Friday, February 27, 2015

Are Trade Deficits a Good or Bad Thing?

     I can never follow this question. Here is Warren Mosler:gj

     "Imports are real benefits and exports are real costs. Trade deficits directly improve our standard of living. Jobs are lost because taxes are too high for a given level of government spending, not because of imports."

     I know that is the opposite of what mainstream economists seem to think. 

     "A trade deficit, in fact, increases our real standard of living. How can it be any other way? So, the higher the trade deficit the better. The mainstream economists, politicians, and media all have the trade issue completely backwards. Sad but true."

    "To further make the point: If, for example, General MacArthur had proclaimed after World War II that since Japan had lost the war, they would be required to send the U.S. 2 million cars a year and get nothing in return, the result would have been a major international uproar about U.S. exploitation of conquered enemies. We would have been accused of fostering a repeat of the aftermath of World War I, wherein the allies demanded reparations from Germany which were presumably so high and exploitive that they caused World War II. Well, MacArthur did not order that, yet for over 60 years, Japan has, in fact, been sending us about 2 million cars per year, and we have been sending them little or nothing. And, surprisingly, they think that this means they are winning the “trade war,” and we think it means that we are losing it. We have the cars, and they have the bank statement from the Fed showing which account their dollars are in."

   "Same with China - they think that they are winning because they keep our stores full of their products and get nothing in return, apart from that bank statement from the Fed. And our leaders agree and think we are losing. This is madness on a grand scale"

    Compare this to this to a NYTimes editorial:

    "The world economy is falling back on very dangerous habits. The United States is tentatively emerging from recession but is still at risk of another dip. Yet trade statistics released last week indicate that American consumers are sucking in large quantities of imports as spending recovers, while weak demand in the rest of the world is crimping American exports."

  "Meanwhile, China is mopping up demand everywhere you look with its artificially cheap supply of goods. Germany, the world’s other exporting power, is cutting its budget and relying on foreign demand to drive its economic rebound. This isn’t sustainable."

    "The bulging American trade deficit means that rising consumer demand is flowing to suppliers overseas rather than fueling growth at home. The American economy is too weak to carry this load. The recent trade data led economists to slash growth estimates for this year."
     "For the global recovery to continue, domestic demand must revive around the world. Other leading countries must do more to stimulate their own demand. And China cannot keep hogging the global export market."
     By the way, Krugman agrees with this post entirely-with the proviso that they don't go far enough-threatening sanctions isn''t enough we have to do them or China won't believe it.
     So presumably, we should celebrate this but the Chinese think they're screwing us as much as we think they are
     Normally, the way people think about it-certainly on CNBC-is that eports are good for multinationals and this benefits the nation. True, it isn't good for domestic companies but evidently the 'surplus' for the multinationals is larger than the loss for the domestic firms. 
    I still don't totally get it: if the Japanese sell us 2 million cars we get the cars but they get millions or billions of dollars with which they can buy what they need-ie, it's trade. So how do we gain? Isn't it a wash?
   Sumner on trade deficits:
   " Currency devaluation doesn’t work by boosting the trade balance, it works by boosting domestic nominal value added, i.e. NGDP, which is unambiguously positive.  The huge US depreciation of 1933 initially made the trade balance “worse” even as output soared in response.  There’s a whole literature on the income effect.  Lars Christensen has a new post discussing other examples."
 "Ive noticed that intellectuals like to talk about “imbalances,” especially pundits interested in international issues.  I don’t see how it’s a useful concept, although I’m willing to be enlightened.
I do understand the concept of market failure, or bad public policy.  But I don’t see how a term like ‘imbalances’ adds anything to the statement that “policy X reduces aggregate welfare.”

  "When I lived in Queensland back in 1991, the Australians I met were very worried about their chronic current account deficits surpluses.  And they’ve run huge CA deficits every year since.
On the other hand Japan has run current account surpluses year after year, decade after decade.
In a deeper sense there is no such thing as exchange imbalances, all international transactions merely involve the swapping one type of product (goods and services) for a difference type of product (assets.)  Why should we care?"

   "Oddly Japan is almost universally viewed as a country with a bleak future, despite its CA surpluses.  Its population is aging fast, and beginning to decline.  Its nominal GDP is trending downward as its public debt keeps increasing.  On the other hand Australia is a relatively fast growing country, with a high level of immigration and a trivial public debt."

   "So what do the persistent CA deficits tell us about Australia, and what do the persistent CA surpluses tell us about Japan?"

     So there are lots of varying opinions on trade deficits. Mosler might agree more with Sumner here on trade deficits? But of course, Sumner had to get into public debt. 


