It makes me think of Norman Mailer's book back in the 50s: Advertisements for Myself.
http://www.amazon.com/Advertisements-Myself-Norman-Mailer/dp/0674005902/ref=sr_1_1?s=books&ie=UTF8&qid=1375819581&sr=1-1&keywords=norman+mailer+advertisements+for+myself
At the time, Mailer evidently was saying something really earth-shattering with this title or so he felt. I suppose coming from his background in the Jewish. Leftist New York community, the idea of speaking up for yourself-rather than advocating for others-of much less advertising-which perhaps by definition seemed an sordid activity from this stand point-for yourself was seen as rather untoward.
In any case, neither Brad Delong or David Henderson made an argument for themselves today but rather for Lawrence Summers and Christina Romer, respectively for the next Fed Chairman. Delong responds to Henderson's endorsement of Romer:
"In the FT this morning, I see the learned and thoughtful James Hamilton joining Team Janet, writing that:
http://www.amazon.com/Advertisements-Myself-Norman-Mailer/dp/0674005902/ref=sr_1_1?s=books&ie=UTF8&qid=1375819581&sr=1-1&keywords=norman+mailer+advertisements+for+myself
At the time, Mailer evidently was saying something really earth-shattering with this title or so he felt. I suppose coming from his background in the Jewish. Leftist New York community, the idea of speaking up for yourself-rather than advocating for others-of much less advertising-which perhaps by definition seemed an sordid activity from this stand point-for yourself was seen as rather untoward.
In any case, neither Brad Delong or David Henderson made an argument for themselves today but rather for Lawrence Summers and Christina Romer, respectively for the next Fed Chairman. Delong responds to Henderson's endorsement of Romer:
"In the FT this morning, I see the learned and thoughtful James Hamilton joining Team Janet, writing that:
At the outset of the crisis, however, Ms Yellen was also one of the people who saw most clearly the magnitude of the problems facing the economy…. Her speech to the National Association for Business Economics in 2007, when reread today, strikes the reader as amazingly prescient. Many Fed officials at the time felt that, since the subprime mortgages represented only 10 to 15 per cent of all mortgages, problems with these loans would not be enough to cause major economic damage. But Ms Yellen noted that the complex system of derivative instruments linked to subprime mortgages, such as collateralised debt obligations and credit default swaps, could lead to great uncertainty among lenders about the vulnerability of particular borrowers and a devastating withdrawal of credit. Ms Yellen further emphasised that the mathematical models companies had used to evaluate the risks of those instruments took insufficient account of the consequences of a significant downturn in house prices. Again, her assessment proved to be right on the mark…
"Let me point out that this is an equally strong reason to join Team Larry, for Lawrence Summers was even more aggressive in shouting "Fire! Fire!" in 2007-8--as anybody who reads his Financial Times columns can see."
Hmmm, 2007-2008? We know he wasn't aggressive at shouting fire back in 2006 and actually was rather dismissive of those who did.
"there is lots of evidence that in fact Janet Yellen has been far more prescient than Summers in terms of recognizing and identifying real threats to the economy. McBride in the post linked to above lays this out in terms of statements made by Janet Yellen in 2005 and 2006 warning of the dangers of the housing bubble and in late 2007, when virtually all other top Fed people thought things were hunky-dory, where she worried about the fragility of the financial markets. She was completely correct and farsighted, arguably more than Bernanke or anybody else in the Fed. And certainly more than Summers, who said nothing or nothing intelligent about any of this at the appropriate time. Indeed, in 2005 he dismissed and ridiculed a paper by Raghuran Rajan that raised questions about financial stability of the system. The hard fact is that Janet Yellen is simply head and shoulders the superior in terms of diagnosing the state of the economy than is Summers. Argument #2 is just garbage, quite aside from the fact that the documented lack of collegiality of Summrs and his lack of knowledge of the Fed compared to Yellen does not bode at all well for him managing the Fed in a time of crisis, particularly one he would fail to foresse."
Delong however, lists no less than 14 different posts Summers wrote between late 2006 and 2008. In late 2006 he seemed aware that there was a crisis:
- December 26, 2006: Lack of fear gives cause for concern: "Financial markets are pricing in an expectation of tranquillity as far as the eye can see…. The risk premiums to cover the possibility of default that corporations or developing countries have to pay to borrow money are at or near historic lows. In addition, estimates of the volatility of the stock, bond and foreign exchange markets inferred from the prices of options are near record lows…. Changes in the structure of financial markets have enhanced their ability to handle risk in normal times…. We do not yet have enough experience to judge what happens in abnormal times. As we observed in 1987 and again in 1998, some of the same innovations that contribute to risk spreading in normal times can become sources of instability following shocks to the system as large-scale liquidations take place…. It is fair to point out to those who take comfort from the markets’ comfort that they hardly ever predict serious disruption and historically the moments of greatest complacency have been the moments of greatest danger…. At least as far as the markets are concerned, perhaps the main thing we have to fear is lack of fear itself.""
