http://www.amazon.com/Jimmy-Carters-Economy-Hartwell-Business/dp/080782738X/ref=sr_1_1?s=books&ie=UTF8&qid=1361287677&sr=1-1&keywords=carl+biven+jimmy+carter
Here is Woj-quoting Ashwin:
"On the topic of inflation, I have recently been engaging in a debate with Mike Sax
(see here and here) about the potential benefits of targeting a higher inflation rate. This policy
has garnered support from both sides of the political and economic aisle (New
Keynesians and Monetarists), yet I think its potential benefits are being
extremely oversold. My two basic arguments against such a policy are the
following:"
"1) Higher inflation does not necessarily entail higher nominal wages (which many
people clearly assume)."
"Aside from the top quintile of households, real income has been declining
for nearly 15 years. The only way higher inflation helps reduce real debt
burdens is if nominal wages increase faster than nominal interest rates on debt.
If instead higher inflation stems primarily from higher costs-of living (nominal
food and energy prices), than most Americans may find themselves in the
precarious position of requiring even more debt to maintain current living
standards."
http://bubblesandbusts.blogspot.com/2013/02/the-dangers-of-misunderstanding.html?showComment=1361287181179#c7102333699860580239
It certainly doesn't necessarily mean that. I'm not sure who assumes this-certainly not NKers like Krugman or the MMTers. Again, as I said I see inflation as a double edged sword. It certainly can have negative effects.
"2) Higher inflation alters saving, investment and consumption decisions which can
lead to a misallocation of capital. On this second point is where Ashwin’s post
really hits home:
During most significant hyperinflations throughout history, the catastrophic phase
where money loses all value has been triggered by the central bank’s enforcement
of highly negative real interest rates which encourages the rich and the
well-connected to borrow at negative real rates and invest in real assets. The
most famous example was the Weimar hyperinflation in Germany in the 1920s during which the central bank allowed banks and industrialists to borrow from it at as low an interest rate of 5% when inflation was well above 100%. The same
phenomenon repeated itself during the hyperinflation in Zimbabwe during the last
decade (For details on both, see my post ‘Hyperinflation,
Deficits and Real Interest Rates’).
I'm not sure if this is really a worry right now-and I don't think savings is what is needed right now either-Keynes' Paradox of Thrift.
I'm not sure, but Woj's final position may be in line with mine:
"To be clear, similar to Ashwin,
I am in favor of “helicopter money” and believe higher wages for the bottom 80
percent are key to ending the balance sheet recession as well as ensuring more
sustainable growth and unemployment going forward. Targeting higher inflation
and larger negative real interest rates is the wrong approach to achieve these
goals and may actually work in the opposite direction. Yes, all macroeconomic
policy is dangerous. But even more dangerous is misunderstood and misrepresented
macroeconomic policy."
I mean I'm not sure what he and Ashwin necessarily mean by "helicopter money" but I think Woj looks at it as fiscal stimulus. I certainly support higher wages for the bottom 80 percent. I'm not sure that monetary policy does any harm though there is wide disagreement about how much good it does. I'm not at all sure that a raise in the inflation target of the Fed to 3% wouldn't be beneficial. I don't see it as harmful. The Fed has basically raised it to 2.5% for now anyway.
I think the reason I often find it hard to figure out exactly what Woj's views are is that I find the idea of coming from an Austrian and Post Keynesian perspective simultaneously as counterintuitive. I agree that one shouldn't think you can only learn from one school of thought, and I'm all for using what works for you and being eclectic.
It just seems to me that Austrianism and Post Keynesianism-aka MMT-would seem to be diametrically opposed at least on the policy level. Austrianism says that government intervention is always bad-fiscal or monetary. PK says that we should have a big deficit during a recession to get us out.
How do these two poistions have any ground they can meet on? If an Austrian agrees with a fiscal stimulus action is he still an Austrian?
On the level of theory, there might seem to be more common ground. Woj's site is of course concerned about boom-bust-hence the title. Austrians and PKers both have a theory of boom-bust where an overheated boom leads to a bust. Even so, the critique is quite different. While Austrians worry about "malinvestment"-mostly due to improper govt intervention-but all intervention is improper in their eyes-PK is more about the financial sector being overheated and overinvested.
At end of the day what does Austrianism have to offer Post Keynsianism-or any Keynsian who believes we need fiscal stimulus?
This will largely be a restatement of the response on my site...
ReplyDeleteBy "helicopter money" I do mean fiscal deficits (direct transfers). As Warren Mosler and others pointed out, the CB raising the inflation target does nothing to alter inflation (though it might temporarily boost asset prices). If asset bubbles don't matter, than by all means go ahead with that policy.
As for the Austrian position on actions during a bust, many economists accepted monetary policy for purposes of stabilizing NGDP (preventing deflationary spiral). Unfortunately this was/is based on a loanable funds model where the Fed can significantly affect NGDP. Given understanding of monetary operations, I see little reason for opposing similar fiscal measures with the same intention.
