Sunday, December 29, 2013

Bitcoin: A Look at Major Freedom's Currency

      On Friday  same bad news in China caused the Bitcoin to lose half its value in one day-from $1000 to $500.

      Krugman then got the Bitcoin folks seriously riled when he referred to Bitcoin as evil in a post.

      As he says they failed the humor test on that one.

     I've not said anything about the  Bitcoin craze until now. I guess the one thing you have to admit that its' been a great investment. This is in part because of the way it is designed. Basically Bitcoin is designed to be deflationary. As the number of Bitcoin in circulation goes up very slowly, this means the stock price will soar. 

     So solely as an investment vehicle it's tempting-much as gold is. I mean gold has gone up a great deal over the last 10 years but this is not at all about fundamentals as the gold bugs might like to tell you-'People realize the dollar crisis is at hand so they're buying gold hand over fist.' Basically gold commodities has some real upside potential but it trades like this because this is how many commodities trade not because of the fantasies of a Major Unfreedom that it might come back as a currency. 

   The way Bitcoin is structured then by definition gives it the ability to soar. However, it also gives it the ability to tank. Indeed, it's certainly met the hopes of the gold bug Rothbardian , anarcho-capitalist set who designed it in being deeply deflationary and so being a very lucrative investment. Yet as a commentator over at Charlie Stross' blog points out:

    "As long as bitcoin was deflationary (i.e. the price of goods and services was going down, in terms of bitcoins, i.e. the value of bitcoins was going up), everyone was happy. And the fact that there was no central bank to prevent run-away deflation was considered a good thing. This is because everyone was looking at bitcoin as an investment, not as a currency. But once things turn inflationary (i.e the value of bitcoins is going down), it turns out there is no central bank to prevent runaway inflation either."

     "For fun, calculate what the inflation rate has to be for a currency to lose half it's value in a 24-hour period. Lets just say that Zimbabwe and the Weimar Republic should no longer be the (ahem) gold standards for runaway inflation."
    "The thing about the inevtiable, it has a bad habit of actually happenning."
     Say what you want about the Bitcoin-deflation was wanted and they've gotten it. Yet the commenter is right: it can be subject to not just sharp deflation but also sudden wild inflationary sprees and turns. So it's not exactly giving us 'price stability.'
      As Stross says this was consciously designed with an extreme libertarian agenda in mind. It hopes to topple the worlds central banks and take us back to the idyllic years of 19th century capitalism. Again, though this is hardly price stability with such wild day to day swings. Stross also rightly points out that inflation and deflation are not opposites. Deflation is a much more noxious phenomenon on the economy than inflation. 
    My guess is that however long Bitcoin lasts it's upward movement no more means we're going on the Bitcoin standard than upward movement in gold means we're going back to the Gold standard. As Stross points out Bitcoin is showing how malign a social phenomenon deflation is. 
   "t's also inherently damaging to the fabric of civil society. You think our wonderful investment bankers aren't paying their fair share of taxes? Bitcoin is pretty much designed for tax evasion. Moreover, The Gini coefficient of the Bitcoin economy is ghastly, and getting worse, to an extent that makes a sub-Saharan African kleptocracy look like a socialist utopia, and the "if this goes on" linear extrapolations imply that BtC will badly damage stable governance, not to mention redistributive taxation systems and social security/pension nets if its value continues to soar (as it seems designed to do due to its deflationary properties)."
   Yes I know Sumner thinks there's good deflation and bad deflation-good deflation is like what we had in the early to mid 20s and the bad part is what we had starting in 1929. However, even if you by his distinction-'supply side vs. demand side' deflation, this is clearly the bad kind of deflation. My guess is we're going to learn a lot from the Bitcoin experiment and what it's mostly going to be is another reason why the gospel of currency competition is all wet. 

  P.S. Matt O'Brien has a great satire about Bitcoin



Economics, Intuition and Praising With Faint Damnation

     I guess I'll take this comment by Anonymous as a compliment. 

    "Williamson's main implicit point is that Krugman has become a shlock economist since he writes for the NYT. So yeah, it is totally about schools of thoughts in macro with the key difference being that the Keynesian camp acknowledges that there are some moronic economists out there whereas the Neoclassical camp claims that there are no Keynesians, that all the Keynesians are NewKeynesian and thus pseudo-classical or that the Keynesians are stupid or whatever (this is an obvious variation of Freud's borrowed kettle)."

     "So the funny thing is that even without knowing anything about economics you could tell that Williamson is a liar."

