Wednesday, February 26, 2014

Bernanke on the Origins of Macroeconomics

     This is for my buddy Tom Brown who thinks that my claim that Macro was born with Keynes's GT was very bold

      "As to your assertion that no macro existed before Keynes, that strikes me as a bold statement!! I'm going to look a few things up right now in real time: my first thought is all the stuff I've ever read at Glasner's: about Hawtrey and others that preceded Keynes... and even going WAY back to John Stuart Mill, Say and Marx... OK, let's see what Wikipedia has to say:

    "OK, I think you're wrong ... but you're not as wrong as I thought: 

     "Modern macroeconomics can be said to have begun with Keynes and the publication of his book The General Theory of Employment, Interest and Money in 1936"

     "I didn't know that! I knew that book was very influential, but I've never heard that before. Interesting."

    .  From the first page of Richard Koo's preface to The Holy Grail of Macroeconomics is this quote of Bernanke:

       "Not only did the Depression give birth to macroeconomics as a distinct filed but the experience of the 1930s continues to influence macroeconomists beliefs, policy recommendations, and research agendas.

     Ok, I'll admit that it sounds 'bold' when you talk to people like Sumner, or even Nick Rowe and David Glasner as they are Monetarists who don't want to admit that Keynes invented Macro-though Freidman himself sort of admitted it. Even Bernanke doesn't mention Keynes but the timing is obvious. This is because Monetarism is really a Trojan Horse for Keynesianism. It tried to beat it by joining it-sort of. It acknowledges AD and the business cycle but it still tries to keep the world safe for laissez-faire. 

    There's been a good deal of debate lately about what Keynesianism means and what Say's Law was. However, I think much of it just confuses the matter. Keynesianism means the need of fiscal policy to get us through demand slumps. Monetarism's promise to conservatives is that it will deliver everything they want by kind of accepting the birth of Macro and sort of being part of it. Yet while other conservative schools-Austrianism, RBC, Supply Siders-don't acknowledge Macro at all-they still insist that Micro is enough-while Monetarism accepts the birth of Macro along with Keynesians, they are on the side of the other conservative schools and seek to 'crush the infamous thing'-as Sumner shows on a daily basis. 

    P.S. Tom does go on to say this after reading Wiki. 

    "Mike, I took them at their word: "Modern" macro started with Keynes, but it seems there was some fooling around before that time in trying to explain the business cycle, etc. My history on the subject isn't good, maybe for all practical purposes you are right. If you define it in terms of when the concept of aggregate demand appeared, etc."

     "Still, that's interesting to me: I didn't know that Keynes was the first to come up with the concept of aggregate demand. Very interesting"

     It's important not to mix up a few things. Keynes didn't invent the idea of the business cycle that was kicking around at the time though was very new. Previous to this economics believed in Say's Law that 'Supply creates its own demand' or that there can be no general glut. This meant that there could be an invidiual market that failed to clear but not in all markets.

    Some of these ideas of Keynes were already fermenting in the Cambridge School-from folks like Pigou, et. al-but they actually hatched with Keynes. The idea of a 'general glut' was argued before Keynes-perhaps going back to Maltus' debates with Ricardo. However, Keynes gave ideas like this a real theoretical foundation for the first time. However, the real difference is that with Keynes, methodological individualism is now checked-you can't know the economy simply by examining individuals in isolation. 


Turns Out Bernanke Doesn't Believe in Monetary Offset Either

     Sumner goes after Aziz for questioning monetary offset. 

      "Here’s John Aziz replying to a Ramesh Ponnuru piece discussing monetary offset:

But Fed policy wasn’t exactly tight during the stimulus. First, by the time the stimulus was enacted, the Fed had already dropped interest rates to zero, and it kept them there. Second, the Fed engaged in quantitative easing throughout the stimulus. By March 2009, it held $1.75 trillion of bank debt, mortgage-backed securities, and Treasury notes, reaching a $2.1 trillion in June 2010. That’s hardly tightening.

     "Ben Bernanke said (in 2003) that neither interest rates nor the money supply are good indicators of the stance of monetary policy.  Instead he suggests that NGDP growth and inflation are best.  By that criterion monetary policy after 2008 was the tightest since Herbert Hoover was President.  So Aziz is wrong in saying that policy was expansionary.  But I’d cut him some slack here, as obviously most people would agree with him, not Bernanke and I.  Indeed Bernanke would no longer agree with the Bernanke of 2003."