The primary reason to oppose those measures and benefit of an Austrian perspective is recognition that political incentives will aid crony capitalism. Based on what I see as current political constraints, fiscal stimulus is the best option. However, based on Austrianism (new term?) I expect these fiscal deficits to increase income/wealth inequality and ensure current laws favoring debt/banks remain in place.
I totally don't get how fiscal deficits leads to increased inequality.
ReplyDeleteThe casue of the 30 year decline for the middle class and poor is due to a deliberate suppression of wages by the fiscal and monetary auhorties-Reagan and Volcker, et. al.-rather than becasue the price of goods was on the rise-it wasn't.
I'm confused, you just said "The casue of the 30 year decline for the middle class and poor is due to a deliberate suppression of wages by the fiscal and monetary auhorties."
ReplyDeleteThose same fiscal authorities have been running fiscal deficits for nearly the entire 30 year period. Here's an easy example...
Congress decides tomorrow to pass a bill eliminating capital gains taxes. The reduced revenue would clearly increase deficits, at least in the short run. Do you disagree that this policy would increase wealth inequality? If so, change the policy to eliminating estate taxes? Still disagree?
Simply promoting fiscal deficits says nothing about which parts of the population either increased spending or tax cuts are directed towards. Over the past 30 years I would argue that aggregate tax cuts have overwhelmingly favored the wealthiest households AND increased deficits through reduced revenues.
This point is not too dissimilar from that I've been making on inflation. Simply promoting inflation is different from trying to raise nominal wages. These discrepancies are not merely semantic, but actually affect the distribution of wealth and allocation of capital. Emphasizing these discrepancies is one of the major benefits of Austrian thinking.
Obvioulsy inflation is not a panacea but I never said it were-just not the bugaboo many seem to think including at least many of the Austrians I've spoken to.
ReplyDeleteCertainly I agree that it also depends on how the deficit is structured-that's why I supported the fiscal cliff deal.
So when you say that fiscal deficits increase inequality you mean depending on how their structured? The kind of fiscal stimulus I and many liberals have in mind wouldn't increae inequality.
The confusion is that the way you phrased it made it sound like fiscal deficits necessarily increase inequality. If you simply argue that they don't necessarily decrease it, ok.
However, the answer if progresive tax and stimulus policy not doing nothing-which is what I read most Austrians as favoring-just waiting for the market to properly allocated capital in the best way, in the mean time letting the unemployed suffer.
Aside from reducing the deficit, the fiscal cliff deal was pretty regressive, though maybe not as much as some expected. If you don't think those changes in tax policy increase inequality, what baseline are using? (I'm assuming the laws would have expired)
DeleteOn inflation and the deficit, I don't deny that many Austrians and Austerians incorrectly think the costs heavily outweigh the benefits. You are correct that I'm primarily trying to point out the structure of fiscal and monetary policy is important, not just the size. IMO the kind of fiscal stimulus desired is too infrequently discussed. (One could make the same claim about my own preferred policies, i.e. debt writedowns/jubilee)
Fiscal deficits certainly don't need to increase inequality, although that has frequently been the case in recent history (and not only in the US).
That's why I ask questions-I didn't think you were saying the necessarily did but I wasn't sure and you're statment could be read that way. Sumner always gets sore when I ask for clarification. You have more staying power-LOL.
DeleteI guess it's your source of comparison about the fiscal cliff. It seems to me the tax code is more progressive now than it was before.
You're comparison of the deal we got rather than the entire tax cut expiring is a different question but it does seem that in the short term that would have imposed considerable pain on the non-rich by raising income taxes and cutting the EIC and childe tax credits.
Here's a good chart: How Much Bigger Incomes Will Be From the Fiscal Cliff Deal Compared to Going Over the Cliff. Notice the percentage change is largest for households earning between $200-$500k per year.
DeleteI'm not saying going over the cliff wouldn't have been more painful for lower classes (that's obvious given the difference in incomes). My point was that the specific tax changes provided a bigger percentage boost to wealthier households (i.e. regressive).
I look at that chart and it's not so clear cut that it was wholly regressive. It benefitted the most on a percentage basis those making between $75,000 and $1 million. However everyone did pretty well and the group who's income increased the least was those making over $1 million.
DeleteFor me the question is: what is the optimal policy for most-nonrich-Americans? There are three choices.
A) the pre cliff status quo-that was of course set and did expire.
B). going over the cliff.
C). the acutal fiscla cliff deal.
I think for most Americans C is preferrable by a good deal to either A or B. The only ones who did better under A were the very rich.
How do you define regressive? On a percentage basis the deal was most favorable to households in the top 20%.
DeleteOf the options you listed many Americans may have preferred C, but A created a relatively more progressive distribution of income. The big winners of C are households in the $200-$500k, which is not the middle class by most standards. Yes the top~1-2% paid the most, but after that the middle ~60% took the biggest hit.
(To be clear, politically this may have been the best possible deal at the time. Unfortunately that would just show how ingrained the inequality is currently.)
Ok, I don't see the basis for saying A was a relatively more progressive distribution of income. I've seen studies that have aruged the Bush tax cuts were very regressive.
DeleteUsing your definition-who benefits the most, I don't see how the Bush tax cuts-option A-were in any sense more progressive.
