Category: Equitablog

Jason Kottke: The 2017 total solar eclipse awarded to the United States:

Robin: Stock and flow: “Flow is the feed…

…It’s the posts and the tweets. It’s the stream of daily and sub-daily updates that remind people that you exist. Stock is the durable stuff. It’s the content you produce that’s as interesting in two months (or two years) as it is today. It’s what people discover via search. It’s what spreads slowly but surely, building fans over time. I feel like flow is ascendant… but we neglect stock at our own peril…

A Baker’s Dozen of keepers from the excellent but (and?) highly irascible Daniel Davies of D-Squared Digest and Crooked Timber:

1. The D-Squared Digest One Minute MBA
2. New Ideas From Dead Political Systems
3. Choose Your Own Greek Default Adventure
4. Is there a general skill of “management”?
5. Learned helplessness, strategic victimhood and… the Democrats
6. The future of monetary economics
7. The tribute that vice pays to virtue
8. No Riff-Raff
9. Globollocks, v2.0
10. Rules for Contrarians: 1. Don’t whine. That is all
11. You Can’t Have a Modern Industrial Economy If You Have to Stage a Wife-Swapping Party Everytime You Want to Buy a Blanket…
12. I tell this anecdote every time…
13. This is such a big heap of partisan rightwing bulls— that there must be a pony in there somewhere!

Daniel Davies: The D-Squared Digest One Minute MBA – Avoiding Projects Pursued By Morons 101: “Literally people have been asking me…

…”How is it that you were so amazingly prescient about Iraq? Why is it that you were right about everything at precisely the same moment when we were wrong?” No honestly, they have. I’d love to show you the emails I’ve received, there were dozens of them, honest. Honest.

Anyway, I note that “errors of prewar planning” is now pretty much a mainstream stylised fact, so I suspect that it might make some small contribution to the commonweal if I were to explain how it was that I was able to spot so early that this dog wasn’t going to hunt. I will struggle manfully with the savage burden of boasting, self-aggrandisement and ego-stroking that this will necessarily involve. It’s been done before, although admittedly by a madman in the process of dying of syphilis of the brain. Sorry, where was I?

Anyway, the secret to every analysis I’ve ever done of contemporary politics has been, more or less, my expensive business school education (I would write a book entitled “Everything I Know I Learned At A Very Expensive University”, but I doubt it would sell). About half of what they say about business schools and their graduates is probably true, and they do often feel like the most collossal waste of time and money, but they occasionally teach you the odd thing which is very useful indeed. Here’s a few of the ones I learned which I considered relevant to judging the advisability of the Second Iraq War.

Good ideas do not need lots of lies told about them in order to gain public acceptance: I was first made aware of this during an accounting class. We were discussing the subject of accounting for stock options at technology companies. There was a live debate on this subject at the time. One side (mainly technology companies and their lobbyists) held that stock option grants should not be treated as an expense on public policy grounds; treating them as an expense would discourage companies from granting them, and stock options were a vital compensation tool that incentivised performance, rewarded dynamism and innovation and created vast amounts of value for America and the world. The other side (mainly people like Warren Buffet) held that stock options looked awfully like a massive blag carried out my management at the expense of shareholders, and that the proper place to record such blags was the P&L account.

Our lecturer, in summing up the debate, made the not unreasonable point that if stock options really were a fantastic tool which unleashed the creative power in every employee, everyone would want to expense as many of them as possible, the better to boast about how innovative, empowered and fantastic they were. Since the tech companies’ point of view appeared to be that if they were ever forced to account honestly for their option grants, they would quickly stop making them, this offered decent prima facie evidence that they weren’t, really, all that fantastic.

Application to Iraq: The general principle that good ideas are not usually associated with lying like a rug1 about their true nature seems to have been pretty well confirmed. In particular, however, this principle sheds light on the now quite popular claim that “WMDs were only part of the story; the real priority was to liberate the Iraqis, which is something that every decent person would support”.

Fibbers’ forecasts are worthless: Case after miserable case after bloody case we went through, I tell you, all of which had this moral. Not only that people who want a project will tend to make innacurate projections about the possible outcomes of that project, but about the futility of attempts to “shade” downward a fundamentally dishonest set of predictions. If you have doubts about the integrity of a forecaster, you can’t use their forecasts at all. Not even as a “starting point”. By the way, I would just love to get hold of a few of the quantitative numbers from documents prepared to support the war and give them a quick run through Benford’s Law.

Application to Iraq: This was how I decided that it was worth staking a bit of credibility on the strong claim that absolutely no material WMD capacity would be found, rather than “some” or “some but not enough to justify a war” or even “some derisory but not immaterial capacity, like a few mobile biological weapons labs”. My reasoning was that Powell, Bush, Straw, etc, were clearly making false claims and therefore ought to be discounted completely, and that there were actually very few people who knew a bit about Iraq but were not fatally compromised in this manner who were making the WMD claim. Meanwhile, there were people like Scott Ritter and Andrew Wilkie who, whatever other faults they might or might not have had, did not appear to have told any provable lies on this subject and were therefore not compromised.

The Vital Importance of Audit: Emphasised over and over again. Brealey and Myers has a section on this, in which they remind callow students that like backing-up one’s computer files, this is a lesson that everyone seems to have to learn the hard way. Basically, it’s been shown time and again and again; companies which do not audit completed projects in order to see how accurate the original projections were, tend to get exactly the forecasts and projects that they deserve. Companies which have a culture where there are no consequences for making dishonest forecasts, get the projects they deserve. Companies which allocate blank cheques to management teams with a proven record of failure and mendacity, get what they deserve.

I hope I don’t have to spell out the implications of this one for Iraq: Krugman has gone on and on about this, seemingly with some small effect these days. The raspberry road that led to Abu Ghraib was paved with bland assumptions that people who had repeatedly proved their untrustworthiness, could be trusted. There is much made by people who long for the days of their fourth form debating society about the fallacy of “argumentum ad hominem”. There is, as I have mentioned in the past, no fancy Latin term for the fallacy of “giving known liars the benefit of the doubt”, but it is in my view a much greater source of avoidable error in the world. Audit is meant to protect us from this, which is why audit is so important.