    I'll take this praise with faint damnation I guess. What I would point out is that while I think I may know a little about it by now-though I wouldn't say I know a lot-yet I think part of what it comes to is that economists in the Stephen Williamson-Tony Yates mold think that just as 'there's no crying in baseball', there's 'no intuition in economics.' For them, the model makes the man/economist. 

   ""In my time in central banks one definitely encountered a breed of policymaker that behaved as if they were above actually doing macro, but yet seemed to know all the answers for sure, and know how macro should be done [of course by someone else, not them].  It seemed to many of us who observed them as though they had fallen victim to the illusion that since they had done so well in life, their gut feelings about stuff must really be valuable, and that perhaps that’s where macroeconomic truth lay, in what they as great individuals felt and said.  Many can tell stories of attempting to advise them, and being met with the condescending twinkle in the eye that translates as ‘Ah, so that’s what’s true in your silly little toy world, is it, tee hee, how quaint that you think such things worth repeating, well, I can only hope that one day you glimmer the real source of truth, namely, the instinctive knowledge of the chosen’.   If the meme that microfounded macro has ‘no merit’ were to gain any more traction, I assert that great danger would lie ahead!:  theorising that is incomplete and ‘accidental’ [in the sense meant by Krugman];  policy promises that are unverifiable;  discretion untamable;  and a search for new economic knowledge that is empty and futile (since the truth is already felt by the great policymakers, and the only way to divine it is to draw the few charts they ask us to plot, and sit around and wait until the charts work their inner magic and they are kind enough to write it down in speeches for us)."

     Exactly-who are these ignoramuses who think that their absurd 'gut feelings' can matter? (Actually he's talking about policymakers who after all pay his salary; we all do, while he sniggers about our ignorance).  In economics you don't need to think, just have the correct model based on the proper assumptions, grounded firmly in the appropriate microfoundations. If you can't say it with MF you aren't saying anything at all-you're just grunting. 

     Speaking of praising with faint damnation listen to what Mark Sadowski has to say about Diary of a Republican Hater:

     "I try and skim your trog posts when I can, if only for the gossip value. With respect to your recent infatuation with Stephen Williamson I generally think it is a mistake to try and second guess other people’ motives. In this particular instance however, my personal opinion is that you’re mistakenly reading your own motives onto Williamson."

    Ok, he sees them as a new species of blog posts-'trog posts', as in I guess blog written by an troll-but I'll take it. For anyone who wants the latest gossip in the econ world-or who might actually even want to learn something or at least think something through-please come again!

    After his kind words I almost hate to tell him I still don't agree with him about monetary offset!

   UPDATE: Becky Hargrove is on the list! We now have these great lines by commentators. 

   1. Daniel a commentator over at Money Illusion gave me a great definition of monetary offset: 'code for letting poor people starve.'

   2. An anonymous commenator at Noahpinion referred to Stephen Williamson as having 'Krugman-envy.'

   3. An now Beck Hargrove has another keeper:

   "Never mind the taper. Brace yourself for the wrath of Mike Sax."

   Yep. Believe it.      

The Latest Major UnFreedom Follies

    He calls himself Geoff now but this hasn't much improved his reasoning. Yesterday he was all breathless in linking to a few charts that he thought made a devastating case for his Rothbardian Austrianism. What they showed was the difference between various goods back in the 30s to today. Major clearly thinks this comparison is just devastating to all us pinko Keynesians and Monetarists. 

    "Someone please rationalize this. Shallow reasoning is preferred."

    I've got to hand it to Mark Sadowski, while I differ with him on some important things I think he had the perfect answer here. 

     "Anything to oblige. Let’s see, I take one look at the name of the commenter and conclude without even looking at his links that it’s BS on stilts. How’s that for shallowness?"

    Major also announced that he doesn't celebrate Christmas, for him it's just another day as he's an atheist. I have to disagree with him even here. I'm an atheist too but why would anyone hate on Christmas? It's such a jolly time. I'm serious-I love the spectacle in its pure form. I tend to think that as I don't really believe it's literally true my enjoyment of it is increased. It's not surprising that Major doesn't celebrate any holidays-he's such a heavy cat; by heavy I mean the opposite of 'the Unbearable Lightness of Being.'

    Ie, he's not exactly a guy for levity. Just so we can have a little levity however, let me look, just for laughs, look at this damning chart of his. 

    iGZp1bF.png (611×260)

     What jumps out at you in reading this chart? What jumps out at me is that the year he picks is rather unfortunate if his point is to make us look at this chart with regret-'Wow, if only we were all Austrians today we'd still be paying these low prices.'