I think what you mean is that though after tax income for the poor and middle class was up, those between $250,000 and $450,000-the almost wealthy-saw it go up more. This relative difference is why you call it regressive?
DeleteLet me try this thought experiment. If the "nonrich" see their after tax income go up by 3% and the rich see it go up by 5%, would you say the nonrich are now worse off than previously?
Has their income, purchasing power or standard of living gone:
1). Down by 2%-the difference between their tax cut and the tax cut for the rich
2). Up by 3%-the amount their taxes were cut
3). Some other outcome
First of all, the Bush/Obama tax cuts were very regressive, so I'm not disputing that claim in any way.
DeleteAs I understand it, this discussion and the term regressive refer to unequal distributions of wealth. In your thought experiment the "nonrich" are absolutely worse off RELATIVE to the rich. This is entirely distinct from whether or not purchasing power and standard of living rises or falls. So yes, the purchasing power has risen but the distribution of income is now more unequal/regressive.
So tinterests me is the value judgment of social optimlatiy. If distribution is more unequal but purhcaisng power is higher are they better off or not-again it's a value judgement.
DeleteFor me the real evil of the 30 years of the "GReat Moderaton"-which is sold as a golden age of price stability-is not just that the rich got richer but that most of the nonrich didn't get at all richer. They actually regressed.
But I'm not sure that I'm as bothered by distribution as some liberals.
I do agree with Reagan on one thing: this hsould alays be a country that a person can get rich if they want to and are willing to try.
IN recent years though we actually have less scoial mobility than "Old Europe."
Well in that case, if you return to my post on the dangers, the chart shows that real mean household income has increased for all quintiles in the past 30 years. The increases have been small on both an absolute and relative scale, but purchasing power has increased. If one actually accounts for advancements in quality of goods the gains would be much larger. Maybe the last 30 years wasn't evil at all?
DeleteWoj I know when my leg is being pulled-I presumeI your joking about the last 30 years not being so bad.
DeleteIs your point that I should be more bothered by distributional differences or that they really weren'tso bad. Don't assume it's obvous-LOL.
As far as household income-some would argue that's not such a great measure. When conservatives like Sumner want to say the last 30 years weren't so bad he uses this rahter than median individual income.
Also not everyone agrees that you can add that much to people's incomes based on increaes in quality of goods.
How can the relative mean-do you mean median?-have increased for all households at once? Even by the household measure your chart shows the gains were only small, which doesn't really disprove the stagnation thesis.
Mike - Yes I joking. I was merely pointing out that based on purchasing power or standard of living alone, practically everyone has improved over the last 30 years. My comment about the quality of goods would more directly improve standard of living (although quality is counted in CPI, I believe, so it would have increased real incomes). Also, if you check out the Wikipedia page for median household income you'll see it has also increased during the past 30 years (though not by much).
DeleteI agree that stagnating incomes is unfortunate, however I don't think it would be close to the politically charged issue it is today if incomes and wealth at the top had also been stagnant. The stagnation is surprising because the economy has been steadily growing with increasing productivity. Furthermore, the divergence in distribution of income and wealth is not due to natural talents and/or luck but is an intentional creation of public policy. That is why the issue of inequality, not stagnant wages, is more important in my opinion.
See I think that many of us today are in a bad way. If more rich people were suffering more but everyone was still unemployed or struggling it wouldn't make it better.
DeleteI do think that-how ever we choose to define this-most people are worse off.
I think it's also a comparison with the past. We remember a time whne there was more job seucirty and lower unemploymnent and higher real wages.
During the Clinton years we still at least felt like a middle class country still. Now most people are ether struggling or know people struggling.
I do believe we are worse off. The poswar era-even thorugh the inflationary 70s which looks better by comparison was a golden age or as close as we've had it.
So I don't know how much the relative issue matters-it has some but I don't know if I agree it has as much as you think-opinions differ as Krgman says.
If you're out of work or working but not makng nearly enough to get by maybe you feel worse in some ways if you see many others doing much better. Still it's just as big a problem either way.
If today the rich suddenly lost a bundle but here was no improvement to the condition of the nonrich how are they better off? If somehow they feel better psychologicall they are still in just as bad shape
Clarification: I supported the fiscal cliff deal even though it reduced the deficit.
ReplyDeleteSo I agree you shouldn't make a fetish of a deficit-it maters how its structured. HOwever, right now the problem has been all those making a fetish out of cutting the deficit.
ReplyDeleteI also am not sure how you define the middle class but no one "took a hit" from the deal as their post cliff after tax income went up.
ReplyDeleteGo back to that link from above. After tax income declined for everyone post cliff compared to 2012 primarily because the reduction of FICA taxes was discontinued.
DeleteNo, Iknow about Fica. I would have liked to continue the cut but it wasn't possible. Leaving that out though is what I was doing. I'm speaking philosophically about what is regressive and optimum. So leaving out Fica-which had nothing to do with the Bush tax cuts-would you agree that C is best?
DeleteThere were some tax cuts from the 2009 stimulus that were renewed incidentally.
What's your asnwer to my thought experiment?