And so the lesson ends. Next week, perhaps, a few reflections on why it is that people don’t support the neoconservative project to bring democracy to the Middle East (a trailer for those who can’t wait; the title is going to be something like “If You Tell Lies A Lot, You Tend To Get A Reputation As A Liar”). Mind how you go.

1 We also learned in accounting class that the difference between “making a definite single false claim with provable intent to deceive” and “creating a very false impression and allowing it to remain without correcting it” is not one that you should rely upon to keep you out of jail. Even if your motives are noble.

Daniel Davies: This is such a big heap of partisan right-wing bullshit that there must be a pony in there somewhere! “Just before this slips down the grating…

…Brad DeLong waves the waggy finger of disapproval at anyone who slurs Milton Friedman’s name by suggesting that the US PATRIOT Act is of a piece with the shmibertarian tendency to turn a blind eye to authoritarianism as long as it cuts the rate of capital gains tax.

One would imagine from this that Milton Friedman approved of the Un-Patriot Act–which he most definitely did not. Unlike Hayek, Friedman believed in individual liberty and autonomy first, and order and hierarchy second if at all.

tsk those liberals and their always poisoning the debate! Why can’t they leave principled old Uncle Milton alone. But hang on … what did Friedman actually say about the US PATRIOT Act?

DA: In a time of war, how do we maintain our freedom?

MF: We don’t. We invariably reduce our freedom. But that doesn’t mean it’s a permanent reduction. As long as we really keep in mind what we’re doing, that we keep it temporary, we need not destroy our freedom.

DA: Are you concerned that some of the measures we’re taking now to fight the war, like the Patriot Act, may be more than just temporary?

MF: It’s not clear. The Patriot Act is a very complicated issue, and I’m not going to get involved in that. But I think that on the whole, this war is small enough relative to our economy that it is not going to be a serious impediment to our freedom. But the sooner we can get rid of it and out of it, the better.

DA: Do you agree with President Bush that the actions in Iraq were necessary as a part of our war on terrorism?

MF: I think you can argue either side of that. Where I do feel strongly, is that having gone into it, whether we should have or not, we must see it through.

DA: Even if it costs some of our freedoms?

MF: There’s no way to avoid a burden on your freedom. The costs themselves are a burden on your freedom. The restrictions that are necessary in order to get rid of the terrorists are a burden to your freedom. So there’s no way in the short run to avoid a restriction on your freedom. But if we’re going to avoid a permanent reduction in freedom, we have to see this war through

In other words, he was in fact for it, and if that bit about “the sooner we get rid of it, the better” fooled you, then I’ve got a second hand bridge k% monetary policy rule for you to buy.

They’re always hacks, Brad. Always. Yes, even Milton Friedman. The more independent-minded ones will occasionally come up with a liberalish or fair-minded idea or two, but this is purely for display, not for ever doing anything about if to do so would run the risk of a higher rate of capital gains tax. The ideological core of Chicago-style libertarianism has two planks:

1. Vote Republican.
2. That’s it.

Why are American liberals so damnably obsessed with extending intellectual charity to right wing hacks which is never reciprocated? It reaches parodic form in the case of those tiresome “centrists” who left wing American bloggers are always playing the Lucy-holds-the-football game with. Oh, but their politics are sooo centrist! They’re practically 50% of the way between Republicans and Democrats! Yeah, specifically they’re right-wing Democrats in non-election years and party line Republicans any time it might conceivably matter (note that here, two years after the White House ceremony at which Friedman apparently “spent most of his 90th birthday lunch telling Bush that his fiscal policy was a disaster”, here he is signing a letter in support of more of the same).

I wouldn’t mind, but it’s clearly not intellectual honesty that makes American liberals act pretend that Milton Friedman wasn’t a party line Republican hack (which he was; he was also an excellent economist, which is why he won the Nobel Prize for Economics, not the Nobel Prize for Making A Sincere and Productive Contribution To The National Political Debate, which he would not have won if there was one). If it was just pure scholarly decency that made Yank liberals so keen on recognising the good qualities even in their political opponents, then you’d expect that they would also be quick to recognise the good qualities, analytical insights and so on in prominent Communist intellectuals. And do they? Do they fuck. I won’t link to the Paul Sweezy obituary, because I think everyone involved agrees that this wasn’t Brad’s finest hour, but it certainly wasn’t atypical.

Of course the explanation’s quite sensible. American liberals kiss up to Friedmanites and kick down on Reds because they’re still, twenty years after the fall of the Berlin Wall, scared of being red-baited. One of the enduring reasons why I regard JK Galbraith as a hero is that practically alone among mainstream commentators of the era, he by and large refused to play this game.

Daniel Davies: Learned helplessness, strategic victimhood and… the Democrats:” Recall: Obama’s whole strategy was based around abandoning all other priorities such as carbon tax…

…an effective stimulus bill, half his nominations, most of the financial sector reforms and so forth, all to concentrate on passing health care. And he only got about half of that – the version passed was something he’d specifically camapigned against as not being anything like radical enough. So given that, how are we to suppose that President Romney would be able to push through an agenda five times as radical, including the ultimate third-rail issue of abortion? You would have to believe that under a Democratic administration Congress is a sclerotic, obstructionist institution which prevents all possibility of effective government, but as soon as the Republicans get in it becomes a streamlined ideological machine.

Which is in fact not far from what’s being argued here and it’s really quite frightening. Part of the case for persuading people to vote to keep the Democrats in government is that they’re so terrible at being in opposition. Specifically, their very weakness and incompetence in carrying out the business of politics is being used as an electoral asset. That’s not a cool rhetorical ju-jitsu move; it’s nightmarish. Similarly, the case has been advanced that the time for the liberal wing of the Democrats to express their opinions is at the primary stage, but there wasn’t a primary this time – the economy was so weak and the administration so unpopular that nobody wanted to risk weakening the candidate further.

This is the problem with lesser-evilism – it’s very vulnerable to strategic behaviour. If all you care about is the gap between parties, you can increase it either by making your own party more attractive to vote for, or by making the other side look even worse (either by strategically weakening your ability to resist them, or by being somewhat adventurous in your claims). This is really just a specific case of Henry’s general point that in the long term, one is unlikely to change the behaviour of any self-aware entity by constantly rewarding it for going on in the same way.