"Kudos to Brad DeLong for sticking up for a guy he believes in. But I don’t see how the Summers case is helped by quoting this piece from September 28, 2008:
Monetary policy has very little scope to stimulate the economy….
"That was days after the Fed decided not to cut rates from 2.0%. Bernanke has his flaws, but one thing he did understand is that the Fed has plenty of scope to stimulate the economy at the zero bound. Summers sounds like a Japanese central banker—from the old days."
This is something that Sumner always returns too-lack in the power of monetary policy to move mountains is a vice! Even Bernanke had said that with nominal rates at zero more was needed from fiscal policy. Sumner's premise is that this comment by Summers disqualifies him. Yet Bernanke said something similar and yet still has instituted 3 rounds of QE. Krugman too believes there's a lower bound-a point that Sumner is always arguing. Still, Krugman would do more QE.
On the other hand, there really isn't much in all these quotes that show us what Summers monetary policy would be about. So that we have an expansive body of work for Yellen and very little to go on other than culling certain quotes like this in tryng to divine where he might take us is another point in Yellen's favor.
Much of what he said about fiscal policy I agree with.
"The idea seems to have taken hold in recent days that because of the unfortunate need to bail out the financial sector, the nation will have to scale back its aspirations in other areas such as healthcare, energy, education and tax relief. This is more wrong than right. We have here the unusual case where economic analysis actually suggests that dismal conclusions are unwarranted and the events of the last weeks suggest that for the near term, government should do more, not less…. The American experience with financial support programmes is somewhat encouraging. The Chrysler bail-out, President Bill Clinton’s emergency loans to Mexico, and the Depression-era support programmes for housing and financial sectors all ultimately made profits…. Second, the usual concern about government budget deficits is that the need for government bonds to be held by investors will crowd out other, more productive, investments or force greater dependence on foreign suppliers of capital. To the extent that the government purchases assets such as mortgage-backed securities with increased issuance of government debt, there is no such effect. Third, since Keynes we have recognised that it is appropriate to allow government deficits to rise as the economy turns down if there is also a commitment to reduce deficits in good times. After using the economic expansion of the 1990s to bring down government indebtedness, the US made a serious error in allowing deficits to rise over the last eight years. But it would be compounding this error to override what economists call “automatic stabilisers” by seeking to reduce deficits in the near term. Indeed, in the current circumstances the case for fiscal stimulus – policy actions that increase short-term deficits – is stronger than at any time in my professional lifetime. Unemployment is now almost certain to increase – probably to the highest levels observed in a generation. Monetary policy has very little scope to stimulate the economy…. The more people who are unemployed the more desirable it is that government takes steps to put them back to work by investing in infrastructure, energy or simply through tax cuts that allow families to avoid cutting back on their spending…. The best measures would be those that represent short-run investments that will pay back to the government over time or those that are packaged with longer-term actions to improve the budget. Examples would include investments in healthcare restructuring or steps to enable states and localities to accelerate, or at least not slow down, their investments. A time when confidence is lagging in the household, financial and business sectors is not a time for government to step back. Well-designed policies are essential to support the economy and given the seriousness of healthcare, energy, education and inequality issues, can make a longer-term contribution as well."
Still, while he was right that financial crises are deeper and worse-as this one surely has been-there's not much ground to worry about 'fiscal sustainability at the time:
"it must be emphasised that nothing in the short-run case for fiscal stimulus vitiates the argument that action is necessary to ensure the US is financially viable in the long run. We still must address issues of entitlements and fiscal sustainability."
"From this perspective the worst possible actions in the current context would be steps that have relatively modest budget impacts in the short run but that cut taxes or increase spending by growing amounts over time. Examples would include new entitlement programmes or exploding tax measures. The best measures would be those that represent short-run investments that will pay back to the government over time or those that are packaged with longer-term actions to improve the budget. Examples would include investments in healthcare restructuring or steps to enable states and localities to accelerate, or at least not slow down, their investments."
Still, the big knock is that nothing here tells us anything about what Summer's monetary policy would be composed of-that he supported fiscal stimulus in 2007 and 2008 is good but where would he take monetary policy? This uncertainty makes him a tough choice via Ms. Summers who so obviously has the skills and experience to be entrusted as the nation's number one central banker.
P.S. Regarding Sumner's complaint over the 'the Fed has shot its wad' comments, this always comes down to how you define policy. It's true that conventional policy has shot its wad once the Fed Funds rate hits zero-Sumner though points out that at the time of Summers offending comment-'Monetary policy has very little scope to stimulate the economy….' was made when the FF rate was at 2%.
Of course, Sumner has been the big advocate for the Fed doing unconventional policy-his favored policy is NGDP level targeting but the Fed has done 3 rounds of QE and now the Evans Rule-interest rates will stay close to zero until either unemploiyment drops to 6.5% or inflation hits 2.5%
Is there reason to think that Summers would 'taper off' before Yellen? That remains a good question that we still don't know the answer to. This remains the most imporant argument against Summers-though there are plenty of others.
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