     In 2003 Bernanke believed we had solved the business cycle. He's not so hardheaded as Sumner not to admit now that we haven't.  As for inflation and NGDP as better targets, the trouble is that Sumner assumes that the Fed can hit any target on inflation or NGDP that it wants. If you push him here you know what he would say next right? If the Fed can't hit any target it wants how to you explain Zimbabwe. Actually I can explain Zimbabwe's hyperinflation-there was a civil war there. 

     Anyway, I delved a little deeper into Aziz's piece and came across this quote by Bernanke::

      "Here's Ben Bernanke speaking last month. He specifically calls fiscal policy excessively tight:
To this list of reasons for the slow recovery — the effects of the financial crisis, problems in the housing and mortgage markets, weaker-than-expected productivity growth, and events in Europe and elsewhere — I would add one more significant factor--namely, fiscal policy. Federal fiscal policy was expansionary in 2009 and 2010. Since that time, however, federal fiscal policy has turned quite restrictive...
     "Although long-term fiscal sustainability is a critical objective, excessively tight near-term fiscal policies have likely been counterproductive. Most importantly, with fiscal and monetary policy working in opposite directions, the recovery is weaker than it otherwise would be. But the current policy mix is particularly problematic when interest rates are very low, as is the case today. Monetary policy has less room to maneuver when interest rates are close to zero, while expansionary fiscal policy is likely both more effective and less costly in terms of increased debt burden when interest rates are pinned at low levels. A more balanced policy mix might also avoid some of the costs of very low interest rates, such as potential risks to financial stability, without sacrificing jobs and growth. [Business Insider] "

     I pointed out these comments to Sumner and he claimed that he already answered this in the past-though there are new comments of Bernanke. He alleges he has some unnamed Fed officials stating in 2012 that they do full monetary offset. Not surprisingly he provides no quotes or links. It's really pretty damning. Bernanke thinks that monetary and fiscal policy shouldn't work at cross purposes as Sumner claims they inevitably do. So Bernanke doesn't believe in a game of fiscal and monetary chicken on the economy as Sargent's analysis well describes Sumners MM game.

     No games of 'I'm the QB you better do what I say, fiscal authority!' for Bernanke. I don't know what these 2012 Fed officials said-it's probably where they said the don't do MO and Sumner read the monetary tea leaves and 'discovered' that they do they just either can't admit it to the ignorant lay public or don't realize they do it themselves. 

Tuesday, February 25, 2014

Sumner on Credit Channels and Monetary Policy

     Sumner doesn't think the credit channel matters in monetary policy-that's just another real aspect of the economy but what causes the business cycle according to him is wholly nominal-specifically sticky wages. 

     "When there is a big crop of apples, the value of apples tends to fall.  There is no need to discuss obscure “channels” such as bank lending.  Apples are worth less for “supply and demand” reasons. When there is a big crop of money, the value of money tends to fall.  Again, no need to talk about “channels.”  This post was motivated by a recent comment, which is something I see pretty often:

The CB [central bank] interacts with counterparties that have little or no propensity to spend and the lending channel is blocked.

   "That’s a fairly common view, and yet it contains no less than three serious fallacies.  This is what the commenter overlooked:

  "1.  Counterparties don’t matter.  The Fed buys assets from counterparty X, who almost always immediately cashes the check and the new base money disperses through the economy almost precisely as it would if the Fed had bought assets from counterparty Y, or counterparty Z."

   "2.  The propensity to spend doesn’t matter for the same reason.  Once counterparties get rid of the new base money, the impact on NGDP depends on the public’s propensity to hoard money, and any change in the incentive to hoard.  In the long run money is neutral and NGDP changes in proportion to the change in M, regardless of whether the person receiving the money has a marginal propensity to consume of 90% or 10%.  Either way they’ll almost always “get rid of” the new money, either by spending it or saving it.  Saving is not hoarding, it’s spending on financial assets."

   "3.  The lending channel doesn’t matter.  In the long run all nominal prices rise in proportion to the change in M.  In the short run sticky wages and prices cause the new money to have non-neutral effects.  Those non-neutral effects reflect wage and price stickiness, not “channels” of spending."

   Partly this is another arugment over Cantillion Effects once again-does it matter where the Fed injects money on who receives it first?

     Sumner says no as the counterparties immediately cash their checks. 

     One person who doesn't agree with Sumner here is Ben Bernanke.

   There were some interesting replies to Sumner here in the comments section. Here is Gabe:
     "If the counterparties of QE didn’t matter then the QE mechanism would run through the bank accounts of commoners like me. Instead QE is done through the most powerful private banks in the world like JP Morgan and Goldman Sachs."