Daniel Davies: The future of monetary economics: “I think we can all agree that things will go better…

…if all currently working monetary economists stop teaching their models to undergraduates and instead adopt my modelling approach: 1. A bank is a box, with “BANK” written on it. 2. A central bank is a box with a pitched roof and lines on the front representing the fascia of the Bank of England. 3. The household sector is a stick man. 4. The industrial sector is a box with a sawtooth roof. 5. Long term savings are a stick figure with a top hat. With these basic concepts, plus sufficient scribbled arrows, more or less any problem in monetary economics can be solved, up to the level of accuracy of any other model. You can even do international monetary economics by drawing circles round one monetary system and scribbling somewhat larger arrows in and out of the circle.

Update! Lots and lots of consensus building on this one and I may yet win that Nobel Prize after all. Two big points of controversy – 1) does the box representing a bank really need “BANK” written on it? and 2) shouldn’t the industrial sector also have a chimney? I think that’s enough of a debate to keep the journal publishers in business. Update! Brad DeLong shows us how it’s done. Note that in this version of the model, bonds are a perfect substitute for money, hence the absence of a stick figure with a top hat. Update! Eric Rauchway provides historical context, in a sectoral model which has three types of industry (chimney + sawtooth roof, chimney but no sawtooth roof, stylised steel mill) and an extractive sector. That’s clearly Sraffian. Update A more substantial objection in BdeL comments – we haven’t got a government sector or fiscal policy in this model. I tend to draw the government as a big bag of money, but frankly this isn’t satisfactory as it is tends to result in people pointing and saying “what’s that? it looks like a balloon with a pound sign on it”. If anyone has a bright graduate student and some crayons, I think this could make a good dissertation topic.

Daniel Davies: Is there a general skill of “management”?: “There probably is…

…In his very definition, Blackburn pretty much gives it away; he says that “[the myth of management] claims that people can be managed like warehouses and airports”. What does this even mean? How do you manage a warehouse or an airport if it’s impossible to manage people? If he had said “like machines” or even “like factories”, then it might have been comprehensible, but a warehouse which doesn’t have any people working in it is just a shed full of stuff and doesn’t require any management…. And an airport without people is just a warehouse for planes. Warehousing and transport are two very labour-intensive industries.

There are two possibilities here. One is merely that Blackburn is a snob…. But to assume this would be wildly uncharitable. The other… explanation is that Blackburn has no idea whatsoever about what managing a warehouse or an airport would entail and no real interest in finding out….

The kernel of my argument for the existence of a general skill of management is that it is pretty obvious that there is a general deficit or “negative skill” of mismanagement…. The general skill of management has two basic components – administration and leadership….

The ability to keep track of and prioritise detail…. People through the ages have come up with a number of technologies to extend the human ability to administrate, such as alphabetical filing systems, double-entry accounts, activity reports and so on; the majority of the structures in Fred Brooks’ book fall into this category too. The majority of the skill of organisation is having the mastery of these tools and the self-discipline to use them consistently. The first is what they teach you in business schools; the second sounds more like an innate ability, but I would guess that it too can be taught….

A species of emotional intelligence; some people are better applied psychologists than others….

Of course, the fact that there’s a general skill of management doesn’t mean that everything can be managed, any more than the fact that there’s a general attribute of strength means that everything can be lifted…. Nor does it necessarily mean that there is a caste of individuals who can be dropped into managerial roles in any organisation and immediately start managing successfully…. On the other hand, it does suggest that if you have a management problem, there is some sense in asking someone who’s really good at management if they have some advice about it…. What it does mean is that the fundamental attribution error is not always an error in this context…. There really is a right way and a wrong way to run a warehouse.

Daniel Davies: The tribute that vice pays to virtue: “[T]he single most sensible thing said in political philosophy in the twentieth century…

…was JK Galbraith’s aphorism that the quest of conservative thought throughout the ages has been “the search for a higher moral justification for selfishness”.

1. Some rightwingers are not hypocrites because they admit that their basic moral principle is “what I have, I keep”.

2. Some rightwingers are hypocrites because they pretend that “what I have, I keep” is always and everywhere the best way to express a general unparticularised love for all sentient things.

3. Then there are the tricky cases where the rightwingers happen to be on the right side because we haven’t yet discovered a better form of social organisation than private property for solving several important classes of optimisation problems…

Daniel Davies: No Riff-Raff: “Entering into the Brad DeLong Eat The Rich Controversy…

…I offer this observation:

If it is not the case “that the rich are spiteful–that they enjoy the envy of the poor”, then why is the word “exclusive” so popular in the marketing material for hotels, nightclubs, holiday resorts and residential property developments. “Exclusive” is probably these days an advertising man’s synonym for “nice”, but it also has a clear and specific literal meaning. It means that the hotel, nightclub, resort etc is providing a bundled service; partly, the provision of a normal hotel or nightclub, and partly the service of excluding a segment of the population from that service. One pays extra to go to a health club whose swimming pool is not polluted by the greasy, hairy polloi.

The reason that this service is valuable is that those who consume it get utility from a) dividing society into two groups, rich and poor, b) creating institutions which physically and socially segregate these two groups and c) them being in the “rich” group. Nobody would apply for membership of Bouji’s or the Bucks if it was just a matter of waiting your turn and paying your fee. This would completely defeat the point of the exercise and destroy the value proposition. The point is that in order to attract a better class of customer, you have to keep the riff-raff out. Basil Fawlty understood this; why doesn’t the blogosphere?

Daniel Davies: Rules for Contrarians: 1. Don’t whine. That is all: “I know a little bit about contrarianism…

…So I’m disturbed to see that people who are making roughly infinity more money than me out of the practice aren’t sticking to the unwritten rules of the game. Viz Nathan Mhyrvold:

Once people with a strong political or ideological bent latch onto an issue, it becomes hard to have a reasonable discussion; once you’re in a political mode, the focus in the discussion changes. Everything becomes an attempt to protect territory. Evidence and logic becomes secondary, used when advantageous and discarded when expedient. What should be a rational debate becomes a personal and venal brawl….