Joseph Lieberman: One Democrat I Do not Miss

      There he goes again. In 2008 this 'Democrat' endorsed John McCain for his hawkish talk about Iraq. Now the former Senator is saying that Netanyahu 'deserves to be listened to respetfully' by members of Congress. Normally this might be the case but what a disloyal Democrat like Lieberman fails to get is that respect has to be reciprocal and Bibi is disrespecting the President of the United States and really all of us. He ought to stay in Israel with and worry about his upcoming election. In truth that election is what this whole stunt is about:

     Here is Congresswoman Betty McCollum of Minnesota who doesn't plan on going to see Bibi:

    "Israeli Prime Minister Benjamin Netanyahu is in the midst of a heated reelection campaign. Yet he is traveling 5,900 miles to give a speech before a joint meeting of Congress on March 3 — just two weeks before Israelis go to the polls. House Speaker John A. Boehner (R-Ohio), working with Israeli Ambassador to the United States Ron Dermer, a former Republican political operative who renounced his U.S. citizenship, extended the invitation in a clear effort to undermine the president while the United States and its five partners engage in tough negotiations with Iran to prevent it from obtaining nuclear weapons — a national security priority I strongly support."

     "In other words, the speaker of the House has provided the Israeli prime minister with a global platform to both attack our president and deliver a campaign message to voters at home."
     Right now the best way to improve Israeli-U.S. elections as Greg Sargent says is for Bibi to lose his election. 
     “To think about going behind the back of a friendly country’s administration and working out this kind of arrangement with the parliament or the Congress — it’s unheard of,” said Daniel C. Kurtzer, a former U.S. ambassador to Israel. Such an unprecedented lack of respect toward a U.S. president has not gone unnoticed in Israel, either. As Oudeh Basharat, a columnist for the Israeli newspaper Haaretz, noted, “Greater respect is even accorded to banana republics.”

     Basharat concluded his Haaretz column by saying, “Any leader who tried to do to the Americans what Netanyahu has done would be ejected immediately, not from Washington but from office in his home country.”
    Netanyahu has basically inserted himself right in the middle of partisan American party politics. That he's a Republican at heart is shown by him spurning a chance to meet with Democrats-he doesn't want that just to hang with Bohner and his friends. He thinks that Boehner can somehow force the President not negotiate with Iran over preventing it from obtaining nuclear weapons. 
    "Mr. Netanyahu said Tuesday that he was making the trip because it was his obligation to “do everything I can to prevent” a nuclear agreement with Iran."
     As John Kerry points out, Congress has no role in any nuclear treaty anyway. They certainly can't stop Obama  from signing one. It's just one more chapter in petty GOP politics that Netanyahu feels so at home with and as usual we have Lieberman holding the GOPers' coats rather than doing anything constructive. 
    Meanwhile, as Congresswoman McCollum points out, Boehner is basically degrading the halls of Congress by using it as a prop in a Netanyahu campaign ad. 
     "The last time Netanyahu addressed Congress, in 2011, he thanked President Obama for his “steadfast commitment to Israel’s security” and told the world that “time is running out” on preventing Iran from obtaining a nuclear weapon — a position I expect will be repeated in next week’s speech. Footage from that speech was used by the Likud Party for campaign commercials when Netanyahu last faced Israeli voters. Using video from the floor of the U.S. House for campaign purposes is prohibited for members of Congress — apparently except when they play extras in a commercial promoting Netanyahu."

Thursday, February 26, 2015

On Funding Fights Nothing Has Changed with a GOP Senate and GOP House

     It's really striking that Boehner is treating McConnell no better than he did Harry Reid at least when it comes to funding fights. McConnell has a bill-or 2 bills-to avert any shutdown of the DHS-at a time when the GOP keeps fanning the flames over ISIS and other such threats-and the Boehner is ignoring his fellow Re publican's bill as it it came from the pen of Harry Reid.

    "House Republican leaders are refusing to support legislation that funds the Department of Homeland Security without imposing immigration policy restrictions, a sign that the department is headed for a partial shutdown Friday night."

   "The legislation is all but guaranteed to pass the Senate, where Majority Leader Mitch McConnell (R-KY) and Minority Leader Harry Reid (D-NV) have championed it in an agreement to bring up immigration bills separately. Even conservative firebrand Sen. Ted Cruz (R-TX) has signaled he won't hold up the "clean" DHS bill ahead of the Friday midnight deadline to avert a shutdown.
But in the House, it's a very different story. Speaker John Boehner (R-OH), facing a rebellion from his members, isn't ready to swallow the standalone DHS bill just yet, and is exploring options to continue fighting President Barack Obama's initiatives on immigration."

     "We want to stop the president's immigration actions with regard to immigration," Boehner told reporters Thursday. "It's outrageous that Senate Democrats are using Homeland Security funding for blackmail to protect the actions of the president. ... We're waiting to see what the Senate can or can't do, and then we're going to make decisions about how to proceed."

     Senate Democrats? It's a Republican Senate now, Speaker. It's Mitch McConnell not Harry Reid you're now kicking in the teeth. So it looks like we will get the partial shutdown of the DHS until Boehner decides the charade has gone far enough and does what he knows he has to do anyway and put McConnell's bill up for a vote-which does have the votes already anyway if you count the House Democrats.

     It's not hard to figure out why the GOP can't compromise with Democrats: it can't even compromise with itself. I thought giving both Houses of Congress to the GOP was supposed to give us functional government again?