     I mean 1938 was during a 'double dip' in the middle of the Great Depression. Does anyone really believe that many people were better off then? I shot him a short reply-knowing that engaging him is not advisable. 

    "Major your choice of years is rather unfortunate. You yourself admit that no Jew would want to live in the time of Nazi Germany-so sometimes you can generalize. I mean so we agree this far: while subjective dispositions do vary greatly, nevertheless no one would prefer to go to the gas chamber. So this generalization is not contested."

     "1938 America is another year pretty easy to generalize about and be right: 1938 was in the middle of the Great Depression so I don’t think very many at all would want to live in 1938 just when we fell into a second recession during the larger GD."

     "Materially at least that was a grim year indeed to be alive. I doubt that a cheap dozen of eggs or carton of milk helps much as the economy was in recession and many people didn’t have jobs."

     "By the logic applied here-that low prices make an age some kind of paradise-late 2008 to early 2009 should have been a paradise-the price of oil and most commodities completely collapsed. I remember that time well and believe me cheap gas for your car doesn’t help when you are out of work and can’t buy gas for it in the first place."

     His response to me was rather 'shallow' itself.


    "Major, by what you said, it appears you agree."

    “I doubt that a cheap dozen of eggs or carton of milk helps much as the economy was in recession and many people didn’t have jobs.”

     "But for those who did…"

     "Not sure why we should ignore the 75% of the workforce with jobs."

     Ok, so we should just kiss off 25% of the population and the economy?  This from the same fellow who had piously intoned above that:

     "The point I am making is that you can’t just insist that life is better today than in 1938 for every individual. For most you’d probably be right, but I don’t want to ignore the minority just because they’re outnumbered. Democratic thinkers like you are intellectual followers. You just follow the crowd, and there is something wrong with the fringe and the minority. Your posts reek of such irrationalism."

     He doesn't want to ignore the minority except if it's 25% who are out of work. Still, the chart, is got more fun in it. I notice that he has cars in 1938 as costing about $14,0000 and change in today's dollars and today's costing about $31,000. I'm not sure what cars he's looking at but from what I've seen is you can still get a decent car for about $14,000 or so. I don't know where the numbers for this chart come from but I don't think the average car is anything like $31,000 today. I mean if you want a higher end car maybe but you can certainly find cheaper cars than this aplenty.

    P.S. I'll take Mark's description of my blog as well:

    "I try and skim your trog posts when I can, if only for the gossip value. With respect to your recent infatuation with Stephen Williamson I generally think it is a mistake to try and second guess other people’ motives. In this particular instance however, my personal opinion is that you’re mistakenly reading your own motives onto Williamson."

    Ok, at least he's finds gossip value in it. Economists need their fill of that now and again too. I see he has coined a new genre for me: 'trog.' I'll take it. Hopefully, if you're skimming Mark you liked this one. 

Saturday, December 28, 2013

Freshwater Economists, Saltwater Economists; New Keynesians and New Monetarists

      SW confuses many with the distinctions he wants to deny and with those he does make. He wants to deny the Freshwater-Saltwater divide is about much of anything than the fevered minds of 'journalists'-ie, Krugman, Delong, Noah Smith and Miles Kimball et. al; that is to say not journalists but economists he is taking issue with.

      Much of his kvetching over differences with how the Minneapolis Fed firings were handled seems like nothing but inside baseball to me. I disagree with him when he says things like this-in this case to Noah Smith in the comments secton:

     "In terms of what you have written in this post, you just haven't got it. Here, you've mischaracterized my motives, as if I'm driven by anger and emotion. I've thought about these issues carefully, and gone to some effort to try to correctly characterize what is going on. You seem to be embedded in some fantasy wrestling match world of smackdowns, good guys, bad guys, winners, and losers."

      "I'll give your original post with Miles credit for being well-written. But, forget the nuance. It's primarily a work of fiction. What's going on in Minneapolis is pure Shakespearean tragedy. There are no winners in that episode. This ain't Star Wars."

      "So, get your mind off your own hurt feelings. You're a good writer. Just get to know your subject before you write about it."

      It's suggesting that you have to be part of the inside baseball to have any opinion or any ability to do analysis and this is false. It's a typical position of all institutions that don't want any outside scrutiny to say that is you're not part of it you are entitled to no opinion about it. That's how someone like Sumner defends mainstream macro everyday-'sorry, you're too illiterate to even have a discussion with about that.'

