Month: January 2014

Josh Barro: David Brooks Is Wrong About Inequality:

David Brooks has a column about inequality today and it’s wrong… in a way that helps explain why conservatives have no idea how to talk about inequality. Brooks… attacks the ‘primitive zero-sum mentality’ that holds ‘growing affluence for the rich must somehow be causing the immobility of the poor’…. [But] while growing affluence for the rich isn’t causing low and moderate incomes to stagnate, they are to a large extent results of the same forces. There is a zero-sum tradeoff between the two, so a zero-sum mentality (primitive or otherwise) is called for…. Because of the declining marginal utility of money, a more unequal distribution of the returns to economic growth is undesirable, all else being equal. The question is, is all else equal? Have there been economic changes in the last four decades that make greater returns to capital necessary for innovation and growth? Or is the shift in returns just an artifact of policy choices on taxes, trade, inflation, and intellectual property that we can reverse without sinking the economy? I think the answer is probably ‘some of each’. But ‘some of each’ means there are a lot of policy choices that can and should be made to reduce inequality in a zero-sum manner.

Continue reading “Morning Must-Read: Josh Barro: David Brooks Is Wrong About Inequality” →

… and blackmailing pretty much everybody with what they or their family members have done that they want to keep private, is Obama’s NSA speech as big a substantive policy disaster and endorsement of the Total Surveillance State as my twitter feed is saying?

The current bet is that, come March 31 2014, before quarter US real GDP growth rate between the first quarter of 2013 of the first-quarter 2014 Will be 2.4%–the same as it has been since late 2009, and still slower than our pre-2008 estimates of potential output growth.

There is still gap-widening vis-a-vis potential as we understood it back in 2007…

Via Matthew Boesler, Jan Hatzius: U-6 Unemployment:

Is it really possible that the unemployment rate reaches 6.1% by the end of 2014 but the first hike does not occur until early 2016, as we currently forecast? We still believe that this is the right baseline forecast… ‘optimal control’ considerations and the possibility of a temporarily depressed neutral rate provide reasons for keeping rates lower…. But… observable measures which do not depend on our ability to measure the structural participation rate… confirm that there is still a significantly larger amount of slack than implied by the 6.7% unemployment rate on its own. In particular, the U-6 measure of underemployment… still stands at 13.1%, which historically is consistent with an official unemployment rate of 7.5-8%. The behavior of wages also points to a large amount of slack…. Our inflation forecast only calls for a very slow acceleration that still leaves the core PCE index at 1.7% in early 2016. If this is the right call, we think a hike before early 2016 is unlikely…

Dallas Federal Reserve Bank President Richard Fisher: Beer Goggles, Monetary Camels, the Eye of the Needle and the First Law of Holes:

Peter Boockvar, who is among the plethora of analysts… I regularly read… a rather pungent quote from a note he sent out on Jan. 2:

…QE [quantitative easing] puts beer goggles on investors by creating a line of sight where everything looks good…

For those of you unfamiliar with the term “beer goggles,” the Urban Dictionary defines it as “the effect that alcohol… has in rendering a person who one would ordinarily regard as unattractive as… alluring.” This audience might substitute “wine” or “martini” or “margarita” for “beer” to make it more age-appropriate, but the effect is the same: Things often look better when one is under the influence of free-flowing liquidity. This is one reason why William McChesney Martin, the longest-serving Fed chairman in our institution’s 100-year history, famously said that the Fed’s job is to take away the punchbowl just as the party gets going…

I see the argument that ultra-low safe interest rates–loose monetary policy now–or expected ultra-low safe interest rates–loose forward guidance–might, repeat MIGHT induce a “reach for yield” that would involve “beer goggles” in the sense of people who really shouldn’t be bearing risks bearing risks.

But I do not see how this argument applies to quantitative easing…

Continue reading ““Beer Goggles”, Forward Guidance, Quantitative Easing, and the Risks from Expansionary Monetary Policy: Friday Focus (January 17, 2014)” →

Uwe Reinhardt: The Real Health Care ‘War’ on the Young:

A common theme among critics of Obamacare has been that it basically is a war on… young… men… Chris Conover… John Goodman… Avik Roy…. Now, one certainly can have misgivings over community rating on actuarial grounds…. But the authors cited above do not base their case on purely technical, economic grounds. Language such as ‘the greatest generational theft in world history’ or ‘a war on the bros’ is meant to generate moral outrage. A case in point is the gender neutrality…. Before the Affordable Care Act, premiums for women in the younger age groups in the individual and small-group market were as much as 70 percent higher than those of men of similar age because women bear children…. Imposing gender-neutral community rating on such a market inevitably leads to some economic transfer from men to women…. Among many Americans and most Europeans and Asians–men included–this mandated gender neutrality is noncontroversial. Perhaps it is thought of as a small token of gratitude for the extraordinary contribution to humanity women make in this regard. Besides, there is growing scientific evidence that the physical and intellectual development of humans into adulthood is strongly influenced by their experience and nutrition in utero and during early childhood. Thus, a nation does not even have to be particularly humane, but merely smart, to grant women of child-bearing age easy access to the best maternal and child care attainable, including good nutrition. It is a solid economic investment with high social returns over generations. Yet as I have noted previously, many other Americans seem to view children more in the nature of lovable human pets–that is, more in the nature of a private good than a precious social resource.”