    "With the GOP Congress heading towards a shutdown, it’s worth recalling this priceless quote from GOP Rep. Charlie Dent:

“Week one, we had a Speaker election that did not go as well as a lot of us would have liked. Week two, we got into a big fight over deporting children, something that a lot of us didn’t want to have a discussion about. Week three, we are now talking about rape and incest and reportable rapes and incest for minors. … I just can’t wait for week four.”
    "Well, we’re now seeing the fruits of week four, Congressman!"

Warren Mosler on Federal Deficits

     I recently had a discussion with Greg on the question of the phrase 'government debt' where he argued that the very phrase is a problem. My answer was that I'm not sure about that-I'm still not.

     I do see from looking at what Mosler and other MMters that they do argue that bonds are not sold so the govt has the money to spend here or there. Here is Mosler:

     "We all know how data entry works, but somehow this has gotten turned upside down and backwards by our politicians, media, and, most all, the prominent mainstream economists. Just keep this in mind as a starting point: The federal government doesn’t ever “have” or “not have” any dollars. It’s just like the stadium, which doesn’t “have” or “not have” a hoard of points to give out. When it comes to the dollar, our government, working through its Federal agencies, the Federal Reserve Bank and the U.S. Treasury Department, is the score keeper. (And it also makes the rules!) You now have the operational answer to the question: “How are we going to pay for it?” And the answer is: the same way government pays for anything, it changes the numbers in our bank accounts. The federal government isn’t going to “run out of money,” as our President has mistakenly repeated. There is no such thing. Nor is it dependent on “getting” dollars from China or anywhere else. All it takes for the government to spend is for it to change the numbers up in bank accounts at its own bank, the Federal Reserve Bank. There is no numerical limit to how much money our government can spend, whenever it wants to spend. (This includes making interest payments, as well as Social Security and Medicare payments.) It encompasses all government payments made in dollars to anyone."

    However, there is some fine print:

    "This is not to say that excess government spending won’t possibly cause prices to go up (which is inflation). But it is to say that the government can’t go broke and can’t be bankrupt. There is simply no such thing."

     Ok, so that still shows that even if nothing can stop the govt from spending anything it wants to spend it on there is still a reason why we can't just spend without limit-don't get me wrong we're currently far away from any such limit in the US today.

      If you go to far ether or not you want to call this 'printing money' then you harm the value of your currency. It's not so simple as like that old show lots of us in our early 40s used to watch in the 70s, Bewitched, where the good witch Samantha used to wiggle her nose and stuff would appear out of thin air.

    I mean if it were then the govt should simply send $10 million dollar checks to all individuals and $100 million checks for businesses and we can all live in a land of milk and honey. I'm not mocking or discounting the point just that it needs to be qualified. Achieving prosperity is not as simple as conjuring up whatever we want-unfortunately.

    Again, this is not to say Mosler is wrong but just read the fine print even he lays out which shows that it's not just about a blank check where we can write in whatever we like.

    It still does mean that there is a need for taxes and public debt-whether or not we want to call it that. Indeed, according to MMT, the whole reason for the existence of money is so we can pay our taxes.

   Again, even if prosperity is still even following Mosler as easy as having your own Genie where she gives you whatever you want, still it may be easier than it is now when politicians tell us that the government has to live within its means like a family.

   UPDATE: Regarding public debt, though, consider what Mosler says here:

    "From our point of view (not the federal government’s), we need to first have U.S. dollars to be able to make payments. Just like the children need to earn the coupons from their parents before they can make their weekly coupon payments. And state governments, cities, and businesses are all in that same boat as well. They all need to be able to somehow get dollars before they can spend them. That could mean earning them, borrowing them, or selling something to get the dollars they need to be able to spend. In fact, as a point of logic, the dollars we need to pay taxes must, directly or indirectly, from the inception of the currency, come from government spending (or government lending, which I’ll discuss later)."

   What this means then is the idea that you can never run out of money is only true for nations-that have their own currency. So at the state level, you really are limited by how much you can spend-as ultimately you need the federal government to give you your American dollars.

  So then they-assuming the federal govt doesn't give them enough to fully cover everything they want to finance do need taxes and or public debt to pay for their spending?

Reconsidering the Great Inflation?

      I've recently said that regarding Sumner's Market Monetarism, it seems to me it's comprised of 2 chief parts:

     1. Moving from the Taylor Rule of targeting inflation to targeting NGDP

     2. Monetary offset

     I like to say that the carrot for liberals is 1 but the carrot for conservatives is 2. Before 2 really sunk in, conservatives were rather skeptical of MM and liberals were kind of intrigued. Now that 2 has set in, conservatives get it: Sumner is their Great White Hope as it were. He's sort of their last line of defense-as Monetarism always has been.

     However, while I'm generally skeptical of Sumner, it seems to me that arguably, 1-without 2-might at least be considerable progress over Taylor's Rule-right now he and the GOP are desperate to defend it.

     Parenthetically, Greg does have some objections to using NGDP but I always forget the exact details. Part of it comes down to his claim that NGDP is really nothing new-in tracking it you're still tracking inflation. It's true that in the chicken-egg sense, NGDP comes first and came first historically, as only after they started calculating it did they start subtracting inflation from it.