      For more on his way of looking at things see him here for his analysis of the Minneapolis Fed firings. 

      Interestingly, he has recently managed to rather than convert more to the idea that there is no meaningful FW-SW divide actually made others like Nick Rowe who would have tended to agree with Williamson prior to his recent posts about QE to wonder if maybe there is a meaningful distinction after all. 

      Before that episode, I thought that the freshwater/saltwater distinction wasn't really a useful one any more, because it was only a difference in degree, and not a big difference at that.

       "After that episode, I realised there was a big difference in kind. It's not about microfoundations (which is mostly a difference in degree). It's something else. Those economists who can't see any problems with the idea that if the central bank wants to increase inflation it simply has to set a higher nominal interest rate are on a different planet, where Wicksell never existed."

       "The freshwater/saltwater distinction (if that is what it is) is bigger than I thought it was."

      Yet, the thing about Williamson is, he is very difficult to pigeonhole. He's basically Freshwater all the way-though not RBC-and his politics based on what he's said are quite liberal. Then there's his policy prescriptions. 

       What's the difference between a New Keynesian and a New Monetarist? This sounds like I'm leading off to tell a joke (a duck walks into a bar...), but I'm not. A New Keynesian thinks that the real interest rate is too high, while a New Monetarist thinks the real interest rate is too low.

       "In New Keynesian theory, the basic idea is that the key inefficiency that monetary policy should be correcting arises from the sticky price friction. It is costly or impossible for firms to change prices frequently, and if there is general inflation or deflation there will be relative price distortions that cause welfare losses. In the New Keynesian framework, price stability will generally fix the problem, subject to some slippage due to what the central bank can and cannot observe at any given time. However, a particular problem, which I think is the key to how New Keynesians think about the current state of the world, is that the nominal interest rate cannot fall below zero (the "zero lower bound"). In a severe downturn, from standard intertemporal economics, efficient allocation of resources dictates that the real interest rate should be low, but this is not going to be consistent with price stability and a non-negative nominal interest rate. The best the central bank can do is to set its policy target nominal interest rate to zero, and the real interest rate is then too high relative to what it would be in an efficient flexible price world. This is essentially the story that Bob Hall told on Wednesday, and it's consistent with all or most of the New Keynesian work I have seen at the SED meetings here in Montreal."

       'From a New Monetarist point of view, a key element of the financial crisis relates to the scarcity of liquid assets. There is one type of liquid asset, which is outside money. Currency and bank reserves play their own unique roles as media of exchange in retail and large-scale financial transactions. A second important set of liquid assets are (in the US) Treasury securities, and various intermediated private assets that are implicitly traded through the exchange of various intermediary liabilities. When the Fed conducts an open market purchase of Treasuries, it swaps the first type of liquidity for the second. My view is that one reason this matters is that it increases the scarcity of the the second type of liquidity. The financial crisis also increased the scarcity of the second type of liquidity. For example, some mortgage backed securities, which had been widely traded in financial markets, and had served as collateral in various credit arrangements, dropped in value and were no longer traded. An increased scarcity of the second class of liquid assets is reflected in a lower real interest rate - these assets carry a larger liquidity premium. The correct central bank response to such a phenomenon, in additional to stepping in temporarily take up some of the intermediation functions that seemed to have shut down in the private sector, is to sell Treasuries, not to purchase them (which would increase the first type of liquidity, not the second).'

      So it is, that the New Monetarist has some decidedly un-Monetarist sounding things to say about policy. Not enough public debt?! So you can't say he's not original if nothing else. For the New Monetarist 'Bible' as it were see Lagos and Wright (2005).

     Now wonder Nick Rowe and Sumner think it's unfair that SW got the New Monetarist label-shouldn't it be theirs by definition? 

     This is why I'm still kind of intrigued by SW-no matter what you say about his models, he gets to the right answer -more public debt-via a very circuitous route.  

      P.S. No matter what you think of the New Monetarist model as described by SW, there are clearly some defects with the NK model though not the ones that Sumner always talks about: that's the Monetarist line where what counts is not interest rates but the money supply. However, the money supply has been from Friedman on been totally oversold in terms of what you are supposed to be able to achieve with adjustments to it.

      However, 'New Monetarism' is such a horse of a different color and so enigmatic with SW's policy advice-what kind of Monetarist claims that what is needed is an increase in public debt?!