Kevin O’Rourke: Deflation in the euro zone: The euro zone needs a history lesson:

Europe’s policy-making elite… [has chosen:] to preclude any form of debt mutualisation; to have individual debtor countries pay off their existing debts; and to have them adjust macroeconomically via austerity and deflation. In Münchau’s words, ‘If you look at this with a knowledge of economic history, this is an awe-inspiring set of choices, to put it mildly’. He’s right…. The gold standard turned out to be hostage to the exogenous evolution of prices. Over… 1873-96, the declining price trend exacerbated the public finance problems of the periphery to breaking point. After 1896… inflation made convergence and steady participation in the gold zone much more attractive…. The pernicious effects of deflation on debt sustainability were further in evidence in the interwar period…

Must-Reads:

1. Kevin O’Rourke: “L’offre crée même la demande”: “I can’t quite believe that he said it, but he apparently did. Go tell it to the small businesses in my favourite French village who have had to close since 2008. Arguing against Say at a time like this is like shooting fish in a barrel, so let’s not even bother. The more alarming point is what this tells us about the European left: to all intents…. Now, if you’re on the right I suppose you might welcome the fact that the left is committing hara kiri on the altar of European orthodoxy, but you shouldn’t. For the reality is that orthodoxy is letting the people badly down, as Martin Wolf pointed out today, and the people aren’t stupid. If the left is not going to offer them an alternative, then Eurosceptic parties will. And unfortunately most of those are on the extreme right.”

2. John Aziz: Why stopping the next financial crash is an impossible dream: “Are financial crashes really preventable? I don’t think so. The world is just too unpredictable…. [And] as… Hyman Minsky put it, stability is destabilizing…. How do people react to a stable world?… They become more tolerant of risk…. Successful regulations [thus] became victims of their own success…. We need to move beyond the impossible dream of preventing financial crises before they occur. Laws to prevent theft, fraud, intentionally misleading investors, and gambling with other people’s money or with an implicit guarantee (like Glass-Steagall) are prudent…. But booms and busts are normal behavior in markets, because the future is so hard to predict and people are so unpredictable…”

3. Michael Hiltzik: The housing market is still a drag on the economy–but why?: “The 30-year fixed mortgage is still the bedrock… and still should be. That means restoring Fannie Mae and Freddie Mac to their traditional roles as the backers of that market…. [Felix] Salmon thinks… the 30-year fixed mortgage… should be phased out…. That’s too facile…. The 30-year fixed is what got us out of the housing morass of the ’30s and could do so again…. An entirely private housing finance system is a ‘pipedream’…. Take the shackles off Fannie and Freddie, and let the 30-year fixed mortgage work its magic.”

4. Paul Krugman: France by the Numbers: “‘You shall not crucify mankind upon a croissant d’or’. That was Alan Taylor’s response (in correspondence) to François Hollande’s embrace of Say’s law — he literally said that ‘supply actually creates demand’–together with a shift to, again in his own words, supply-side policies…. Mark Thoma is your go-to site for the rapidly growing avalanche of horrified snark. The amazing thing… is the extreme pessimism that has evidently enveloped French elite opinion. You’d think that France was a disaster area…. You do have to wonder why the French elite is so easily intimidated into making a hard right turn while the elites of much worse cases like Finland and the Netherlands remain steadfast in their notion that the worse things get, the more committed they have to be to inflicting further pain.”

5. David Wessel et al.: Central Banking after the Great Recession: Lessons Learned and Challenges Ahead: “The Hutchins Center on Fiscal and Monetary Policy at Brookings will host its inaugural event exploring these topics with a panel moderated by Director of the Hutchins Center and Brookings Senior Fellow David Wessel. Papers will be presented by: San Francisco Federal Reserve President and CEO John Williams on unconventional policy, with a response by Harvard University’s Martin Feldstein; Former Deputy Governor of the Bank of England Paul Tucker on regulation, with a response by Sullivan & Cromwell’s H. Rodgin Cohen; and a panel discussion on central bank independence with Brookings’ Donald Kohn, Harvard’s Kenneth Rogoff, and the University of California’s Christina Romer. Following the panel, former CEO of Fischer Francis Trees and Watts, Inc., Pulitzer- Prize winning author, and Brookings trustee Liaquat Ahamed will interview Federal Reserve Chairman Ben Bernanke about the Federal Reserve’s first and next century. All speakers will take questions from the audience.”

Continue reading “Things to Read While Insomniac on the Night of January 16-17, 2014” →

David Wessel et al.: Central Banking after the Great Recession: Lessons Learned and Challenges Ahead:

The Hutchins Center on Fiscal and Monetary Policy at Brookings will host its inaugural event exploring these topics with a panel moderated by Director of the Hutchins Center and Brookings Senior Fellow David Wessel. Papers will be presented by: San Francisco Federal Reserve President and CEO John Williams on unconventional policy, with a response by Harvard University’s Martin Feldstein; Former Deputy Governor of the Bank of England Paul Tucker on regulation, with a response by Sullivan & Cromwell’s H. Rodgin Cohen; and a panel discussion on central bank independence with Brookings’ Donald Kohn, Harvard’s Kenneth Rogoff, and the University of California’s Christina Romer. Following the panel, former CEO of Fischer Francis Trees and Watts, Inc., Pulitzer- Prize winning author, and Brookings trustee Liaquat Ahamed will interview Federal Reserve Chairman Ben Bernanke about the Federal Reserve’s first and next century. All speakers will take questions from the audience.

An anchor piece:

• Michael Hiltzik: The housing market is still a drag on the economy–but why?

and fifteen worthwhile contributions and analyses:

Continue reading “Housing Finance and the Macroeconomy: A Pick-Up Internet Symposium Ongoing as of Thursday, January 16, 2014” →