    Nevertheless, it still seems to me that this would be an improvement as you can at least separate 'good inflation and bad inflation' by considering growth as well as inflation. I do have to grant Sumner's point on one thing: right now if you still as Laurence Mishin does want looser money for longer-he calls for ZIRP at least until 2016

    It's actually looking at inflation that makes the case for you rather than looking at employment which is already lower than anyone would have hoped a few year ago. If you look at GDP or employment you'll get arguments that rates have to go up and money has to tighten.

    Overall, I suspect that most liberal-Keynesian types-like myself-have never been a fan of inflation targeting as in principle even it prefers low inflation to high growth or low unemployment. While I've never been a big booster of Audit the Fed I was rather struck by Janet Yellen arguing against it by saying that if we had audited the Fed in 1980 then Volcker may have not gotten to do his disinflation.

   Talk about a feature not a bug.

    Regarding the Great Inflation itself-which is usually credited for our turn towards inflation targeting and the victory of Milton Friedman over James Galbraith, there's still nothing like an old smackdown over what actually happened in the 70s and what did cause the GI?

    The mainstream view of Sumner, et. al is that the Fed printed way too much money. Here Warren Mosler uses a counter view often used by Post Keynesian types-it was the spike in oil prices.

     You know Mosler-you can't read him without hearing about his own storied history as a market participant. This is more or less symptomatic of the MMT brand it seems to me-and Cullen Roche as well even if he left MMT for MR. Being an MMTer means you want people to know that you came by your knowledge the right way: as a market participant not an academic.

    I'm never sure what I make of that: by all means I'm suitably impressed by anyone who's a successful market participant. More power to them and I don't at all begrudge them regaling us with it. I still wonder though if this isn't a case of Lockean empiricism run amok: the idea that to understand the monetary system you had to have actually traded finance and the bond market.

    Isn't the reality theory is one thing, practice another? I don't think the two are one in the same. Even in football you see this is true by the fact that most great coaches weren't great players-and today fewer and fewer NFL coaches even played in the NFL.

    In that post I could have made my title even stronger by saying that the NFL is not just a game of untalented old men coaching talented young men but often untalented old white men, training talented young black men.

    Here is Mosler:

    "I entered banking in 1973 with a job collecting delinquent loans at the Savings Bank of Manchester in my home town of Manchester, Connecticut. I was the bank’s portfolio manager by 1975, which led to Wall St. in 1976, where I worked on the trading floor until 1978. Then I was hired by William Blair and Company in Chicago to add fixed income arbitrage to their corporate bond department. It was from there that I started my own fund in 1982. I saw the “great inflation” as cost-push phenomena driven by OPEC’s pricing power. It had every appearance of a cartel setting ever-higher prices which caused the great inflation, and a simple supply response that broke it. As OPEC raised the nominal price of crude oil from $2 per barrel in the early 1970’s to a peak of about $40 per barrel approximately 10 years later, I could see two possible outcomes. The first was for it to somehow be kept to a relative value story, where U.S. inflation remained fairly low and paying more for oil and gasoline simply meant less demand and weaker prices for most everything else, with wages and salaries staying relatively constant. This would have meant a drastic reduction in real terms of trade and standard of living, and an even larger increase in the real terms of trade and standard of living for the oil exporters."

     "The second outcome, which is what happened, was for a general inflation to ensue, so while OPEC did get higher prices for its oil, they also had to pay higher prices for what they wanted to buy, leaving real terms of trade not all that different after the price of oil finally settled between $10 and $5 per barrel where it remained for over a decade. And from where I sat, I didn’t see any deflationary consequences from the “tight” monetary policy. Instead, it was the deregulation of natural gas in 1978 that allowed natural gas prices to rise, and therefore, natural gas wells to be uncapped. U.S. electric utility companies then switched fuels from high-priced oil to what was still lower-priced natural gas. OPEC reacted to this supply response by rapidly cutting production in an attempt to keep prices from falling below $30 per oil barrel. Production was cut by over 15 million barrels a day, but it wasn’t enough, and they drowned in the sea of excess world oil production as electric utilities continued to move to other fuels."

    In the narrative of Sumner and Friends, the supply shock of oil exacerbated the problem but it was primarily demand pull inflation that was the problem. It seems to me that one way to litigate this would be to look at the other costs in the economy-if most of the price increase was concentrated in oil that would seem to validate the cost push explanation but if other prices also spiked that would validate demand pull. Mosler here seems to agree that other prices rose but that this was just the effect of the rise in oil and then natural gas.

   If anyone has more light to shed you know where to find me-LOL.

    UPDATE: I did read the 'Seven Deadly Innocent Frauds' by Mosler a few years ago, but I've decided to read it again as I definetly know a lot more about economics than I did then. When I say that Mosler and the other MMTers like to boast about their market experience see him here:

    "So, how am I uniquely qualified to be promoting these proposals? My confidence comes from 40 years’ experience in the financial and economic realm. I would venture that I’m perhaps the only person who can answer the question: “How are you going to pay for it?” My book takes on this issue and encourages the return of economics study to the operational realities of our monetary system."

    This is different from how mainstream economists judge whether someone is qualified to discuss such issues-some base it on academic credentials or how many peer review articles have they published or whether or not they agree with the basic Neoclassical nomenclature-Ricardian Equivalence, monetary neutrality, the preference of monetary over fiscal policy, etc.

