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Sunday, June 30, 2013

Spoiler Alert: Krugman Tips His Hand on His Pick For Next Fed Chairman

    Who is Krugman's choice? He sure is making it hard. I mean who could he possibly have in mind?

     He writes a piece where he chides the Fed for its 'taper talk.' While the Fed complains that the market is misinterpreting it, Krugman argues that it's the Fed that doesn't get it-it's not about the exact numbers or words, but the correct impression:

     "The key point you always have to remember (but which the Fed somehow forgot) is that there is no way to lock in future monetary policy. Whatever the Federal Open Market Committee may say now about its plans for 2014 or 2015, it can always do something different when the future turns into the present."

     "So what’s the point of Fed communication? Mainly it’s not about the specific numbers; it’s about conveying what kind of central bankers we’re dealing with, and hence what they’re likely to do in the future. Talk of extended easy money can help the economy now precisely because it makes the Fed sound like it’s not a conventionally-minded central bank, eager to snatch away the punch bowl; even asset purchases work mainly because they reinforce that impression of unconventionality."
      "But when the Fed starts talking about tapering at a time when unemployment is still very high and inflation below target, it undoes all of that good work; suddenly the FOMC starts sounding once again like a group whose fingers are already twitching as they fight the urge to grab that punch bowl."
    Krugman then tips his hand on who Bernanke's successor should be:
    "Undoing this damage is going to be very hard. One thing that will matter a lot, however, is the choice of Bernanke’s successor. If she’s a well-known dove, that could help a lot. If he’s, say, someone known for saying things like “stimulus is sugar“, look out below."
      Actually, for a split second I thought he meant Janet Yellen-who my impression was that she was the most likely. Perhaps she'd be the mean between the two extremes of Geithner and Christina Romer.
     Geithner doesn't sound like the right choice based on this piece:
      "From Zach Goldfarb’s excellent profile of Treasury Secretary Timothy Geithner’s success inside the Obama administration:
The economic team went round and round. Geithner would hold his views close, but occasionally he would get frustrated. Once, as [then chairwoman of the Council of Economic Advisers Christina] Romer pressed for more stimulus spending, Geithner snapped. Stimulus, he told Romer, was “sugar,” and its effect was fleeting. The administration, he urged, needed to focus on long-term economic growth, and the first step was reining in the debt.
Wrong, Romer snapped back. Stimulus is an “antibiotic” for a sick economy, she told Geithner. “It’s not giving a child a lollipop.”
In the end, Obama signed into law only a relatively modest $13 billion jobs program, much less than what was favored by Romer and many other economists in the administration.

      http://www.washingtonpost.com/blogs/wonkblog/post/geithner-stimulus-is-sugar-for-the-economy/2011/05/19/AGz9JvLH_blog.html

       I'll tell you what: if Geithner is seriously campaigning for Bernanke's job, this article hurts him after the White House reads Krugman's piece. This also provides shot in the arm to Romer. It also establishes her as the choice of the hawks and Geithner of the doves. So it may reinforce the idea that Yellen is the best-Centrist-choice, the mean between the two extremes.

       UPDATE: Marco points out that I got the hawk-dove division wrong. Obviously I meant that Romer is the dove, Geithner the hawk.

2 comments:

  1. Mike, you got the "hawk/dove" classification backward!
    And we really don´t need a "mid pointer" but the right "extreme". Someone like C Romer

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  2. Ok I guess I did. You know what I meant. I'm not saying we need a mid pointer just that that could be where the Obama White House goes. I'd prefer Romer as well.

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