The whole idea of contrarianism is that you’re “attacking the conventional wisdom”, you’re “telling people that their most cherished beliefs are wrong”, you’re “turning the world upside down”. In other words, you’re setting out to annoy people. Now opinions may differ on whether this is a laudable thing to do – I think it’s fantastic – but if annoying people is what you’re trying to do, then you can hardly complain when annoying people is what you actually do…. If Superfreakonomics wanted a calm and rational debate, this chapter would have been called something like: “Geoengineering: Issues in Relative Cost Estimation of SO2 Shielding”, and the book would have sold about five copies.

Viz also, Stephen Dubner:

They have given the impression that we are global-warming deniers of the worst sort, and that our analysis of the issue is ideological and unscientific. Most gravely, we stand accused of misrepresenting the views of one of the most respected climate scientists on the scene, whom we interviewed extensively. If everything they said was actually true, it would indeed be a damning indictment. But it’s not….

The other point of contrarianism is… you assemble… points which are individually uncontroversial… and put them together to support a conclusion which is surprising and counterintuitive…. [T]he aim of the thing is the overall impression you give…. [T]he entire point is to make a defensible argument which strongly resembles a controversial one.

So… you don’t get to complain that people have “misinterpreted” your piece by taking you to be saying exactly what you carefully constructed the argument to look like you were saying. Fair enough, you might not care to defend the controversial point it looked like you were making, but a degree of diffidence is appropriate here, because the confusion is entirely and intentionally your fault:

(That is the “global cooling” in our subtitle. If someone interprets our brief mention of the global-cooling scare of the 1970’s as an assertion of “a scientific consensus that the planet was cooling,” that feels like a willful misreading.)

No it doesn’t; it feels like someone read the first two pages for the plain meaning of the words and didn’t spot that you were actually playing a little crossword-puzzle game where the answer was “consensus”. In general, whatever “global cooling” meant, it was put on the cover in full knowledge of the impression it would give to a normal reader so once more, it is not legitimate to complain that this phrase was interpreted in the way in which it was intended to be interpreted.

In general, contrarians ought to have thick skins, because their entire raison d’etre is the giving of intellectual offence to others. So don’t whine, for heaven’s sake. Own your bulls–

Daniel Davies: New Ideas From Dead Political Systems: “I occasionally pitched an idea…

…“Great Ideas From Failed Companies”, the idea being that when you have the perspective of the entire history of a corporate story, you’re probably going to get a more honest appraisal of its strengths and weaknesses, and that although companies like Enron, Northern Rock and Atari clearly had major problems, they quite likely also had some good points too, or how did they ever get so big in the first place?

Obviously, carrying out a similar exercise on failed social and political systems is a bit of a minefield, since most social and political systems which have been tried and failed have tended to take down a hell of a lot of innocent lives with them as they did so. I don’t think anyone but the most studiedly mindless (and tasteless) contrarian would bother to ask the question “but what did the Nazis get right?” at any great length. But there’s always a temptation to do so with Soviet communism. It killed quite a lot more people than Nazism but (for the most part, and after the 1920s) in a less obviously criminally insane way, and as a system it does have the characteristic that lots of people and countries at various times did want to have a go at it….

“Red Plenty” isn’t, or at least not directly, a book about the Fifties, Gargarin and the years of 7% growth…. By the time the action gets going… the dream is basically over. Some of the characters seem to realize this and some don’t; as always the economists are the most romantic and least realistic of characters…. Elsewhere… people cheat and swindle, do what they must do to survive, and often fail and get crushed by the system, in a terribly realistic and human way which is all the more elegiac because we know how it all turned out. I’m fascinated (as in the Greece choose-your-own-adventure post we ran a while back) with this approach to history…. It makes me wonder what a sort of prequel to Red Plenty which did actually deal with the go-go-Gargarin years would be like….

The novelistic first-person-shooter approach to history is so potentially powerful that you have to be careful about the sort of character and system you’re humanizing, and the sad truth of Soviet communism is that the only honest way to write about the “Fifties dream” is in a way which makes it clear it was a great big lie, and that the only lesson from that system is not to do that again…. The Soviet economy grew because of the vast increase in resources thrown at it…. There never could have been a golden future of plenitude and consumption just the other side of the hill, because the economic growth and the repression of domestic consumption were the same thing. It was all a con game…. I don’t think that there are any really great ideas to be learned from the Soviet system, and “Red Plenty” is basically correct in finding the whole thing to be similar to one of those rather depressing Russian fairy tales in which the moral is “try not to be an idiot all your life”. A better world is, and was, possible – but this wasn’t it…

Daniel Davies: I tell this anecdote every time the subject comes up on CT, but it’s true…

…so I will repeat it again. In a career as a stockbroker, I have met:

1. A Japanese person who reads the Economist every week to find out about the USA and Europe, ignoring the Asian coverage.

2. An American who reads it to keep up with the overseas news, although of course the US coverage is a bit crazy.

3. Numerous Europeans who read it because the American coverage is great, but you have to ignore every word they write about Europe.

Personally, I used to read it a very long time ago, while ignoring the awful c— they wrote about Britain and about economics…

Daniel Davies: You Can’t Have a Modern Industrial Economy If You Have to Stage a Wife-Swapping Party Everytime You Want to Buy a Blanket… “Too Big To Fail: The First 5000 Years…

…It’s also notable that actually over the years, debt (by which I mean, the commercial and mercantile kind of debt) has worked noticeably better than most of the alternatives. The dzamalag ceremonies described in the book… certainly have some attractive qualities, but although Graeber wins the battle against the “Myth of Barter” here I think he loses the war – really, although the discussion of socially embedded exchange is incredibly interesting and illuminating, I think anyone who reads the passage above is going to end up sympathising with the people in the economics department who say that you really can’t organise a modern industrial society on the basis of organising a wife-swapping party every time you want to buy a blanket.

Perhaps the fact from the book that will end up resisting the longest against the onslaughts of late nights and Scotch whisky on my ability to recall, is that more or less every urban society in the world has ended up inventing an equivalent phrase to “Please”, and “Thank you”, terms which have the social function of asserting between parties to a commercial transaction that the transaction itself does not embed them in any deeper social relation….