   More than anything, mainstream economists want to establish that the person they're reading is an economist and not all are as narrow as my descriptions above.  However, in their mind what matters is not whether you yourself have experience in the market but whether or not you have experience as an economist-Sumner says that to earn the status of being an economist in his yes, you don't necessarily have to be from an academic background. He allows that a layperson could be considered a 'real economist.'








Pace Sumner is the Fed 'Reasoning From a Price Change?'

     Wondering if I'm correctly 'Sumner whispering' here. 

     "U.S. consumer prices in January posted their biggest drop since 2008 as gasoline prices continued to tumble, which could give a cautious Federal Reserve ammunition to keep interest rates low a bit longer. "

     "The Labor Department said its Consumer Price Index fell 0.7 percent last month, the largest decline since December 2008, after slipping 0.3 percent in December. It was the third straight month of decline in the index."

     "In the 12 months through January, the CPI increased fell 0.1 percent, the first decline since October 2009 and a sharp deceleration from November's 0.8 percent rise."
     According to Sumner the key would be whether or not the drop in oil is supply or demand based: it does seem that at least a big part of it is that it's supply based thanks in part to the shale boom in the US and the decision by Saudi Arabia not to have OPEC cut production. 
     Does anyone know if Ralph Musgrave is related to the Richard Abel Musgrave-who was there at the debate between Keynes and Lerner-it wasn't so much a debate as some words exchanged.
     More on the discussion I had with Greg on the actual use of public debt-he thinks the very phrase should be retired but then that's what Sumner says about inflation; change doesn't happen overnight. Anyway, here's Bill Mitchell on public debt. 
    "That is a very powerful statement and allows the reader to ask the right questions by way of gaining a better understanding of what is what. Under the mainstream lie that debt is issued to fund net spending, the right questions are more veiled. So the obvious question is why would market participants need securities?"
     "Once you answer that question you gain an appreciation of what it is all about? Then you are in a better position to understand that governments issue public debt to drain reserves not to finance net public spending"
     Another point though about this debate over MMT and functional finance is that according to the MMTers it was not until Nixon closed the gold window that monetary theory become modern, prior to that they allow that public debt really was public debt. So was Lerner's functional finance less true when he first wrote it than now?
    On to politics.  As Greg Sargent says, all the theatrics of funding the DHS are likely to end up how these battles always end up. At some point-maybe after DHS has been nominally shut down for a few days-Boehner will do what he says he can't do and pass the Senate bill with the help of Democrats in the House. 
   "But we’ve seen this particular thriller a number of times already. Here’s how it always goes: We are told there’s no way Boehner would ever dare move must-pass legislation with a lot of Democrats.  He’s stuck! Then pressure builds and builds, and Boehner does end up passing something with a lot of Democrats. Last I checked, he’s still Speaker."
    "We’re hearing that again today. Roll Call quotes several House conservatives hinting that Boehner had best refrain from passing any clean DHS funding, or his gavel is in doubt. Okay. But back in early 2013, the fiscal cliff deal, which allowed some high end Bush tax cuts to expire, passed the House with only 85 Republicans and 172 Democrats, and we were told Boehner’s Speakership was at risk. Similarly, in early 2014, Boehner allowed a clean debt ceiling increase to pass the House with only 28 Republicans voting for it, and we were again told his Speakership was at risk. Does anyone else notice a pattern here?"
     "The fact that Boehner has the mere option of passing clean funding with the help of a lot of Democrats is rarely even mentioned. You can read article after article about this whole showdown and not be informed of that basic fact. Thus, the actual reason we’re stuck in this crisis — Boehner is delaying the moment where he does pass something with Dems for as long as possible — goes oddly unmentioned. Yet recent history suggests that Boehner himself knows this is how it will end, and that all of this drama won’t change the outcome."
     It really is very predictable. To bad there's no futures market for how this will turn out. Note that the fact that McConnell is now in charge in the Senate hasn't really changed anything. He's still the guy that has to come up with the plan that bails Boehner out but just because the GOP now runs the Senate doesn't make the House move any faster towards resolution. We still have to go through more theatrics before Boehner feels he can stop postponing the inevitable. 

Wednesday, February 25, 2015

In Attacking Janet Yellen, GOP Shows They Don't Care About Economic Inequality

     You'd think they'd be a little self-conscious about being this blatant but it's truly a party with neither any shame or a lick of good sense. 

     "Appearing before Congress for a second consecutive day, Ms. Yellen offered no new insights into the likely course of monetary policy, and the committee members made little effort to elicit any. The hearing instead was devoted to questions about financial regulation and to questions about the proper relationship between the central bank and the rest of the federal government."

      "Republicans expressed particular anger about a speech on rising economic inequality that Ms. Yellen delivered in October, a few weeks before the midterm elections, in which she questioned “whether this trend is compatible with values rooted in our nation’s history.”

     "Representative Mick Mulvaney, a South Carolina Republican, criticized Ms. Yellen for speaking about “issues outside your jurisdiction,” which he said undermined the Fed’s political independence."