     "Sumner is trying to spread some real BS here."

    Sumner didn't answer him-he kind of disqualified himself by using profanity. Without that Sumner would have less excuse to ignore him. In fact in the first batch of comments here, Sumner only answered our friend and Diary reader-and frequent commentator, Tom Brown. 

    "Scott, in your view, would there be much difference, macroeconomically, between the Fed permanently increasing the stock of base money by $X by purchasing $X worth of Tsy bonds, and the Fed secretly condoning a cartel of counterfeiters who print up $X of super high quality money which passes every test for authenticity (and which of course gets circulated by these same counterfeiters domestically)."

    "If you say “no difference macroeconomically” then this says there’s no macroeconomic significance to the $X worth of Tsy bonds leaving the private sector in the former case, true?"
But I’m not sure what you’ll say, which is why I’m asking this question.

     Sumner's answer was very terse. 

     "Tom, It’s better to buy the bonds, counterfeiting makes the economy less efficent, as taxes must rise to cover the cost."

     Of course, Sumner ignored Major Freedom-who agreed with Gabe:

     "There is a reason the Fed deals only with specific counter-parties, the “primary dealers”. (And, off the books, specific counter-parties they don’t want the greater public to know about). It very much matters who gets the new money first. Sumner’s attempts to debunk all this a while back was a spectacular failure. He ended up making all sorts of loony claims, such as “inflation makes the counter-parties worse off.” Oh really? Then why would those counter-parties accept the funds? It was all rather embarrassing to read.

    "The first two “fallacies” Sumner “exposes”, where he simply asserts that counterparties will necessarily spend the money they receive from the Fed, is incorrect. You can give me $1 million cash, but it doesn’t necessarily mean I will spend what he expects or wants me to spend. I could very well hoard it, or, if I were a bank, lend it right back to the Fed via IOR and only spend the interest payments.
In his 2., he just claims as if it were self-evident that “counterparties get rid of the new base money”. Sure, they might spend it, by trading with another bank. And then another bank. And so on. These exchanges don’t end up on Main Street. The whole derivatives markets was formed this way. When money is sloshing around the banking and financial system, it isn’t the case that all the money makes its way to wages on Main Street."

     Finally here is the writer of the 'recent comment' Sumner was criticizing responding to Sumner's new post:

    "The base doesnt disperse much at all thats why we are getting excess reserves, increased hoarding of deposits at the commercial banks by QE counterparties and portfolio rebalancing. These counterparties are not spending they are largely just giving up the asset and just rebalancing their portfolios into similar assets to what they just gave up in QE operations."

     "The principle beneficiaries of all this asset shifting is existing asset holders through increased asset prices. Assets are very unnevenly held. For example 90% of stocks are held by the top 20% so therefore an increase in stock prices only benefits only the top 20% which also have a lower MPC limiting the effectiveness of policy."

    "If the CB would interact with people broadly they would realize greater levels of spending for every expansion of money because the average person has a higher MPC than the existing set of asset holders. Also if people receive money during expansion their net worth would improve making them more accessible to credit. Its not necesary to expand money in exchange for treasuries, money can be created safely if NGDP or inflation is monitored to regulate rate of money expansion."

Marko on Market Monetarism

     I can't help but wonder is this the Marko, namely Markos of the Daily KOS? Of course, I'd like to think that-if so, then the first thing I'd ask for him to do is end my ban over at KOS.  Ok, I don't really think it's him-though I don't know for sure that it isn't him. However, whoever he is, Marko left an interesting comment on my earlier piece about Sumner and Market Monetarism 

    "Market monetarists could easily lay claim to being the most realistic and practical of the economic schools if they'd just admit that monetary policy is credit policy , and then incorporate that into their ngdp-targeting concept."

     "By targeting ngdp at a certain growth rate , say 5% , and specifying a range of safe allowable leverage across the economy , say 150-180% , you then know you want to see a steady-state growth of new credit at ~7.5-9.0 % as a share of ngdp per year."

     "You accomplish the dual goals of "great moderation"- type growth and financial stability by hitting your ngdp and leverage targets. Easy-peasy , and when people see the results , you're a hero. Not a mere 'maestro' - more like The Second Coming."