[T]the debt contract is basically a tool of industrial organisation that escaped from the laboratory and ran wild. But I think [Graeber] understimates the extent to which there have always been domesticating influences on the concept, and the extent to which the debt relation has always been, correctly, the subject of revision and reappraisal, with the basic underlying question being that of economics rather than anthropology – “How do we best organise the decision making process with regard to production, consumption, and exchange?”…

Matt O’Brien: Worse than the 1930s: Europe’s recession is really a depression: “As I was arguing last week, it’s time to call the eurozone what it really is….

Six and a half years later, Europe has distinguished itself by not having much of a recovery at all. And, as you can see above, that’s about to make it worse than the worst of the 1930s…. It’s a policy-induced disaster. Too much fiscal austerity and too little monetary stimulus have crippled growth like almost never before. Europe is doing worse than Japan during its “lost decade,” worse than the sterling bloc during the Great Depression, and barely better than the gold bloc then—though even that silver lining isn’t much of one. That’s because, at this rate, it’ll only be another year until the eurozone is well behind the gold bloc, too. So how is Europe making the Great Depression look like the good old days of growth? Easy: by ignoring everything we learned from it….

The euro is the gold standard with moral authority. And that last part is the problem…. Europe is stuck with a fixed exchange system that doesn’t let them print, spend, or devalue their way out of a crisis. But, unlike then, Europe might never give it up. It’s a fidelity to failure that even the gold bloc couldn’t have imagined. And that leaves the ECB as Europe’s only hope—which means they’re probably doomed…. They have made a desert, and called it the eurozone.

IIRC, it was after 2010 that I decided that this was no longer the Great Recession, but rather the Lesser Depression. It is now starting to look as though that, too, is inadequate, and that in five years I will be calling what started in 2007 “The Greatest Depression”…

Paul Krugman sends us to Binyamin Applebaum, who writes:

Binyamin Appelbaum: Fed Dissenters Increasingly Vocal About Inflation Fears: “An increasingly vocal minority of Federal Reserve officials…

…want the central bank to retreat more quickly from its stimulus campaign…. One committee member, Charles I. Plosser, president of the Federal Reserve Bank of Philadelphia, dissented at the July meeting, arguing that there was already reason enough for the Fed to change course. The minutes said officials also were ‘increasingly uncomfortable with the committee’s forward guidance’ that the Fed expects to maintain its key short-term rate at its low level for some time.

And Paul comments:

Paul Krugman: Hawks Crying Wolf: “Is this really true?…

…Of course, they are being very vocal–but when didn’t they call for monetary tightening? The article highlights Charles Plosser…. You know that Plosser has been warning about imminent inflation since the beginning of the crisis. He did it in 2008; he did it in 2009; he did it in 2010; he did it in 2011… you can easily find him doing the same in 2012 and 2013…. The real story here is the remarkable resilience of inflation panic: people who worry about inflation never seem daunted in the least by the repeated failure of their predictions. It’s an interesting question why…

Let me strengthen Paul’s comment:

As those of us who–like Binyamin Applebaum–have been reading the Federal Reserve transcripts and minutes know that, Charles Plosser has, ever since he became President of the Federal Reserve Bank of Philadelphia in August 2006, consistently:

• Feared increases in inflation that have-so far–not happened.
• Expected rebounds in growth and employment and employment that have–so far–not happened
• Expressed strong skepticism of the Federal Reserve staff’s modeling exercises in a direction that would ex post have made its assessments of the state and direction of the economy even more optimistic and less accurate than they have turned out to be.
• Remained uncurious–in meeting transcripts released so far, at least–about why his assessments about the state of the economy and its future direction had been so far off.

It seems to me that when writing–as Binyamin Applebaum is–for readers who have not been reading the minutes and transcripts of FOMC meetings, one’s first duty in referring to Charles Plosser is to situate his views in this proper context.

Binyamin Applebaum does not do this.

It would be very, very easy to do.

Simply replace:

Charles I. Plosser, president of the Federal Reserve Bank of Philadelphia, dissented at the July meeting, arguing that there was already reason enough for the Fed to change course…

with:

Charles I. Plosser, president of the Federal Reserve Bank of Philadelphia, continued the pattern he established when he joined the FOMC in 2006 of arguing that there was already reason enough for the Fed to pursue a tighter monetary policy than the bulk of the FOMC wished…

Why not do this?

FRB: Transcripts and other historical materials:

August 8, 2006: MR. PLOSSER: Right now I tend to be more concerned about inflation than I am about growth. I don’t view the second-quarter slowdown as necessarily a precursor to a significant weakening of the economy going forward…. The inflation picture… has not improved. Despite a slowing economy, price increases have been accelerating. The increases have been broadly based, as has been pointed out by Bill Poole and others. They are no longer confined to energy and other commodities. Indeed, in June the CPI rose less than did the CPI excluding energy. Core inflation is above the range I consider to be consistent with price stability, and to my mind, inflation risks remain tilted to the upside…. Given this persistence in inflation, unacceptably high inflation seems likely to be around for a while….

MR. PLOSSER: Reasonable people at this stage doing sound economic analysis could come down one way or the other on this. But at this point, my inclination is to favor a 25 basis point increase…. I don’t think raising rates 25 basis points is going to have a significant effect on the real economy in the near term either, but it can help reinforce the public’s perception of our commitment to price stability…. Longer-term expectations remain contained because the markets and people expect the FOMC to contain actual inflation…. If the Committee chooses not to raise rates, does it risk sending the message that we are willing to tolerate inflation above an acceptable level for a significant period of time?…

MR. PLOSSER: I’m new to these language nuances about housing. It occurs to me, however, that one question you ought to ask is whether by including housing or continuing to include housing the Committee is putting itself in a position where it can’t raise rates until housing comes back. Are we unfairly locking ourselves in, or at least are the markets going to interpret it that way?…

MR. PLOSSER: I think there are a number of things that the FOMC could and should communicate, but its current expectation about the future path of the fed funds rate is not one of them. I don’t think that’s a very good practice in general…

September 20, 2006: MR. PLOSSER: What we do know is that core inflation has been above 2 percent for two and a half years and is expected to be there, according to the forecast, for another two years…. I see two inflation scenarios as being plausible…. In the first scenario, core inflation is elevated primarily because of transitory factors…. Even in this most desirable of scenarios… we have to recognize that we will have essentially ratified a higher price level driven by oil price increases, and we should ask ourselves whether or not we are comfortable with that. In the other scenario, stimulative monetary policy during the past five years has been a major contributor to the rise in core inflation… then our credibility is seriously at risk if we fail to take further steps to curtail price increases. We might be lucky. But we might risk finding ourselves in a situation in which inflation expectations become unhinged, making it more costly to bring inflation back down…