Krugman Envy: Stephen Williamson Diagnosed

      A commentator at Noahpinion used it and got it on the nose. Here SW was peevishly arguing about the Minneapolis Fed firings and dissing Noah Smith's answer to SW's previous Noah 'smackdown.'

     "Wow. An all-night bender. Both inebriation and negotiation. Dude, get over it already and get back to Krugman envy."

     I would happily name this commentator but they went the 'anonymous' route which is perhaps appropriate as Mark Sadowski observed that a lot of commentators over at SW call themselves 'anon.'

     I've gotten some great coinages from commentators at different blogs lately. Daniel over at Money Illusion was still my favorite: Monetary Offset as 'code of letting poor people starve.' He wasn't trying to be helpful but it's a keeper.

     SW seems to be quibbling in much of this. Noah Smith is somehow being sloppy by speaking of Ellen McGrattan as being 'fired.' Technically she wasn't but she herself sees this as nothing but a technical distinction. Yet SW won't let it go. 

     "No contract. This is just a normal employment relationship. You're notified of your salary every year, just like anyplace else. But, no contract. No non-renewal. Ellen, if she had chosen to, could be working at the Minneapolis Fed on January 1."

       SW is pretty fired up over this whole thing as Noah points out but SW of course claims, no, there are no feelings involved with him, just cool scientific logic for him. 

        "In terms of what you have written in this post, you just haven't got it. Here, you've mischaracterized my motives, as if I'm driven by anger and emotion. I've thought about these issues carefully, and gone to some effort to try to correctly characterize what is going on. You seem to be embedded in some fantasy wrestling match world of smackdowns, good guys, bad guys, winners, and losers. "

         Right, he saves the anger and emotion for when he discusses Krugman. Meanwhile, Nick Rowe declares himself  now actually convinced that there is something more to the 'saltwater-freshwater' divide than he had previously thought. 

       "Before that episode, I thought that the freshwater/saltwater distinction wasn't really a useful one any more, because it was only a difference in degree, and not a big difference at that."

      "After that episode, I realised there was a big difference in kind. It's not about microfoundations (which is mostly a difference in degree). It's something else. Those economists who can't see any problems with the idea that if the central bank wants to increase inflation it simply has to set a higher nominal interest rate are on a different planet, where Wicksell never existed."

      "The freshwater/saltwater distinction (if that is what it is) is bigger than I thought it was."

     I see that Smith stuck to his guns here on the divide and rightly so-it's real. 

     Williamson complains that Miles and I paint the divisions in macro with too broad of a brush (or, as he puts it, we hurl paint at the canvas and call it a day). This is probably true but unavoidable. We took great pains to make our article as nuanced as we possibly could. Personally I think we did a pretty good job of being nuanced. And you should see the amount of nuance that the editors cut out!

    "But I think the division we highlighted is very real. You don't see papers like this unless there is serious academic disagreement. For more on the Freshwater/Saltwater division, Williamson should check out "New Classicals and Keynesians, or the Good Guys and the Bad Guys," the NBER working paper by Robert Barro. The division is not as intense as in the 80s when Barro wrote that paper, but the notion that it has disappeared seems highly dubious. See also Williamson's own blog post, "New Keynesians and New Monetarists".

     I see this claim of SW that there is no divide and that the only ones claiming it are some troublesome 'journalists' looking for a fight-of course, the 'jounralists' he has in mind are Krugman, et. al-as similar to when Neoclassical economists claim there's no such thing as Neoclassical economics. 


Sumner's Old Wine in New Bottles: The Scourge of Monetarism 2.0

     I'm reading Kaldor's 'Scourge of Monetarism'-I just downloaded it last night on Amazon. I had initially wanted to read his book arguing for Economics Without Equilibrium as Lord Keynes over at Social Democracy for the 21st Century had mentioned it.

     However, at this point the cost of it is very prohibitive.

     LK argues that if you want to focus on what especially separates Neoclassical economics from Post Keynesian it's that PK theory is 'economics without (Walrasian) equilibirium.

     "If one were state the difference between Post Keynesianism and mainstream neoclassical theory, it might be summed up with the idea that Post Keynesian theory is “economics without (Walrasian) equilibrium.”

        Mike Sanowski argues that the belief in the price mechanism and the simple supply-demand model that NCers believe holds in most markets only really holds up in the financial market-in most markets prices don't work the way s-d models assume.