     "There's a catch , of course. Times will arise , due to animal spirits and such , when the private sector refuses to take up new credit at the specified rate. The public sector could step up its deficit spending to fill the gap , "crowding-in" the necessary ngdp growth until the private sector gets out of its funk. This is pretty much how the economy functioned during the Golden Years after the war , and most everyone would kill to get that kind of performance back."

    "It's only the MM's unhinged hatred of Keynes and gov't spending that keeps them from certain fame and fortune. Instead , they'll be a mere footnote in some dusty old economic history text of the future. What a shame."

     See, as I've argued more than once-or even twice-in the past, this unhinged hatred of Keynes is a feature not a bug-it's certainly not as Tom Brown or even Mark Sadowski might suggest, merely an accident. Sumner doesn't want to use fiscal stimulus to achieve an NGDPLT target. The whole point of all types of Monetarism is to convince us to not use fiscal policy as monetary policy by itself will solve the business cycle. 

    As for this idea that they should admit that 'monetary policy is credit policy', this is the last thing they would ever admit. In fact Sumner just wrote a missive against that view. For him credit policy is just part of the 'real economy' and therefore not the cause of the business cycle-this is caused by nominal shocks thanks to sticky wages. 

    "When there is a big crop of apples, the value of apples tends to fall.  There is no need to discuss obscure “channels” such as bank lending.  Apples are worth less for “supply and demand” reasons. When there is a big crop of money, the value of money tends to fall.  Again, no need to talk about “channels.”  This post was motivated by a recent comment, which is something I see pretty often:"

The CB [central bank] interacts with counterparties that have little or no propensity to spend and the lending channel is blocked.

    "That’s a fairly common view, and yet it contains no less than three serious fallacies.  This is what the commenter overlooked:

   "1.  Counterparties don’t matter.  The Fed buys assets from counterparty X, who almost always immediately cashes the check and the new base money disperses through the economy almost precisely as it would if the Fed had bought assets from counterparty Y, or counterparty Z."

     "2.  The propensity to spend doesn’t matter for the same reason.  Once counterparties get rid of the new base money, the impact on NGDP depends on the public’s propensity to hoard money, and any change in the incentive to hoard.  In the long run money is neutral and NGDP changes in proportion to the change in M, regardless of whether the person receiving the money has a marginal propensity to consume of 90% or 10%.  Either way they’ll almost always “get rid of” the new money, either by spending it or saving it.  Saving is not hoarding, it’s spending on financial assets."

    "3.  The lending channel doesn’t matter.  In the long run all nominal prices rise in proportion to the change in M.  In the short run sticky wages and prices cause the new money to have non-neutral effects.  Those non-neutral effects reflect wage and price stickiness, not “channels” of spending."

     What this is really is a return to the whole debate over "Cantillion Effects."

Scott Sumner's Dream Walking: Ramesh Ponnuru on Monetary Offset

     Did you ever see a dream walking? This was the title of one of the late conservative writer William F. Buckley's last books.

  Sumner gets to say yes after this piece by the National Review's Ponnuru-the NR being Buckley's baby appropriately enough. 

   "On the fifth anniversary of President Barack Obama’s fiscal stimulus, defenders of the policy were out in force making the case that it worked. Most of their arguments failed to address the strongest reason for doubting that it did much good."

      "That reason has to do with the Federal Reserve. To the extent that the central bank has a target for inflation (or nominal spending), and has the power to hit that target, the Fed constrains the power of fiscal policy. If Congress tries to stimulate the economy during a slump, for example, the Fed will offset that stimulus by loosening money less. Some of this offsetting will actually be automatic, based on market expectations that the Fed will stay on target."
      "It's likely that if Congress hadn't enacted a large stimulus, the Fed would have done more quantitative easing early on, lowered interest on reserves or taken some other expansionary step.Here is some evidence that when you take account of this possibility, fiscal stimulus has no effect."

    I've said how many times that this is the real Sumner endgame-to empower the Right against Keynesianism and ultimately shrinking the size of government. 

      Notice how he thinks that Sumner has given him the best reason to oppose fiscal stimulus-he thinks this is better than other arguments like Ricardian Equivalence and 'crowding out.'  So we should have not had a stimulus because then we could have had even more QE-we haven't had much, only three rounds, with a Fed balance sheet that has tripled, but clearly that fiscal stimulus had a chilling effect on the economy even if it was mostly tax cuts anyway-rather than spending on goods and services. 

