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Thomas Hutcheson
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A better question is why we did not protest more vigorously the Fed's allowing the market to correctly predict that it would permit the price level to fall below its target trend and that it would fail to rapidly restore full employment after the crisis?
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As long as the Federal reserve can buy stuff with money it creates, it is impossible to understand what restricted "monetary space" could mean. And unless one thinks that there are no activities with NPV > 0 when interest rates are zero and many inputs have marginal costs < their market prices (even if not zero), restricted "fiscal space" is hard to conceptualize, too. Of course both the Fed and the US Congress could decide to impose another recession of indefinite depth and duration as they did in 2008 is possible but that should not be called lick of fiscal/monetary "space" but just stupidity.
Toggle Commented Sep 6, 2018 on Tail Risks at Brad DeLong's Grasping Reality
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RE: https://democracyjournal.org/arguments/taxing-for-equitable-growth/ This is the best discussion of tax reform that would promote both growth and less inequality I have seen. Here is my comment made on the site. "I think this is on the right track, but I differ on the treatment of investment income. First, the value of the capital gain should be indexed and impute corporate profits (not taxed per se) to owners. Second, we should introduce the principle of taxing consumption rather than income. Income reinvested could be exempt with rates adjusted to ensure roughly equal collections. Third, we could replace the wage tax for funding safety net expenditures with a VAT plus a much higher EITC and Child Tax Credit to offset the effects of the VAT on low income people."
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Oh that the EU had remained a customs union without having adopted the Euro! And having adopted the Euro, that private lenders had not forgotten that not having an independent currency INCREASES country risk, that sovereign risk is a real thing. And in having hit a currency crisis, the ECB had juiced up inflation enough to allow real devaluations in PIGS without falls in nominal prices.
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How do YEARS of the Fed failing to keep the price level growing at a constant rate (and allowing the market to correctly expect that the failure would continue) count as the SECOND biggest mistake.
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For me the key quandary is why Barbarossa and why the declaration of war on the US after Pearl Harbor? Would US resources have been mobilized for a war in Europe if Germany had decided to sit on its West continental empire?
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This is "lack of monetary space" only if policy makers CHOSE to rely almost exclusively on the short term interest rate to carry out their mandate to keep prices rising at the target rate and preserve maximum employment. The Fed could have continued to purchase longer term assets but prematurely chose not to. The Fed chose rather to treat 2% inflation as a ceiling instead of a target even when employment was below any reasonable definition of "full."
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One way that a bad trade policy could be LESS damaging in a supply chain world is that it could be more self limiting. What makes bad trade policy possible in a final goods only world? The advantage to the owners and (maybe) workers) of the "protected" industry is easily felt by the beneficiaries but all the losses are diffused. There is a collective action problem in organizing resistance. With many crosscutting supply chains more of the damage falls in large discrete chunks on well organised groups. http://documents.worldbank.org/curated/en/254711468780269367/Best-practices-in-trade-policy-reform
Toggle Commented Aug 11, 2018 on Supply Chains and Trade War at Economist's View
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Not all of this uncertainty is necessarily due to threats of disruptive tariffs. The deficit increase resulting from the Republicans' "Tax Cuts for the Rich and Deficits Act of 2017" are also a brake on long term growth. Although the results are not too bad yet, we should still reverse these harmful policies. The economy will be better off with lower deficits (ideally a surplus) during periods of near full employment achieved with more progressive taxation and freer trade achieved through multilateral agreements.
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This could also become the vehicle for negotiating with China over appropriating of intellectual property.
Toggle Commented Jul 30, 2018 on Links (7/30/18) at Economist's View
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I would amend Mankiw's prescription for what the Fed should have done to say that it should have lent to Lehman or whoever else needed bailing out but on terms that extinguished the equity of the existing shareholders whose mistakes required the bailout. However the much bigger mistake was not to have made clear at the very beginning that Fed policy would not not allow (would do whatever it took to prevent) a fall in employment and the price level (roughly speaking this means an NGDP target but it needed only to have reaffirmed its own mandate) Instead it did not zero out ST interest rates until December and announced LIMITED QE's that left markets uncertain about the ability and willingness of the FED to comply with its mandate. Forward guidance that it would NOT force ST rates negative and the payment of interest on reserves compounded and were the vectors of the error.
Toggle Commented Jul 30, 2018 on Links (7/30/18) at Economist's View
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Timothy Lee is right about the Fed policy in 2008-present but that just shows that the Fed had the wrong objective function. It should have been targeting a price level growth path and demonstrating to markets that it would be as vigorous ("whatever it takes") at correcting downward deviations from the targeted rate of growth path as upward deviations. How close we were/are to full employment had nothing to do with it.
