I'm happy to see that the former Fed Chairman has his own blog. If even Bernanke has a blog, how much can others in the 'serious economic profession' continue to look down their noses at blogs? Ironically, even many of the economists that criticize the blog as being a degraded medium of economic debate blog themselves-a la Stephen Williamson.
In all seriousness, I appreciate Dr. Bernanke's engagement and it only cements his legacy as a pioneer in Fed transparency. Yes, he's no longer at the Fed but he affords us the opportunity to see how thinking and debate in the Fed proceeds.
Of course, Sumner right away describes him as a lapsed Market Monetarist.
"Ben Bernanke has started a new blog. That’s obviously good news. At the same time I can’t help wondering what Bernanke would have blogged about in 2009, had he not been at the Fed. In posts here and here I discuss a 1999 paper that is highly critical of the BOJ monetary policy, and pretty close to 100% market monetarist in its analysis."
http://www.themoneyillusion.com/?p=29120#comments
In Bernanke's second post-which was about the question of secular stagnation-he talks about Lawrence Summers' advocacy for ongoing fiscal investment to combat secular stagnation.
"Larry’s proposed solution to this dilemma is to turn to fiscal policy—specifically, to rely on public infrastructure spending to achieve full employment. I agree that increased infrastructure spending would be a good thing in today’s economy. But if we are really in a regime of persistent stagnation, more fiscal spending might not be an entirely satisfactory long-term response either, because the government’s debt is already very large by historical standards and because public investment too will eventually exhibit diminishing returns."
Does this square with the Sumner Market Monetarist position of monetary offset? Not exactly-though there is enough here for Sumner to claim Bernanke agrees with him. Bernanke seems to be saying something decidedly un-MM in agreeing that we need more fiscal spending now, however, he also questions whether it would be the answer in the long term. However, if interest rates remain low-which is the problem his post addresses-wouldn't that be the ideal time for more government debt with such low interest rates?
Bernanke certainly doesn't sound MM here:
"The Fed cannot reduce market (nominal) interest rates below zero, and consequently—assuming it maintains its current 2 percent target for inflation—cannot reduce real interest rates (the market interest rate less inflation) below minus 2 percent. (I’ll ignore here the possibility that monetary tools like quantitative easing or slightly negative official interest rates might allow the Fed to get the real rate a bit below minus 2 percent.) Suppose that, because of secular stagnation, the economy’s equilibrium real interest rate is below minus 2 percent and likely to stay there. Then the Fed alone cannot achieve full employment unless it either (1) raises its inflation target, thereby giving itself room to drive the real interest rate further into negative territory by setting market rates at zero; or (2) accepts the recurrence of financial bubbles as a means of increasing consumer and business spending. It’s in this sense that the three economic goals with which I began—full employment, low inflation, and financial stability—are difficult to achieve simultaneously in an economy afflicted by secular stagnation."
Interestingly, Bernanke rejects the secular stagnation theory which seems to be accepted widely both among liberals and conservatives-he discusses Summers in his post, but Tyler Cowen is one of the biggest proponents of SS-it's not only Keynesians who claim it, indeed Sumner himself has bought into it. It's nice to see that someone doesn't buy into the pessimism-and who better than a great former Fed Chairman.
"Does the U.S. economy face secular stagnation? I am skeptical, and the sources of my skepticism go beyond the fact that the U.S. economy looks to be well on the way to full employment today."
Well, that depends what level you think is FE. One question I wonder if he'll address in future is that as inflation is beneath target wouldn't this mean that there is no reason to tighten money just yet?
As to the other sources of his skepticism he lists the fact that negative 2 percent interest rates in the long term would surely give us the level of investments for business to get out of SS and he takes issue with Summers' claim that we have never seen FE in the past few decades without a bubble.
"Second, I generally agree with the recent critique of secular stagnation by Jim Hamilton, Ethan Harris, Jan Hatzius, and Kenneth West. In particular, they take issue with Larry’s claim that we have never seen full employment during the past several decades without the presence of a financial bubble. They note that the bubble in tech stocks came very late in the boom of the 1990s, and they provide estimates to show that the positive effects of the housing bubble of the 2000’s on consumer demand were largely offset by other special factors, including the negative effects of the sharp increase in world oil prices and the drain on demand created by a trade deficit equal to 6 percent of US output. They argue that recent slow growth is likely due less to secular stagnation than to temporary “headwinds” that are already in the process of dissipating. During my time as Fed chairman I frequently cited the economic headwinds arising from the aftermath of the financial crisis on credit conditions; the slow recovery of housing; and restrictive fiscal policies at both the federal and the state and local levels (for example, see my August and November 2012 speeches."
I have mixed feelings about this paragraph. I don't know about the idea that a 6 percent trade deficit-or any trade deficit-is a headwind
http://diaryofarepublicanhater.blogspot.com/2015/02/are-trade-deficits-good-or-bad-thing.html
Still I agree with all the headwinds he cited -there is something very MM: he disagrees with Sumner who claims that fiscal austerity has been no problem thanks to QE. Bernanke doesn't seem to agree with anything like full monetary offset or that the austerity didn't hurt thanks to QE.
As for secular stagnation-I don't know for sure-but obviously, it'd be nice to have reason to believe it isn't happening. It seems to me that you can explain our problems by looking at the items that Bernanke cites rather than some mystical thing called secular stagnation. It's true enough that Alvin Hansen was quite wrong; logically SS could be wrong again.