MR. PLOSSER: I do not think that a 25 basis point change in interest rates one way or the other will have much effect on the housing market at this point, and I do not believe that we should stand in the way of the adjustment to the housing sector to move to a more sustainable level of activity…. My concern… is that the longer we tolerate inflation above our comfort zone, the more risk we have that those expectations will become unhinged…

October 24-25, 2006: MR. PLOSSER: We’ve had some hopeful news on the inflation front over the intermeeting period, but the level of inflation continues to concern me…. Although the twelve-month change in core CPI actually edged up to 2.9 percent, a rate that I consider well above price stability, it may be beginning to stabilize. But, frankly, a lot of uncertainty remains, and it is dangerous, to my mind, to rely too heavily on one month’s numbers…. To the extent that some of the acceleration in inflation was fueled by very accommodative monetary policy over the past five years, we still need to consider whether monetary policy has firmed enough to remove the cumulative effects of the past policy accommodation to get inflation back down to a level consistent with price stability in a reasonable time so that our credibility is not at risk. The longer we allow that deviation from price stability to persist, the higher the risk to our credibility and the higher the risk that recent high inflation readings will raise longer-term inflationary expectations…

MR. PLOSSER: Inflation continues to be higher than I’d like to see, and I still believe there are larger risks on the inflation side than on the growth side…. If growth bounces back more strongly than the Greenbook forecasts, which I believe is a likely outcome, we may have to consider additional increases in the fed funds rate going forward. Thus, from that standpoint, I really don’t view the prospective policy path as particularly symmetric…

MR PLOSSER: Robert Gordon in recent work estimated that the bias in the headline CPI is about 0.8 percent per year…. If we decided and agreed upon a bias, let’s say it was 0.8, should that be our target? Yes, if price stability is our goal…. Many models of optimal monetary policy suggest, depending on the exact formulation of the model, that the optimal rate of inflation falls in a range of slightly negative to slightly positive. Thus, price stability may be desirable, but it may not be optimal in some circumstances…. There seems to be a disconnect between the market’s view of long-run inflation, which according to surveys and financial markets seems to remain around 21⁄2 percent, and the statements made by many of us on this Committee who seem to be comfortable with 1 to 2 percent…. Are we really committed to the goal of 2 percent or below? By publicly committing to a specific target, we might, I hope, obtain greater congruence of our goals and the market’s expectations….

The last thing I’d like to comment on relates to the so-called dual objective…. We need to try to communicate to the public that, although we may have a dual mandate in some respects, our ability to achieve certain objectives is very, very limited…

December 12, 2006: MR. PLOSSER: I also want to mention some anecdotal information that I find interesting. Last week I met with a number of mostly manufacturing CEOs from my District. An observation that one of them made, which many agreed with, was that from their perspective money was almost free. This observation is consistent with what some others have been saying around the table. They thought that there was plenty of liquidity and that interest rates were not limiting them particularly in any way. This observation is also consistent with the views that mortgages rates are still relatively low and that credit spreads show less stress on businesses at this point. I take these observations to indicate that monetary policy is not particularly restrictive at this point…

MR. PLOSSER: inflation continues to be higher than I’d like to see it and is forecast to remain so for longer than I’d like to see, thus putting our credibility at risk. I am more optimistic than the Greenbook about the possibility for a quicker rebound to potential. But even if you take the staff’s Greenbook forecast, with growth expected to be below trend for at least several more quarters before returning to trend, I’m comfortable with maintaining the current federal funds rate and the implicit firming that doing so would imply as the economy slows down.

Although I don’t think we should raise the fed funds rate today, I do want to put on the table and reemphasize, as several people have, that we need to acknowledge that if real growth rebounds quicker toward trend than is currently forecast, whether in the fourth quarter of this year or the first quarter of next year, then we must be in a position to raise the fed funds rate at that time. I happen to put more probability on that being the case than perhaps some do. A failure to do that or to signal that we will do that would put considerable upward pressure on the inflation outlook and on the public’s perception of our commitment to price stability. Of course, if we begin to see much larger spillovers from housing corrections or from other sectors, which I don’t think we will, we may want to allow the nominal funds rate to decline as the equilibrium market rates decline—again, not to exploit a Phillips curve type of tradeoff but to drive the real rate down at the appropriate time. But that would also be signaling that we are content with the current level of inflation, and I don’t think we are at this point…

January 30-31, 2007: MR. PLOSSER: I’ve become increasingly confident that the national economy has a positive underlying momentum… stronger underlying growth that has been temporarily weakened by housing and autos. There is little, if any, evidence that the housing and auto corrections are spilling over into the other sectors of the economy…. Although I didn’t talk to the chairman of Disney, I did talk to a small manufacturing firm with total revenues that come to $2 million. He has been very positive about the outlook…. The downside risks to growth have receded…. In my view, core inflation will not come back down until monetary conditions, which I believe have been very accommodative over the past few years, have tightened sufficiently…. I’m less convinced that price stability will be achieved without further action on our part some time later this year…

MR. PLOSSER: The appropriate policy here… is one in which the fed funds rate goes up somewhat from where it is today, perhaps to 5 1⁄2 or 53⁄4 percent. But then by the end of ’07 and into ’08, it’s coming back down again to more of a steady-state level, and then we can talk about what the real neutral rate is…

MR. PLOSSER: I am not confident that core inflation will continue to decelerate in the coming quarters, and that could risk our credibility. The level of inflation continues to be higher than I’d like to see, and in my forecast we may not see a return to price stability unless monetary conditions are tightened further. Although I don’t think today is the day to do it, I do want us to consider tightening if we see growth accelerating back to trend more quickly than in the Greenbook…

March 20-21, 2007: MR. PLOSSER: There are signs of increased pressures on wages and salaries…. Employers in a number of industries have said they had to raise salaries much more this year than they did last year in order to hire and retain workers in certain professional and managerial occupations as well as high-skilled workers in a variety of jobs…. I’m less convinced that inflation is moderating and that we’re making sufficient progress toward price stability. Perhaps I really should say that I am more concerned that we are not. The twelve-month change in the core CPI was 2.7 percent, and the three-month change has reaccelerated. I find the upward trend in core inflation over the past year, from 2 to 2 3⁄4 percent, troubling…