     This is a very aggressive argument in that it's going as far as arguing for a 'negative multiplier'-if we had no stimulus in 2009 there would have been more QE that year-though we have actually now had 3 rounds of it-and the economy would have grown faster than it did. After all, unless you can show that the economy would have grown faster with more jobs with even more QE and even less fiscal stimulus-since 2011 U.S. fiscal policy has been contractionary-there's no good argument that we shouldn't have had it-Sumner always argues that fiscal stimulus would add to the debt but with record low interest rates this would have been the time to do it.

     This is what I've said repeatedly-the goal of Market Monetarism is to give aid and comfort to the Ponnurus-and Buckleys of the world. Tom Brown and others have argued that it's possible to have a liberal MMer. If so such souls must be extremely shortsighted.

    We recently had an argument over some stuff Robert Barro wrote that makes it sound like he doesn't understand the demand side of the economy. It seems to me that what he has written in recent years makes it sound like he doesn't.

   However, he does sound like he understood it in 1975, it's true.

   Still, as I've said previously is that this is the brilliance of Monetarism in general. It's a Trojan Horse for Keynesianism as it acknowledges the demand side of the economy yet it still managers to come up with a theory rabidly anti Keynesian.


Monday, February 24, 2014

Chris Christie's Hurricane Sandy Popularity 'Just a Fading Memory'

     This is what another poll out on Christie since the scandal broke is showing. 

     "New Jersey Gov. Chris Christie's (R) approval rating has dropped 15 percent since the George Washington Bridge scandal broke and 20 percent over the course of the last year, according to aMonmouth University/Asbury Park Press poll released Monday."
    "The poll marks the first time voter approval of Christie has dipped below 50 percent since 2011, according to Politicker NJ."

     "While overall approval of the governor is down, 77 percent of Republicans in the state still approve of Christie. However, 89 percent of Republicans approved of the job Christie was doing in January."

     "Monmouth University Polling Institute Director Patrick Murray attributed Christie's fall to the bridge scandal and how it has overshadowed his accomplishments."

    "This hole is getting deeper. Christie’s image as the hero of Sandy is now just a fading memory," he said.
The Monmouth University/Asbury Park Press poll surveyed 803 New Jersey residents via phone Feb. 19-23 with a margin of error plus or minus 3.5 percentage points."

      It's quite ironic as the GOP is always trying to build a huge scandal against the Democrats-they've been at it for 20 years-going back to Clinton and continuing today against President Obama-yet this has turned out to be just the kind of scandal they dreamed of but it's against a GOPer who had looked formidable for 2016. 

     Indeed, you could argue that Christie has been Karl Roved-as his 'strength has become his weakness' his greatest strength has become his greatest Achilles Heel-Hurricane Sandy. He's gone from looking like a hero to looking like the ultimate goat, someone who used these funds as a political ax rather than in the public interest. 

    Meanwhile, back at the ranch:

     "Fort Lee, N.J. Mayor Mark Sokolich met Friday with federal prosecutors who wanted to talk about the George Washington Bridge lane closures, Sokolich's attorney confirmed to TPM on Monday."

     "The meeting, which was first reported by The Wall Street Journal, was a voluntary one. In a statement, Sokolich's attorney declined to discuss details of his client's conversation with members of the U.S. Attorney's Office for the district of New Jersey."

    "Since there is an ongoing criminal investigation, neither Mayor Sokolich nor I will comment on the substance of those discussions," attorney Tim Donohue wrote. "The Mayor is grateful for the efforts of the US Attorneys Office, and the Mayor and his entire administration will continue to cooperate fully with this investigation as well as the Select Committee's investigation."

    "Sokolich has been at the center of the bridge scandal from the start. The lane closures caused a massive, multi-day traffic jam in Fort Lee. The same week they began, Sokolich told a local columnist that he had begun to wonder if the closures were intended to send him "some sort of message." Democrats in the state have since suggested that the closures were retaliation against Sokolich's decision not to endorse Christie's re-election last year -- an allegation that has not been proven."

     So Sokolich-who seems to have been Christie's target in the lane closings, turned down the request of Christie's lawyers to come answer their questions in Christie's own alleged investigation-as did Hoboken Mayor, Dawn Zimmer-yet has accepted the federal investigators' request. I wonder why that might be? 

Looking Back to Fed 2008, Sumner Asks Why?

     According to him in September 2008 the Fed suddenly went way off course.

     "For some reason the policy was abandoned in late 2008.  The Fed began forecasting a path for aggregate demand that was clearly below their implicit policy goals.  They weren’t just ignoring market forecasts; they were ignoring their own forecasts.  And they did so even before rates had hit zero. Why?
When I talk to elite economists they tell me that reducing rates to zero a bit earlier would not have helped much.  OK, but even so why not do it?  And why not also do QE and forward guidance?  And why pay interest on reserves?  (The rate was significantly higher than 1/4% during November 2008.)"

