isn't that candidate" http://economistsview.typepad.com/timduy/2013/09/summers-out-yellen-in.html
The Fed's Low-Inflation Problem and the Fed Chair
**Justin Lahart:** Heard on the Street: Targeting the Fed's Inflation Problem: >Federal Reserve policy makers will debate this week whether it is time to start scaling back bond purchases. One argument against: Inflation is far too low. Since January 2012, the Fed has set as its target a long-ter...
>>Summers may have told Obama that if you pick me I will do historically powerful monetary stimulus, like has never been done before.>>
What evidence is there that Obama would want historically powerful stimulus? From news reports and his actions, he seems more worried about inflation and debt and thinks his economic team has done a fabulous job.
From Obama's statement on Summers: "it was in no small part because of his expertise, wisdom, and leadership that we wrestled the economy back to growth and made the kind of progress we are seeing today." Many of us view "the kind of progress we are seeing today" as terrible and something to be fixed, but that's obviously not Obama's view.
Let Me Just Say That Janet Yellen Is Now Clearly By Far the Best Technocratic Choice for Fed Chair of Those on the Short List
I.e., I would prefer someone who would make a regime change a la Takahashi, Chamberlain, FDR, Abe--cough, Christina Romer, cough--but that is not in the cards: BREAKING, via @WSJ: Lawrence Summers has withdrawn his name for the job of Federal Reserve chairman— felix salmon (@felixsalmon) Septemb...
There have been two major strains of criticism of Summers, personality (including alleged sexism) and economics. The personality driven objections were not the real issue, although they received more attention from our gossip-driven, non-substantive media. You are right to point to his letter as evidence against that strain.
The economics strain was a more serious issue, IMO. From the evidence available to the public, it appeared he would not be sufficiently aggressive in the fight for higher employment, higher growth and better regulation of financial institutions. His letter obviously does not address those issues.
If Larry Summers Were Who His Critics Say He Is, He Would Not Have Written This...
[Larry Summers:](http://www.washingtonpost.com/blogs/wonkblog/wp/2013/09/15/read-larry-summers-withdrawal-letter/?wprss=rss_ezra-klein) >Dear Mr. President, >I am writing to withdraw my name for consideration to be Chairman of the Federal Reserve. >It has been a privilege to work with you since t...
Look at the market reaction to Summers' withdrawal - forex, debt and equity markets are all reacting as if his withdrawal signals more aggressive monetary policy than if he had been confirmed.
You could be right - that he would have done more to increase employment and growth than the current regime - but yours is a distinctly minority view.
The Fed's Low-Inflation Problem and the Fed Chair
**Justin Lahart:** Heard on the Street: Targeting the Fed's Inflation Problem: >Federal Reserve policy makers will debate this week whether it is time to start scaling back bond purchases. One argument against: Inflation is far too low. Since January 2012, the Fed has set as its target a long-ter...
The Fed cares a lot about the remote possibility that inflation could increase. The Fed does not really care about the present crisis in employment and slow growth, at least not to the point that they'll take adequate action.
This behavior seems generally true of central banks.
Of course they should be more expansionary.
Why would you expect Larry S to improve the situation?
And I Do Not Understand the Federal Reserve's Current Thinking at All...
There are no signs in the pace of technological progress, in the level of investment, in the pace at which the American labor force educates itself, in measures of capacity utilization, in signs of upward wage pressure due to labor quality bottlenecks, or in surging commodity prices due to supp...
It's amazing how many claims made by the GOP or its fellow travelers depend on the listener not being able to remember the not too distant past.
Tim Noah: The Heritage Foundation disowns its baby: Noted for August 22, 2013
**Tim Noah:** The Heritage Foundation disowns its baby: >Obamacare is largely Heritage’s own invention…. Look out, donors: the policies you pay Heritage to develop today may be policies you pay Heritage to defeat tomorrow…. Dr. Frankenstein is Stuart Butler, then director of domestic policy resea...
Remember the era of the bond vigilantes? Look at what bond prices have done as it appears more likely Obama will appoint Summers.
Neil Irwin Listens to Footsteps in the Topkapi Palace: Federal Reserve Succession Weblogging
I had thought that the White House's economic advisors were not so much uneasy with picking Janet Yellen as Fed Chair as enthusiastic about picking Larry Summers? Neil Irwin: >Why the White House is uneasy with picking Janet Yellen as Fed chair: Many of the economic advisers whom President Obama ...
The monetarists are arguing that Krugman is applying a double standard. Stimulus was tried, then failed to do enough. PK says it's because the stimulus was not big enough. Monetarism was tried and is failing to do enough. The market monetarists are saying it's because the Fed is not doing enough.
They are most likely wrong about the efficacy of fiscal policy, and we certainly need to do more on that front, but the argument that Keynesians are applying a double standard is not without some force.
'Monetarism Falls Short'
I've was making this argument long before the crisis hit, I was among the first to say that monetary policy would not be enough to solve our problems, aggressive fiscal policy would also be needed, and nothing that's happened during the recession has changed my mind. I eventually tired of the de...
Causation and correlation. Check. Adequate sample size. Check.
Taxation and Economic Growth
I had a bit of an intellectual crisis this evening as I pondered the conventional wisdom in economics regarding the choice between reducing consumption taxes or income taxes. Briefly put, the simple conventional wisdom is that taxes on consumption are preferred to income taxes because they encou...
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