     However, while Economics Without Equilibrium is totally unaffordable Kaldor's epic The Scourge of Monetarism is very affordable. If you are sick and tired of Sumner and friends this is the book you probably want to start with if you want to get to the bottom of what's wrong with Sumner's whole pitch.

    The trouble with Market Monetarism is that: it's still Monetarism with a slightly embellished name. Sumner's whole pitch is that Market Monetarism is very different than Old Monetarism-that 2.0 corrects the errors of 1.0. However, at the end of the day it's still Monetarism and it's still old wine in new bottles. 

   Need it be said that Monetarism 1.0 was itself already old wine in new bottles? Friedman claimed to have discovered something in his and Anna Schwartz's The Monetary History of the United States that justified a return to the old Quantity Theory of Money (QTM) that had gone out the window when Keynes published The General Theory

   We suggested that difference between PK and NC theory is perhaps that PK eschews (Walrasian) equilibrium. The big difference between Monetarism and Keynesianism is that Monetarism needs the money supply to be totally exogenous. It requires the velocity of circulation and the demand for money to be stable. What the 80s did was bring total disrepute to Monetarism by its spectacular failure. The minute Volcker started focusing on the growth of money in a vacuum without reference to the interest rate, both the interest rate and inflation took off and one point both exceeded 20 percent. 

   If money is endogenous, however, Sumner hasn't somehow rescued Monetarism by declaring that the market does the heavy lifting and claiming that it's not Friedman's long and variable lags but variable leads that monetary policy has its impact. 

   P.S. Again, thank you Daniel for inadvertently giving us the perfect description of Monetary Offset-'code for letting poor people starve.'  From now on that's our working definition of Monetary Offset.

  P.S.S. I notice that some commentator was talking about commentators who are using Sumner's blog to freeload of while criticizing him to secure their own followers. I don't need Sumner to have a blog as any cursory look through the archives will show I can write about lots of things that have nothing to do with him-politics. However, I do think right now that it's important to engage him-not so much on his blog as he usually tries to do honest engagement as little as possible but in my blog anyway. 

   We have the same old zombie ideas being foisted on the public yet again and I think it's important to give as much as the counterargument as you can. I do wish that some others might jump in a little-I have reason to believe that a few major economists might try calling him out with the start of the new year. OK, I can't say too much-or for once I shouldn't-but from my own correspondence it looks like at least one very prominent economist may call him out soon or so they told me in an email-after the first of the year. 

   I won't tell you who it is but everyone would recognize the name immediately-as I haven't gotten permission to do this and I don't want to betray a confidence I hold in very high value. Let's hope so-calling out Sumner is not an easy game and I could really use some technically trained economists where I can find them. I will say this 'technically trained, very prominent economist' I'm rather cryptically telling you that I've had email correspondences with: this is a very cool person, who really does care about the average guy, not at all with the pompous attitude you see in people like Sumner or Stephen Williamson-though they do come from the same NC establishment. 

   I really fought in this description not to reveal the gender though I wanted to. However, I will give this hint: what sex are most economists? That's what this person is. Have I said too much? 

   P.S. Not that I'm trying to dismiss women in economics, I think it may be the case that today more and more women are becoming economists. However, on the blogosphere I don't think it's false to say that most of the major econ bloggers are males. 

   P.S.S. The reason I decided to reveal the gender is that I want to be able to shout from the rooftops 'I'm actually in email correspondences with-' but I can't do that. I could ask them but I want to wait for now and give them time. 

   UPDATE: I see Kaldor had a great quote from Keynes in The Scourge of Monetarism: 'Monetary policy is a campaign against the standard of life of the working classes.' Unfortunately I don't see that Kaldor mentions where Keynes said this other than he said it in a 'pamphlet' back in the 20s in protest of the decision of the British government to return to the prewar gold standard-at the same price. 

Friday, December 27, 2013

Britain: a Market Monetarist Victory?

     As Martin Wolf chronicles, the real worry in Britain is that the wrong lessons will be learned. To that end, Sumner is constantly holding up Britain as a MM success story. Yet what kind of success story is this where GDP is still 15% below it's long term trend?

     David Cameron may luck out in the upcoming election-voters tend to vote based on the current economy which has seen a sharp rise in employment. Yet, his plans for the economy are not what the country needs.

  ."Whatever the causes of the crisis, it has bequeathed huge headaches. But the biggest, by far, is how to reduce the permanent losses of output. Even if the economy grew at a sustained rate of close to 3 per cent a year, the present value of lost output would be close to five times annual GDP. This is why a delayed recovery is not much of a triumph."