MR. PLOSSER: The earlier signs of moderating inflation seem to have ebbed somewhat, and inflation still seems to be higher than I’d like to see. So I am still concerned about the upside risk to inflation…. Cutting rates at this time, it seems to me, is inappropriate as it’s unlikely to have a significant effect on the weakness in real output or investment in the short run in that the absolute levels of long-term real rates remain relatively low. Moreover, a cut in the rates is likely to signal to the markets that we are much less concerned about inflation than we previously indicated and that we are willing to forgo our inflation objective in search of modest increases in real growth…

MR. PLOSSER: For the headline CPI, I would specify and announce a target of 1 percent. That’s consistent with our goal of price stability and the estimated measurement bias of the CPI…. I take seriously our mandate for price stability…. I recognize that some may feel that a 1 percent target is too low as the risk of deflation or zero bound restrictions on nominal interest rates might call for a greater cushion. I understand those arguments, and they are certainly plausible. But… I’m less concerned about our ability or the economy’s ability to deal with those issues, both of deflation and zero bounds…. I think a two-year horizon would be appropriate and, indeed, achievable given the typical shocks that hit the economy and the volatility of the CPI…

May 9, 2007: MR PLOSSER: On the national level, since the last meeting I have actually become a bit more comfortable with the economic situation. While I say that I am more comfortable, that’s a relative not an absolute statement. The most recent month’s readings on core inflation were welcome, but I think that caution and vigilance are still the order of the day. Indeed, the Greenbook authors, as we’ve noted, seem to have been revising their forecast of core inflation upward slightly over the past several months rather than downward, and that to me is a bit disturbing…. On the inflation front, I’m a bit less worried than last time but far from sanguine…. I believe inflation is still too high. Inflation expectations are stable, but they are too high as well, and we need to bring that rate down. Thus, we need to be vigilant here and continue with a somewhat restrictive policy…

June 27-28, 2014: MR. PLOSSER: Interestingly enough regarding building, I had two observations from CEOs. One is CEO of a building supply company that manufactures throughout the United States and has sales of almost $10 billion. He said that, remarkably, even with what is going on with homebuilding, his sales are holding up very, very strongly and they are doing very, very well this year. Another CEO, whose company produces products mostly for residential cabinetry and other types of things, one of the largest in the country, says that, while new home sales for his work are way down, they have largely been offset by remodeling activity—people have substituted remodeling for buying a new home…. Despite the problems in subprime lending markets, however, I think the financial sector remains healthy—healthier now than it was perhaps in the early ’90s with the previous housing boom….

On the inflation front, higher energy prices have led to an acceleration of headline inflation, but there has been some improvement in core inflation measures…. Although these developments in inflation are encouraging, I remain cautious about extrapolating too much from recent data…. So I remain concerned that our core inflation rates may not continue their recent drift down. I would also caution that headline inflation, as I noted earlier, has remained stubbornly high…. Given my outlook on the underlying strength of the economy and an inflation goal of 1.5 percent for the PCE, it should not be surprising that my forecast incorporates a slightly tighter policy path… the federal funds rate rises 50 basis points, to 5.75 percent, by early ’08…

MR. PLOSSER: We have to be very careful about the fact that headline inflation has not been very cooperative recently. Inflation expectations remain somewhat high from my perspective, and based on our previous discussions, that is a worry for me. I do tend to favor our announcing an inflation target. I am not yet convinced that we will see inflation expectations where they need to be to achieve my goal by the end of 2009…. If my own goal were 2 percent, I might be more comfortable with a flat fed funds rate going forward…. In the absence of agreeing on a numerical long-run inflation objective, we, as individual members, face increasingly difficult choices in arriving at an appropriate policy stance in any given meeting and even greater difficulty conveying our Committee’s decision to the public in an informative and transparent manner…

August 7, 2007: MR. PLOSSER: On the positive side, employment and income growth remain solid…. The biggest economic news headlines since our last meeting have focused on the volatility of the financial markets and the repricing of risk. I am inclined to put minimal weight on the current financial conditions for a slowdown in the pace of economic activity going forward…. This news was reinforced to me by my conversations with area bankers, as I mentioned earlier, who say that they have plenty of money to lend to good credit risks…. I expect the economy to return to near potential real GDP growth in the first or the second quarter of 2008. I expect the housing correction to continue through the first half of 2008, but the drag lessens over the year…

August 10, 2007: MR. PLOSSER: [NO STATEMENTS]

August 16, 2007: MR. PLOSSER: It’s a bit of wishing and hoping. It may work. It may work through the signaling device, if nothing else, to signal our commitment. That brings me to the second question I have, which is how the markets will respond to this. Will they respond in a way that basically says that we will end up having to lower the fed funds rate at our next meeting or at some point? To what degree are we now or might we be locked into a fed funds rate decision?…

September 18, 2007: MR. PLOSSER: On the inflation side, I see that recent readings on core inflation have moderated. Headline inflation remains quite elevated. I don’t think that we can afford to be sanguine. I continue to see underlying inflation pressures…. I’m concerned as we go forward with potential rate cuts. I’m concerned about their remaining stable, particularly when we may be lowering rates without being clear about what our inflation goals are…. I believe that we might find ourselves in a position sometime during ’08 in response to rising inflation of having to raise the fed funds rate back up…

MR. PLOSSER: On the inflation side, I see that recent readings on core inflation have moderated. Headline inflation remains quite elevated. I don’t think that we can afford to be sanguine. I continue to see underlying inflation pressures, as has already been articulated. Long-range inflation expectations have been stable, but I’m concerned as we go forward with potential rate cuts. I’m concerned about their remaining stable, particularly when we may be lowering rates without being clear about what our inflation goals are. Indeed, I think the current situation clearly shows the benefit of having an explicit inflation goal. By anchoring those expectations, an explicit goal would mean less of a tradeoff between our two goals and so might make this policy decision easier and even perhaps more effective. Thus, while my forecast has built in some near-term policy easing partly to offset the anticipation of tighter credit conditions, I believe that we might find ourselves in a position sometime during ’08 in response to rising inflation of having to raise the fed funds rate back up.