In all seriousness, I appreciate Dr. Bernanke's engagement and it only cements his legacy as a pioneer in Fed transparency. Yes, he's no longer at the Fed but he affords us the opportunity to see how thinking and debate in the Fed proceeds.
Of course, Sumner right away describes him as a lapsed Market Monetarist.
"Ben Bernanke has started a new blog. That’s obviously good news. At the same time I can’t help wondering what Bernanke would have blogged about in 2009, had he not been at the Fed. In posts here and here I discuss a 1999 paper that is highly critical of the BOJ monetary policy, and pretty close to 100% market monetarist in its analysis."
http://www.themoneyillusion.com/?p=29120#comments
In Bernanke's second post-which was about the question of secular stagnation-he talks about Lawrence Summers' advocacy for ongoing fiscal investment to combat secular stagnation.
"Larry’s proposed solution to this dilemma is to turn to fiscal policy—specifically, to rely on public infrastructure spending to achieve full employment. I agree that increased infrastructure spending would be a good thing in today’s economy. But if we are really in a regime of persistent stagnation, more fiscal spending might not be an entirely satisfactory long-term response either, because the government’s debt is already very large by historical standards and because public investment too will eventually exhibit diminishing returns."
Does this square with the Sumner Market Monetarist position of monetary offset? Not exactly-though there is enough here for Sumner to claim Bernanke agrees with him. Bernanke seems to be saying something decidedly un-MM in agreeing that we need more fiscal spending now, however, he also questions whether it would be the answer in the long term. However, if interest rates remain low-which is the problem his post addresses-wouldn't that be the ideal time for more government debt with such low interest rates?
Bernanke certainly doesn't sound MM here:
"The Fed cannot reduce market (nominal) interest rates below zero, and consequently—assuming it maintains its current 2 percent target for inflation—cannot reduce real interest rates (the market interest rate less inflation) below minus 2 percent. (I’ll ignore here the possibility that monetary tools like quantitative easing or slightly negative official interest rates might allow the Fed to get the real rate a bit below minus 2 percent.) Suppose that, because of secular stagnation, the economy’s equilibrium real interest rate is below minus 2 percent and likely to stay there. Then the Fed alone cannot achieve full employment unless it either (1) raises its inflation target, thereby giving itself room to drive the real interest rate further into negative territory by setting market rates at zero; or (2) accepts the recurrence of financial bubbles as a means of increasing consumer and business spending. It’s in this sense that the three economic goals with which I began—full employment, low inflation, and financial stability—are difficult to achieve simultaneously in an economy afflicted by secular stagnation."
Interestingly, Bernanke rejects the secular stagnation theory which seems to be accepted widely both among liberals and conservatives-he discusses Summers in his post, but Tyler Cowen is one of the biggest proponents of SS-it's not only Keynesians who claim it, indeed Sumner himself has bought into it. It's nice to see that someone doesn't buy into the pessimism-and who better than a great former Fed Chairman.
"Does the U.S. economy face secular stagnation? I am skeptical, and the sources of my skepticism go beyond the fact that the U.S. economy looks to be well on the way to full employment today."
Well, that depends what level you think is FE. One question I wonder if he'll address in future is that as inflation is beneath target wouldn't this mean that there is no reason to tighten money just yet?
As to the other sources of his skepticism he lists the fact that negative 2 percent interest rates in the long term would surely give us the level of investments for business to get out of SS and he takes issue with Summers' claim that we have never seen FE in the past few decades without a bubble.
"Second, I generally agree with the recent critique of secular stagnation by Jim Hamilton, Ethan Harris, Jan Hatzius, and Kenneth West. In particular, they take issue with Larry’s claim that we have never seen full employment during the past several decades without the presence of a financial bubble. They note that the bubble in tech stocks came very late in the boom of the 1990s, and they provide estimates to show that the positive effects of the housing bubble of the 2000’s on consumer demand were largely offset by other special factors, including the negative effects of the sharp increase in world oil prices and the drain on demand created by a trade deficit equal to 6 percent of US output. They argue that recent slow growth is likely due less to secular stagnation than to temporary “headwinds” that are already in the process of dissipating. During my time as Fed chairman I frequently cited the economic headwinds arising from the aftermath of the financial crisis on credit conditions; the slow recovery of housing; and restrictive fiscal policies at both the federal and the state and local levels (for example, see my August and November 2012 speeches."
I have mixed feelings about this paragraph. I don't know about the idea that a 6 percent trade deficit-or any trade deficit-is a headwind
http://diaryofarepublicanhater.blogspot.com/2015/02/are-trade-deficits-good-or-bad-thing.html
Still I agree with all the headwinds he cited -there is something very MM: he disagrees with Sumner who claims that fiscal austerity has been no problem thanks to QE. Bernanke doesn't seem to agree with anything like full monetary offset or that the austerity didn't hurt thanks to QE.
As for secular stagnation-I don't know for sure-but obviously, it'd be nice to have reason to believe it isn't happening. It seems to me that you can explain our problems by looking at the items that Bernanke cites rather than some mystical thing called secular stagnation. It's true enough that Alvin Hansen was quite wrong; logically SS could be wrong again.
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