    "As of September 2008 I’d been basically fine with Fed policy for 25 years.  I generally had a “whatever” attitude.  Suddenly policy seemed obviously, shockingly, far off course.  And no one has been able to explain to me why I was wrong.  I’m still waiting for a good explanation for the Fed’s decisions—these transcripts certainly don’t provide one."

    I just have a hard time believing that the Fed overnight went from doing an essentially flawless job-according to Sumner it was doing nothing worth criticiizng-to doing a terrible job and forgetting that it believed in something very similar to NGDPLT-Sumner has often culled quotes of Bernanke in the past which he says demonstrates that the Fed was basically Market Monetarist-prior to September 2008. It just sounds a little too convenient for Market Monetarists where everything allegedly confrims that they're right, that Sumner got everything right.

   However, what I really have a problem with is this implication that the Fed was doing a great job before September 2008. The Great Moderation is an era that I'm quite ambivalent about. I think the economy had perfmed much better in the so-called hydraulic era so I don't see that the GM is much to brag about. No doubt, the argument would be that hydraulic Keynesianism was discredited because of the 70s inflation. Yet there are some questions begged by this claim. 

  1. For one thing, it ignores that we had stable inflation for most of the HK era-until the 70s. 

  2. If HK is discredited by the 70s why isn''t the GM era discredited by what''s happened since 2008?

  3. In fact, the 70s were a much better time for most Americans than the era starting in 2008. 


Guns Don't Kill People, People Kill People

     It's hard to see why anyone would think we need gun control:

     "A Michigan man fatally shot himself in the head while he was teaching his girlfriend gun safety, according to The Detroit Free Press.Location
    "Police said that the man, whose name was not released, had been trying to show his girlfriend gun safety with three pistols. He put the first two guns to his head and pulled the trigger. When the man pulled the trigger on the third pistol the gun went off."

     "The man's girlfriend said he had been drinking throughout the day while he was showing her the guns."

     I know, NRA members, he would have killed her if he had no gun as well. Furthermore:

     "A blind man in Florida who was acquitted after shooting his friend to death under Florida's "stand your ground" law got his guns back on Thursday, according to WESH Orlando."
    "Rogers fought to get his weapons back in court after his acquittal."

    "It's my constitutional right. I wasn't carrying these firearms around. I was in my house on a private road in Geneva out of the way," Rogers said, explaining that he needs guns for protection.

     Is there something wrong with this verdict somewhere, somehow? About the only ray of hope in it, is that the judge himself who rendered the verdict seems to think so:

     "Judge John Galluzzo reluctantly ordered authorities to return Rogers both of his firearms, a 10mm Glock and a rifle, even though he said he didn't want to."

     "I have to return property that was taken under the circumstance," Galluzzo said. "I have researched and haven't found case law to say otherwise."

     "The judge did not let Rogers have his ammunition back, however. Galluzzo said it was old and dangerous."

    Yes, this blind man will have to find new and dangerous ammo before he decides to stand his ground again. It's interesting what cases are acquitted in Florida's SYG law and which aren't. A black woman who genuinely killed someone with a gun in self defense still was convicted and sent to prison. On the other hand, killing a young black teenager does not warrant jail time, and neither does shooting a friend while angry-in this case the man was blind. I don't believe in discrimination because someone is blind but is there no problem here anywhere that ought to have given us pause before allowing this purchase?

     It's a fine law. You can get off for shooting and killing anyone provided you

     1. Aren't black-if you're black while shooting another black person you may get off in this case as well.

     2. Aren't really defending yourself.

     If you kill out of being angry in a stupid fight or because you see a young black teenager walking around who hasn't explained to you what his business is, you're ok.




Sunday, February 23, 2014

The Strange Economics of Conservatives on the Minimum Wage vs. the Earned Income Tax Credit

     I saw them discussing this on MSNBC and it really got me to thinking again how enigmatic the conservative position is here. They oppose the MW categorically and they offer up the EITC as an alternative for liberals concerned about workers getting such a paltry wage-so much lower than what any realistic standard of living would be.

     Yet. think about it: they're saying that it's preferable to have the government subsidize low wages than for private employers to raise them. This is basically a public subsidy so employers can underpay their employees. The simply argument is this.