    “You’re sticking your nose in places that you have no business to be,” Mr. Mulvaney said.

     "Ms. Yellen, visibly unsettled, responded that she considered the issue important, that all of her predecessors as Fed chairman had from time to time used that pulpit to address broader economic issues, and that “I feel that I am entitled to do the same.”

     "Representative Sean Duffy, a Wisconsin Republican, said the speech showed political bias because Democrats were campaigning on the issue at the time."

   “I am not making political statements,” Ms. Yellen responded. “I am discussing a significant problem that faces America.”

    When Mr. Duffy, his voice rising, said that Ms. Yellen in the speech had appeared to advocate the kinds of policy solutions generally favored by Democrats, Ms. Yellen snapped, “I didn’t offer any policy recommendations whatsoever in that speech.”

     Note the total hypocrisy-they say she's not allowed to mention economic inequality unless both parties mention it then they demand she criticize financial regulation. 

     They blatantly admit that only the Democrats care about economic inequality in the process. Meanwhile, in 2001 George W. Bush had Greenspan speaking before Congress to advocate his tax cuts for the rich. No one thought to complain about him sticking his nose where it didn't belong. 

    They became, hard as it is to believe, even less rational in complaining that she meets with Obama officials-the Fed always meets with Administration officials no matter which party is in the White House. 

    We have yet more proof if it's needed, that the GOP simply doesn't care about the business of the country apart from their own narrow partisan agenda. They see everything in terms of partisan gain which is why they're sticking their own noses where they don't belong in having Netanyahu speak to Boehner's Congress without the President's invitation.

   Greg Sargent has a very good way to improve U.S.-Israeli relations: Bibi loses his election.

    By the way: Netanyahu is not just  on bad terms with the Obama Administration but with the Administrations of 6 other countries in Western Europe that are usually allies. 

    Meanwhile, Sumner as usual tries to get everyone to forget about economic inequality by claiming it's too hard to see whether it exists or not. It's all just a puzzle. Let's just forget about it and do some supply side reforms-ie, cut taxes for the rich, cut their regulations, but raise taxes on teh poor-via the consumption tax.

   Here is Sumner up to his old tricks:

    "Suppose nominal income and the CPI rose at roughly the same rate between 2004 and 2014.  In that case real income would be roughly unchanged.  But let’s also suppose it wasn’t completely unchanged, just roughly unchanged. More specifically, assume real income rose from $15,000,000,000,000 to $15,000,000,010,000.  That is, real income rose by $10,000.
Let’s suppose that in 2004 Ray Lopez worked at a car wash in LA, making $10,000/year.  In 2014 he had two car wash jobs, and was working much harder. Assume his real income had risen to $18,000.
Now here’s my question:  Is it accurate to say that between 2004 and 2014, 80% of the entire the gain in real income for the United States of America went to Ray Lopez, car washer in LA?  You’re damn right it’s accurate!  And I’m willing to assume that the cited claim by Saez is also accurate."

    "But there’s another question that goes beyond accuracy; is it misleading?  To me it’s obviously misleading to say that one car washer in LA received 80% of all the real income gains in America, even if my hypothetical data were true. That’s because one could say the same thing about his cousin, if she had gone from doing one house cleaning job to two, with the same $8000 gain in real income.  Indeed I would have earned more than 100% of all real income gains, as my real income rose by more than $10,000 over that decade.  Any time an aggregate doesn’t change very much, but there are significant changes to the components within that aggregate, there are lots of ways of slicing up the data to create misleading impressions. Presenting data that way may not be propoganda, but it certainly does more to confuse than enlighten."

     Obviously there's no trouble with inequality in the least. I'm sure he'll find this less misleading. 


John Kerry on Netanyahu: He's Been Wrong Before

     Today the GOP was grilling Kerry on Obama's Iran policy-it must be wrong the GOPers fume as the great Netanyahu says it is. In the minds of today's GOP to disagree with Netanyahu about anything is like an old fashioned Catholic looks at disagreeing with the Pope: it's just not done.

      Kerry, though, shines some light in and points out that Netanyahu has been wrong before-badly. Josh Marshall makes the point that to understand Netanyahu politically, he's more at home in an American context than in Israel itself.

     Though the GOP likes to tell us that Obama is this bad guy who is alienating Israel, one of our most important allies, in reality, Obama is less estranged from Israel foreign policy than simply with Netanyahu's version of Israel foreign policy.

    "That brings us to Netanyahu. Some believe that the Israeli government either wanted the Iraq War to happen or goaded the Americans into the attack. In fact, the Israeli security establishment was very divided on the wisdom of the US administration's policy. Indeed, Ariel Sharon pointedly warned President Bush of the dangers of what he was planning. Indeed, the best account of his discussions with President Bush suggests his warnings were highly prescient - about the spillover of radicalism growing out of a US occupation, the zero sum empowerment of Iran and more.
It was Netanyahu, then technically a private citizen, though he would soon enter Sharon's government in late 2002 who not only supported a US attack on Iraq but advocated for it endlessly within the US. (Netanyahu is also not in line with the Israeli security establishment's current views on Iran.) Indeed, that is the parallel to today: the fact that in many ways Netanyahu feels more at home in the US political context than the Israeli one. As Netanyahu said at the time, “there is no question whatsoever that Saddam is seeking and is working and is advancing towards the development of nuclear weapons — no question whatsoever. If you take out Saddam, Saddam’s regime, I guarantee you that it will have enormous positive reverberations on the region.”