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It depended on what your definition of "raven,""next," "I," and "see" is. :)
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The VoxEU article "The missing profits of nations" on the effects of shifting corporate profits around to avoid taxation is just one more example of the basic mistake we make in trying to tax business instead of their owners. The only tax obligation of businesses ought to be to tell taxing authorities who their owners are and where to find them. Owners would pay tax on the imputed profits wherever they were booked.
Toggle Commented Jul 29, 2018 on Links (7/23/18) at Economist's View
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I think "followed a strong dollar policy" is somewhat misleading. The "strong dollar" is the result of capital inflow that comes from a) the USG debt' role as de facto riskless asset for the world and b) fiscal deficits during periods of near full employment. Whether these results are for good or ill depends on the returns on the investment financed with the capital inflows.
Toggle Commented Jul 23, 2018 on Links (7/20/18) at Economist's View
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Suggested amendments to the NeoLiberal card: 1. The market is always right except about externalities, collective consumption, and when market power and informational asymmetries are important. 2. If you think #1 is wrong, consider regulatory capture. 3. The market is inescapable and so has to be factored into the design of second best polities. 4. If you think #3 is wrong, consider the political economy of widely shared benefits and concentrates costs and vice versa. 5. The market giveth and the market taketh away so a progressive tax/benefit system needeth to take back and give back. 6. Not everyone who crieth "market, market" shall enter into the pareto optimum.
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Unemployment insurance should indeed be reformed but along somewhat different lines that Taylor suggests. a) It should not be funded by a wage tax; that just reduces the incentive of an employer to hire someone in the first place. Fund it with a Federal consumption tax, as we should be using to fund SS and Medicare benefits b) It should be available to anyone that has lost full time work. c) The length of time it should be available should depend on the state of the economy, not an arbitrary length of time.
Toggle Commented Jul 14, 2018 on Links (7/13/18) at Economist's View
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Maybe the problem is that Brad's spoofy card did not mention imperfect competition, externalities, collective consumption, and regulatory capture in point 1 and did not mention progressive taxation to finance policies that redistribute consumption downward in point 5.
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Pinkety's comment about "multicultural" exchanges: "This means that the migratory flow was below 0.2% per annum in the 1990s, before rising to almost 0.2% per annum since 2010. These flows may seem minuscule and, in a way, they are: the globalization of the years 1990-2018 is primarily financial and commercial and has never reached the levels of migration observed in the 1870-1914 period. The difference however is that the new migratory flows lead to greater multicultural exchanges involving people of different cultural origins (whereas in the past the migratory flows were primarily internal to the North Atlantic)" is off base with respect to US inflows. There was probably a far larger cultural "gap" between Russian Jews or Sicilian peasant immigrants and the WASP residents of 1890' US than between a Honduran or Mexican immigrant and residents of the US today.
Toggle Commented Jul 12, 2018 on Links (7/11/18) at Economist's View
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Brad Sester: Why should the US China trade balance be an objective to be "adjusted" in a right or wrong way? Now getting China not to use trade and investment restrictions to force technology transfers is a worth objective, but does not depend on the status of the trade balance.
Toggle Commented Jun 30, 2018 on Links (6/28/18) at Economist's View
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The error of both the "left" and the "right" on regulation and fraud checking in welfare and voting is in not balancing the costs and benefits. Neither has to be excessive to maintain trust.
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It would be rather unfair for an econ. professor to completely specify the framework that a student should use to argue for or against open borders. He can reasonably require that the student be aware of and address the issues thrown up by "rootless cosmopolite neoclassical economics" as they come to an anti-open borders conclusion. But an anti-open borders argument based on second best optimization or sophisticated micro-distributional grounds might give a student scope for displaying skills that a simple income maximizing "pro" argument does not.
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But to even offer that referendum would call into question the decision to trigger Art 50 before negotiating. It is very difficult to untell a lie.
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You are right; they ought to be the same. In practice the "inflation" target became an inflation rate ceiling target. There was never any effort to return th price level to its pre-crisis trend line. The politics of this departure of the Fed from its Congressional mandate have not been adequately examined.
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While a higher target would be good, more important is to define the target as a price level trend target and not an inflation rate ceiling as the "prices" half of the Fed's dual mandate. And even with a higher price level target the main problem will be "pressure on the Federal Reserve... from substantial numbers of economists and politicians practicing bad economics and motivated partisan reasoning."
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