     "This is the background against which the pre-election policy debate should be judged. As the Office for Budgetary Responsibility has noted: the government’s plans for the next parliament “will take government consumption of goods and services ... to its smallest share of national income at least since 1948”. That is both undesirable and implausible. What matters most is restoring as much of the lost output as possible, as soon as possible. Eliminating the fiscal deficit, via a sharp reduction in the ratio of public spending in GDP, from 44.7 per cent in 2012-13 to 38.2 per cent in 2018-19 is not such a policy. Indeed, it is unclear why eliminating the fiscal deficit is vital."

     "The crisis was surely the result of the global integration – and rapid growth – of the UK’s financial sector, a policy on which almost all agreed. Yet debate has converged, instead, on the ideas that the pre-crisis UK was a “bubble economy” and that fiscal deficits were the result of pre-crisis fiscal indiscipline. As a result, almost everybody now agrees on the idea that eliminating the fiscal deficit is the priority, however low the interest rates and however strong the case for more investment."

     "But the need is, instead, for an economy that recovers lost ground, without relying unduly on finance. Only politicians who have good plans for restoring demand and output deserve power. This will take innovative ideas. So far there has been almost nothing new. This is the most depressing of all."

       Sumner argues that the problem in the UK economy are supply side-the famous 'structural problems. This is just the usual conservative opportunism. How has British healthcare suddenly shaved points of U.K. productivity?

      "Unlike the US or Spain, the UK did not have a construction boom. Nor did it experience a surge in private consumption. House prices rose sharply, but did not subsequently collapse, as they did in Ireland, Spain or the US. Debt exploded, but mainly to buy ever more expensive houses. Subsequent losses on mortgage lending have been very small. The financial sector did grow from 6 per cent to 9 per cent of gross domestic product between 1998 and 2008. But this is not enough to justify belief that output in 2007 was unsustainable. After the fact, forecasters assume it was. That is a result of standard cyclical adjustments. Yet neither wages nor prices showed massive overheating, unlike in the late 1980s."

     "If the economy was not hugely overheated in 2007, then the view that pre-crisis fiscal policy was self-evidently irresponsible cannot stand. At the end of 2007, UK net public debt was the second lowest in the Group of Seven rich countries, after Canada, at 38 per cent of GDP, about a third of the country’s long-term average. According to the International Monetary Fund’s April 2008 estimate, the structural fiscal deficit had been 3.1 per cent of GDP in 2007. This was high, but no catastrophe. The share of government spending in GDP in 2007, just under 40 per cent, was almost exactly the same as in 1996, the last full year of the Conservative government of John Major."

      Nevertheless, the worry is that the wrong lessons are going to be learned in Britain and elsewhere. Certainly a Cameron reelection would be one example of the wrong lesson learned. 


Thursday, December 26, 2013

As Obama Signs Budget Bill Above Sequester Levels We Ask: Do Fairytales Come True After All

     Ok, maybe a little over the top for what on the face of it is a pretty modest bill. 

     "President Barack Obama signed into law Thursday the two-year budget agreement passed this month by the House and Senate."

      "Over the next two years, the deal replaces $63 billion of the automatic cuts known as sequestration with more targeted spending cuts and new revenue via, among other things, higher airline ticket fees. It is projected to lower the federal deficit by $23 billion in the next decade."

     "The budget had passed with solid majorities in each chamber: 64-36 in the Senate and 332-94 in the House."

     Still, this is the U.S. Congress-there hadn't been a bipartisan budget deal since the time of Tip O'Neil previously to this deal. Thanks to this rare moment of legislative functionality others are daring to dream of more-even some Republicans are in suggesting maybe immigration does get done this year after all:

    "The Hill reports that a top ally of John Boehner, Rep. Tom Cole, now predicts House Republicans may vote on multiple reform measures in 2014:
With the caveat that the House will not vote on the Senate-passed bill, Cole envisions a situation where Boehner allows a vote on a couple or all of the four-House-Judiciary Committee-passed measures on immigration reform/border security.
Noting that Boehner has made it “abundantly clear” that he’d like to move immigration bills, Cole said that “we just saw a budget deal that made progress that brought people together from both sides from very different perspectives and I suspect that can be done on immigration as well.”

       Fairy tales do come true they can happen to you if you're young at heart. Ok, getting a little carried away. I'll believe it after the Dems get back the House. 