    "And Kerry's point is a simple if brutal one: Netanyahu has a history of trying to get the US to launch major wars in the Middle East."

     To say that Netanyahu is more at home in US politics isn't quite specific enough: he's at home among GOPers: he rejected an invitation to also meet with Democrats.

    "Israeli Prime Minister Benjamin Netanyahu declined an invitation to hold a closed-door session with Democratic senators during his visit to Washington next month, saying such a meeting would “compound the misperception of partisanship” surrounding his planned address to Congress."

    "Thank goodness for that. Now the speech — which was arranged by House Republicans to undercut a chief Democratic foreign policy objective, a nuclear deal with Iran, with no consultation with Obama — will not have any whiff of partisanship about it whatsoever."

    Call him, the Israeli wing of the Republican party. Meanwhile the Obama Administration is stepping up its criticism of Netanyahu:

    "Susan E. Rice, President Obama’s national security adviser, sharply criticized Prime Minister Benjamin Netanyahu of Israel on Tuesday over his plans to address a joint meeting of Congress next week, saying his actions had hurt his nation’s relationship with the United States."

     "Mr. Netanyahu’s decision to travel to Washington to deliver the speech two weeks before the Israeli elections has “injected a degree of partisanship, which is not only unfortunate, I think it’s destructive of the fabric of the relationship,” Ms. Rice said in an interview on the PBS television program “Charlie Rose.”

     "Her comments marked the strongest public rebuke to date by the Obama administration since Mr. Netanyahu accepted an invitation from Speaker John A. Boehner to make his case to Congress against a nuclear deal with Iran, which is a priority of Mr. Obama’s. It is also the frankest acknowledgment yet by a top American official of the degree to which the controversy has damaged United States-Israeli relations."

     "The White House on Wednesday said that Mr. Obama agreed with Ms. Rice’s assessment, saying he had raised the same concerns several times."

     "Her comments, said Josh Earnest, the White House press secretary, are “entirely consistent with what the president has already said.”

   “Allowing this relationship to be subjected to party politics does weaken the relationship,” Mr. Earnest said.

    Of course, no one from the White House plans to listen to Bibi and Boehner but Kerry again has the best answer to what he'll be doing that day. 

    "Vice President Joseph R. Biden Jr., who as president of the Senate would be expected to attend, has said he will be traveling abroad. Secretary of State John Kerry said Tuesday that he would be in Switzerland negotiating with the Iranians. The White House has also not committed to sending a representative next week to the American Israel Public Affairs Committee’s conference, where Mr. Netanyahu is also scheduled to appear."

    This is a great answer by Kerry in light of the fact that Netanyahu says he's doing this for one reason:

    "Mr. Netanyahu said Tuesday that he was making the trip because it was his obligation to “do everything I can to prevent” a nuclear agreement with Iran."

     I guess he's favored to win in March but if he doesn't-which wouldn't be a bad thing-you know one job for Bibi waiting is as a Fox News contributor. 

Some More Thoughts on Abba Lerner's Functional Finance and Keynes

     I think the author of the piece that looks at Keynes vs. Lerner on FF makes a key point: Lerner seemed to look at Keynes' failure to totally embrace and advocate FF as 'timidity' on his part as if Keynes was afraid to take his own ideas to their logical conclusion. However, this was a logical leap of Lerner-and perhaps latter Post Keynesian and MMT types that isn''t necessary.

     "Lerner’s position is not a logical corollary of Keynes’s economics of effective demand (as characterized in section 1 above); it is one policy position that can be aligned with Keynes’s theory of activity levels. None of those who assert the logical-corollary thesis state the substantive content of Keynes’s theory, of which functional finance is supposed to be the corollary. The pursuit of full employment in Keynes’s theoretical framework does not entail endorsement of Lerner’s fiscal doctrine. At least this is the case so long as growth of government expenditure to ensure full employment effective demand over time can be reconciled with budget balances that are consistent with stabilizing the public debt to GDP ratio, at some desired level, over some appropriate time horizon."

     Logically, speaking you can follow General Theory and not have to next go for FF though it could bd a policy position that aligns with Keynes, it's not a necessary corrolary. I think that part of Keynes' reservation about Lerner was political, he had some doubt that the man in the street would buy into the idea that we could just keep adding to public debt ad nauseum and there's no ill effects.

     I can imagine that a lot of MMT types would be impatient and dismissive about such political calculations-in their minds all that matters is if you're right; if you are then it's just a question of public education.

     In theory that might seem to be true. Yet, public education often seems to have a very slow learning curve. Everything that Lerner was talking about in 1943 still hasn't been accepted by policymkaers or the public today.

     Indeed, it's struck me when I've tried to have discussions with laypeople with no understanding or background in economics how much they nevertheless instinctively believe things like Ricardian Equivalence, etc.