     Essentially we as a society have decided that we don't want to pay workers less than X-let's for argument say X is $12. Liberals say, the law should compel employers to pay workers at least $12. Conservatives say -we should let companies pay only $8 and have the government pay the last $4. So basically the taxpayer rather than employers themselves should pick up the tab to enable the employers to pay subsistence wages. Yet this is the conservative position on wages?

    On MSNBC I saw there was a little bit of disagreement on the consensus of economists on the MW. I think at this point it's basically 50-50-half oppose the MW or a high one anyway half, support it. Yet this is progress comparatively-it used to be about 90 to 10. It changed after a few groundbreaking papers in the 90s. In the 30s FDR passed the Wagner Act over the objections of economists. This shows that sometimes society is ahead of the economists.

    Today, no one would listen to arguments in favor of slavery regardless if it was claimed by some Nobel prize winning economist who is a favorite of Stephen Williamson and Tony Yates' peer reviewers. However, economists themselves have come to see their previous simple argument against the MW-a simple supply-demand model where if you raise the price of a good, in this case labor, it's demand goes down. One thing is that the labor market is not just another consumption good-again notice that society and ethics is ahead here, as basic ethical intuition would tell us that's wrong.

    Finally, it's good news that we have companies like the GAP and Costco raising their own MW on their own. This shows that Obama's decision to raise the MW of companies that use government contractors is already working. 

Friday, February 21, 2014

Supply Side Liberals: a Contradiction in Terms?

     I tend to think so. I like Miles Kimball, and think he's a nice guy personally-most Internet econ bloggers are. Sumner is the exception-even he's often a nice guy, just not to me, and not when you say anything 'mind numbingly stupid'-ie, Keynesian.

     When I had the link to the post that showed that Sumner's goal is actually to create a RBC world Tom and others felt this wasn't what he was saying. I wonder if Tom can give me a good argument that this post doesn't prove Scott hates Keynesianism-I know, I'm taking him out of context, he doesn't hate Keynesianism as such just it's 'talk.'

     Tom was also wondering what a supply side liberal is and my response wasn't too flattering: I concluded that a 'supply side liberal' is just someone who tries to make himself more sympathetic by calling himself a 'liberal.'  Here was Tom's response to this:

     Actually I don't have a strong feeling about it since I'm not really too clear on what is meant by "supply-side" other than I associate that with the Reagan admin, trickle down econ, etc. I was more trying to feel out the level of self contradiction that you feel is contained in that description.

  What does "supply sider" mean to you?

     I think I actually gave about as good an answer to this question as I've ever done-often I can be just a little bit polemical-in case you haven't noticed. Maybe this is why I like Krugman-he too is always criticized for just calling someone an idiot without explaining why exactly. The trouble is that someone like Krugman knows his stuff so well that it gets boring having to explain everything in the detail required for those who don't know the stuff at all. Often I don't give so much detail either-I can be rather 'terse.' So here is what supply sider means to me:

    "Someone who believes that only the supply side matters in terms of the economy's performance. A Supply Sider in the pejorative sense means someone who doesn't think the demand side matters."

    "In theory you could think both matter. Sumner for instance-and this is certainly not unique to him but is the believe of mainstream macro-ie, Neoclassical Macro as a hole-thinks that demand matters for the short term but that for the long term-'trend output growth'-the supply side is how you could possibly raise this trend."

   "When I use it pejoratively I have in mind someone who tells us that the problem in the economy isn't demand-so no stimulus will help, just supply side-'structural reforms' which usually mean things like cutting taxes for the rich-corporate, the capital gains rate, the top marginal rate, etc.-as well as deregulation, cracking down on unions-to make firms more 'competitive' in the global economy-and cutting government spending-ie, fiscal austerity."
     The trick is to be clear that when I and other liberals use the term SSer in a pejorative sense it doesn't mean just someone who thinks the supply side matters at all. It means someone who basically denies the demand side exists at all, or most importantly offers up SS remedies to a DS problem.

     The Reaganites were just a really egregious example of this-though I give a lot of respect to a SS theorist like Jude Wanniski who was pretty shrewd. He didn't deny demand side effects but argued that they're less important than supply side effects and that in fact the real difference is that SSers see both but Keynesians deny the SS. 

       In many ways I see SSers as related to Pre Keynesian Macro-of course there was no Macro before Keynes just Micro. So I see SSers as those who want to re-enshrine Micro on top or the pyramid it has rightly been supplanted from. 