      Again, kudos to Money Illusion commentator Daniel for giving us the best working definition of 'monetary offset' yet: code for letting poor people starve.

      This is a keeper. 

Don't Tell Sumner: Does Outrage Over Failure to Extend UI Benefits Have Legs?

     You'd almost feel bad about telling him, he's having such a good time with it. Yes, he's still denying that he's having a good time with it but then that's par of the course for Sumner. When Judy Judy talked about 'peeing on my leg and telling me it's raining' she must have had him in mind. 

     By the way, Money Illusion commentator has inadvertently given me a real gem of a definition for monetary offset:

     "Coming from a man who says talk of “monetary offset” is actually code for letting poor people starve, the irony is delicious."

     Daniel sounds like a man who doesn't know what 'irony' is-no wonder he and Sumner are such friends. Meanwhile I think monetary offset is something quite like that-note that Sumner has been crowing all year about the sequester and how it was allegedly wholly offset by the Fed thereby rendering those who lost jobs and lost benefits-including some who dependeded on the sequestered jobs to eat a decent meal every day-invisible. Now regarding UI as Daniel wants suffering poor people here it goes:

    "A quick scan of local coverage of the expiration from the past 24 hours shows a somewhat remarkable array of stories, localizing the issue by tying it to the plight of specific area residents who will suffer. In many (but, alas, not all) cases, the stories make clear that the GOP is responsible for the suffering that will begin on Dec. 28, when 1.3 million long-term unemployed won’t find a check in the mail."

    "For example, here’s KOB 4 in Albuquerque:
Thousands of New Mexicans are about to lose their long term unemployment benefits right after Christmas – and they won’t get them back unless our state’s lone congresswoman can convince her colleagues to take action early in the New Year.
People like Katharine Hill of Albuquerque have been depending on them. “I’m about to run out of my unemployment benefits,” Hill said. “Going on unemployment is better than having no money, but my whole situation has caused me to become homeless for an entire year.”
    "The Bluefield Daily Telegraph in West Virginia ran a statewide AP story:
The expiration of funding for long-term federal unemployment benefits will affect nearly 7,000 West Virginians who have been jobless for at least 26 weeks. The number of West Virginia recipients fluctuates from month to month, David Watson, assistant director of benefits for WorkForce West Virginia, told the Charleston Daily Mail.
    "The Yakima Herald-Republic, in Washington state:
For 1,028 Yakima County residents, it will be like finding a lump of coal in their Christmas stockings. Three days after Christmas, long-term unemployment benefits will end for 1.3 million Americans, including those in Yakima County and 25,000 statewide.
“This will make it harder for my wife and me to get by,” said Randy Frank, 54, who was laid off from his regular job five years ago. The benefits “help me continue to look for work and helps with the mortgage.”

      Meanwhile, Sumner celebrates this lump of coal decarling 'what a wonderful Christmas gift.' To be sure he made that comment regarding Obama's decision to enable some to avoid the Obmacare penalty. However, he said this in the same paragraph as the one where he dispassionately discussed how 1.2 million are about to lose their income and predictably he never thought about how Christmas might be for them-anything but 'wonderful.'  For him it's just another 'natural experiment' for him to hopefully gloat over the way he gloats over the sequester.I don't know where this stereotype about heartless conservatives comes from-Sumner surely has a heart.  

      "With polls already showing a potential voter backlash and local news outlets giving the story serious play, advocates are ratcheting up the pressure even further by taking out television ads depicting Republicans as heartless Scrooges for stripping benefits from the jobless during the holidays. Americans United for Change purchased national airtime on cable channels for this ad, “Bad Santas,” beginning today:

      "The ad adopts the 99 percent versus the 1 percent framing by noting the richest Americans had a great Christmas because the recently completed budget bill did not touch tax loopholes that only benefit corporations or the very wealthy. But it also did not extend the emergency unemployment program, as the ad notes:
And for those facing tough times? Republicans stripped 1.3 million Americans of jobless benefits — folks who want to work, but cannot find a job — kicking them to the curb during Christmas. So to the 1.3 million Americans losing benefits, Merry Christmas — from the GOP.
    "It’s a tough spot, and it relies on language that was popular through the 2012 election that paints the GOP as dedicated protectors of the powerful and wealthy at the expense of struggling Americans."
    With Dems unanimously supporting the extension it will only take a few Repubs in the House to get it passed. If the early polls are any sign, Sumner's gloating over UI may be short-lived.