     I've spoken with people who couldn't spell RE that will lecture me that of course if you do fiscal stimulus this means their taxes are going to go up. Much of what Keynes said about FF seemed to be on how easy it would be to sell the public on it and conversations like this underscore what he meant.

    Remember that Keynes first and foremost was about effecting policy. He as Lord Keynes was uniquely situated to do just that, as he had the ear of Presidents, Prime Ministers, Treasury Secretaries, and Central Banks the world over. As someone who himself had managed to revolutionize men's thought he knew that it's important not to bite off more than you can chew.

    So in part his reservations about Lerner may have been pragmatic. As I said in my last post on Keynes and Lerner

   by no means is anything I've said here an exhaustive resolution of the matter. 

Keynes vs. Abba Lerner on Public Debt

     I was having an interesting discussion with Greg on public debt. He argues that even calling it 'public debt' is a big problem and misleads the public into some wrong inferences. I'm still not sure I feel this strongly-I'm not sure what I think about it yet.

    "Personally I say its time to stop calling it govt debt. Its not something they borrowed. Its not something they had to beg to get from someone else. If Congress approves a spending bill the spending gets done........ period."

     "Bonds issued by the govt are a choice by that govt to offer safe interest bearing assets. They are not the same as a corporate bond where the corporation raises money. Corporate bond issues are zero sum, govt bond issues are not. There is more money added after a govt bond issue. During gold standard times they truly were debt instruments, after the gold window closed they are no longer."

    "Calling it debt puts a huge negative spin on it. It is more accurately an asset for the people, it is more like equity rather than debt."

     "What if we had a no bond policy?"

  I think putting it the way he does here begs a lot more questions than it answers. Here was my answer to him.

   UPDATE: I had to grammar check myself here as previously I had my own sentence above in quotes which might confuse the reader. 

    "So the govt gains nothing from offering them? I don't think it's such a negative spin. If it's an asset for the people it's got to be a liability for someone. Otherwise it's kind of like an Immaculate Asset. "

      Prosperity is not as simple as just printing as much money as we need-it'd be much easier if that were the case.  

      To be sure, these are difficult issues and I'm not necessarily certain on what I've said here. One thing that I will say differentiates me from a lot of people I discuss things with is they are usually much more certain of their views than I am of mine. Dogmatic certainty often means that you haven't thought the matter through too carefully.  

      Note:  I don't mean everyone is like that. Actually, 2 people who impress me in this regard are Nick Rowe and David Glasner. Even in venturing their opinions there's humility. Even if they're both MMers they really impress me in this regard-Sumner, not so much...

       Here was what Galbraith wrote in the forward for Mosler's 'The 7 Deadly Innocent Frauds'

      "Nor is the public debt a burden on the future. How could
it be? Everything produced in the future will be consumed
in the future. How much will be produced depends on how
productive the economy is at that time. This has nothing to
do with the public debt today; a higher public debt today
does not reduce future production - and if it motivates wise
use of resources today, it may increase the productivity of the
economy in the future."

    I say these are difficult issues because debates about them so often lead to polemical attacks among people who are quite intelligent. I still remember how mad the MMTers would get when Krugman would suggest that they were saying 'deficits don't matter.'

     Here we have the specter of 2 very intelligent people who got in a real row-as they say in Keynes'-and my-Britain-over public debt. 

     "Lerner recalls his exchange with Keynes as follows: 

      "I asked why we should have to worry about that: if you give people enough money they will spend more and then there will be enough spending; there’s no need for any depression if you’re prepared to give them more money. So he asked where would you get the extra money and I didn’t say, ‘the printing press’. I said you could borrow it. He said, you mean the national debt will keep on growing, and I said yes. ‘What would happen?’ I said – nothing. So we talked for a moment and he said: ‘No, that’s humbug … the national debt can’t keep on growing’. ... [T]hat was the end of his discussion. (CL: 108–09) 1 

      "Lerner’s denial that he referred to printing money is a response to Hansen’s recollection of the exchange, in the same interview:

      "In the discussion you [Lerner] raised the question ... ‘Mr. Keynes, why don’t we forget about all this business of fiscal policy, public debt and all those kinds, and have some printing presses?’ To which Keynes made this reply: ‘It’s the art of statesmanship to tell lies, but they must be plausible lies.’ This was supposed to squelch you for the evening and, as a matter of fact, you said nothing more."

      So Lerner and Keynes couldn't agree on public debt either. Now that I think about it, maybe MMTers  say what Greg said here-that public debt doesn't matter and that we don't need to issue it to spend money. Lerner in this exchange at first talked about public debt then said why not just print money. 

      I think Greg is suggesting that we can just print money. The answer is you can but at some point you hit the law of diminishing returns. If you keep printing and printing money eventually the money starts to be worth too little-and you get too much inflation. 

      In any case, it's a great discussion that I haven't even started to exhaust here-I'm going to read on about the exchange between Keynes and Lerner. 

     UPDATE: Recall that initially, Lerner was a Hayekian over at the London School of Economics (LSE) but latter converted to Keynes and Cambridge-as Keynes triumphed over Hayek many from LSE abandoned him for Keynes.