     Now to me, none of these policies I mentioned under 'supply side' policies-busting unions, a low minimum wage, etc-are what most liberals are about.

   So what makes Miles a liberal? He calls himself one. Ok, technically he claims to care about the poor-but he thinks they can eat electronic money and lines of credit through the Federal Reserve. I'm just a little skeptical of this.On the question of Miles' idea of all electronic money as a panacea for the Zero Bound and also an end of inflation we had an interesting discussion-mostly about the idea of ending inflation. I really wanted to know even if we grant that doing this would end inflation, why would we want to do this? I have real reservations about this. What Tom says here confirms for me my reservations. 

     "Imagine what your instinct would tell you if the government announced that you had ten days to turn in all your cash because we were going fully electronic, and then within a year the government announced a new 0% inflation target and at the same time your bank announced that you'd be "earning" -2% on your deposit... and not only that, but every other bank had a similar rate: there was no escape!"

     In reality, inflation wouldn't so much end as a cost of living as it would no longer be called inflation but instead a negative deposit rate. 

    P.S. Yes, Sumner's right I'm not economist as I think my own personal intuitions and instincts are relevant in an economic discussion. Just because a theory or model totally contradicts what I know from experience or my understanding of human nature I should ignore this-who are you going to believe Tony Yates and Stephen Williamson or your lying eyes?

Thursday, February 20, 2014

A Real Bargain: Grand Bargain on Social Security DOA

     For years, we've had firebaggers telling us that Obama was itching to gut Social Security. It's true that he did float the idea of Chained CPI. However, I think this shows that he's won another round as he no longer has to offer such sweetners to GOPers anymore. Krugman has pointed out that the demand for austerity has really dropped out of sight this year. It seems that so have Grand Bargains. 

    "President Obama will not include cuts to Social Security and other earned-benefit programs in his upcoming budget, the White House confirmed on Thursday."

    "The cuts had been included in past proposals to lure Republicans into a so-called "grand bargain" that would raise taxes and cut spending with the goal of deficit reduction. The president faced fierce resistance to the cuts, and while Republicans liked the idea, they never agreed to pair the policy with higher taxes."
    "The withdrawal of the offer from the budget is a recognition of the reality that a grand bargain is simply too unpopular on both sides of the aisle. The death of the grand bargain, first reported by the Associated Press on Thursday, comes as annual budget deficits have fallen from more than $1 trillion to less than $500 billion next year."
    "The Social Security cut would have worked by using a stingier formula for annual benefit increases known as cost-of-living adjustments, reducing Social Security spending by $127 billion over 10 years, according an estimate by the Congressional Budget Office. The difference in monthly benefits under a chained CPI would be modest at first, but the amount of missed benefits would mount for seniors the longer they live."
    "Republicans expressed disappointment at Obama's move."
   "This reaffirms what has become all too apparent: the president has no interest in doing anything, even modest, to address our looming debt crisis," Brendan Buck, a spokesman for House Speaker John Boehner (R-Ohio), said in an email. "The one and only idea the president has to offer is even more job-destroying tax hikes, and that non-starter won’t do anything to save the entitlement programs that are critical to so many Americans. With three years left in office, it seems the president is already throwing in the towel."
      Technically, the White House does still say that Chained CPI remains on the table-but as it's off the budget pages, it would seem it's a smaller table? It's ironic if Republicans are disappointed as they've spend years opposing the President and were totally uninterested in taking the CCPI bait. 
     In more good news, in this same vein, the Senate GOP accepted the inevitable  clean debt ceiling hike.' This just shows once again that the GOP's hostage taking isn't working. They should have grabbed CCPI when they had more leverage but then they wanted it all. Now they'll get nothing just like they did with the fiscal cliff-at one point Nancy Pelosi had offered them to only end the Bush tax cuts on income over $1 million per year. They said no way and ended up eating a much lower number. Now the same thing with CCPI-they overplayed their and and now they lost their chance-not that I'm sorry about that. 
    "Liberals are celebrating, with good reason, but I think the strongest emotional response should come from reasonable conservatives who have let an inflexible anti-tax orthodoxy destroy the right’s longer-standing goal of slashing and devolving entitlements. The only way they’ll get there with Democrats in power is to pony up some tax revenue. Failing that, they’ll need to recapture the entire government and do the slashing and devolving all on their own. But there’s every reason in the world to doubt they have the chutzpah to do that. So the dream is dead. Driving that point home to the right is just as valuable as granting a reprieve to the left."
     This is where an inability to take yes for an answer has gotten them: nothing.