MR. PLOSSER: My outlook for the economy has changed sufficiently for me to support a cut in the fed funds rate at this meeting…. My view that the equilibrium real rate has declined and its forecast has declined somewhat leads to my view that the funds rate needs to follow that real rate down. Also, given the current behavior of inflation, I am more comfortable moving toward what I would consider to be a more neutral rate. If we do cut the funds rate today, however, I believe that how we communicate that is far more important than anything that we may do in a long time….

I won’t be revising my forecast just because the September employment report comes in weak. It’s only when we accumulate sufficient evidence that the economy is veering from our new projected path that we would want to revise our forecast and perhaps our policy,… We might find that we’ve been too optimistic about inflation if inflation expectations rise…. I think it would be a mistake, as President Hoenig suggests, to set up expectations with our language that the rate cut today is necessarily or even likely the start of a series of rate cuts…

October 30-31, 2007: MR. PLOSSER: I suspect that at the end of our last meeting—certainly I can speak for myself—many, if not most, of us probably would not have anticipated that we would cut again at this meeting…. We wouldn’t have anticipated cutting unless we thought that the outlook for the economy had noticeably deteriorated. So what has really happened since the last meeting? Well, the collective forecasts that we submitted—in terms of risk assessments, ranges, medians, and however you want to look at them—hardly budged…. Based on that forecast and on the data that came in, I’m in a very troubled position in figuring out how to justify in my mind additional rate cuts at this meeting

December 6, 2007: MR. PLOSSER:

December 11, 2007: MR. PLOSSER: Just a quick comment. I have talked to one of the large mortgage insurance companies in some detail, and their view is that their pricing power actually is improving—that their own ability to work their way out of this thing is getting better all the time right now. Even though they are taking some very large hits in the near term, their outlook actually has improved in recent months, partly because of this…

MR. PLOSSER: We have started to see evidence of increased price pressures…. I will note that the core PCE inflation rate for March to June was 1 1⁄2 percent; and in every three-month window subsequently, the inflation rate has risen monotonically, now reaching 2.26 percent for the latest three-month period from August to October…. It appears that firms are beginning to be more interested in increasing prices and are more able to do so than they were just a few months ago…. The economy is weak but only slightly more so than I anticipated. Volatility in the financial markets continues…. Nevertheless, the spillovers from the financial turmoil seem geographically concentrated…. I view inflation expectations as fragile and see evidence that price pressures are growing and that more and more firms feel that price increases are coming and are supportable. I think we will have to be very careful not to presume that just because price expectations and prices have remained contained that they will continue to be so…

January 9, 2008: MR. PLOSSER: I am certainly open to the idea that we will have to reduce rates at our next meeting at the end of the month. I am not necessarily opposed to that…. I don’t think an intermeeting cut is either wise or appropriate at this point. As a general proposition, I oppose the idea of intermeeting cuts unless a really immediate action is necessary to deal with some severe crisis such as September 11…. Nor do I want us to be perceived as responding to near-term numbers or other pressures from the market…. I would not like to see us do something today…

January 21, 2008 MR. PLOSSER: I certainly appreciate and am sympathetic with the point of view that markets are fragile…. But at the same time I also am very concerned about the expectations this sets…. I am very concerned that we are going to be interpreted as reacting to the stock market declines…. It is not clear to me that the fragility that exists in the market in fact will be solved by rapid cuts in the funds rate…. I nonetheless would certainly be supportive of a very dramatic action at our regularly scheduled meeting. Frankly, I am very torn right now as to whether to support this intermeeting cut. My gut instinct tells me “no”…. I have a lot of concern and caution about this move. I think it is going to affect expectations of us as we move forward, and I think we need to be realistic about what it is we are buying with this…

January 29-30, 2008: MR. PLOSSER: Once the real economy is stabilized, the FOMC must act aggressively to take back the significant easing it has put in place in order to ensure that inflation is stabilized in 2010. Employment is a lagging indicator, so we will likely have to act before employment growth returns to trend, should output growth pick up in the second half of the year as forecasted. Thus, I expect we will need to begin raising rates by the fourth quarter of this year and perhaps aggressively so…

MR. PLOSSER: The current level of the fed funds rate is clearly accommodative and that we have taken out insurance against downside risk. When do we stop taking out more insurance?… Lowering rates too aggressively in today’s situation would seem to me a risky strategy, fueling inflation; possibly setting up the next boom-bust cycle, which I worry about; and delaying the recognition of losses on bank’s balance sheets but not eliminating them…. I think we need to be very cautious not to get carried away in our insurance strategies with lowering rates too much…. We are on the verge of overshooting, and I worry about the broad range of consequences for our credibility….

I believe that the Committee must undo the accommodation as aggressively as we put it in play. We need to determine what indicators we will be looking at to determine when that process should begin. When we know ourselves, we want to help the markets and public understand what our process will be as well. I strongly believe that we must be both credible and committed policymakers…

March 10, 2008: MR. PLOSSER: I am not terribly confident that this will have the effect we desire. I thought I heard Governor Kohn saying that the ECB actually does take this sort of risk and collateral and it’s not working particularly well. So I’m not sure we ought to hold out a whole lot of hope that it will have the desired effect here. That doesn’t mean we shouldn’t try it, but I’m a little dubious. I am concerned with the comments that President Lacker and Governor Kohn made about crossing a line. However, having said that, I can go along with this proposal; but to be honest, I am concerned about the exit strategy here. Mr. Chairman, you said that we would stop when the markets were no longer impaired. I’m not exactly sure how we would define that at some point. I wonder whether it might be worthwhile thinking about putting this facility in place and doing it for a fixed period of time…

March 18, 2008: MR. PLOSSER: I struggled coming into this meeting with a growing level of discomfort…. I… have responded to the incoming data with downward revisions to our forecast for certainly the first half of 2008. But our changes are considerably smaller than the revisions in the Greenbook…. I am not wholly comfortable with the Greenbook’s forecast, which I think incorporates a number of judgmental adjustments that are responsible for taking it pretty far away from where private-sector forecasts now are…. If inflation expectations become unhinged, we will face an even more difficult problem as monetary policy will feed more quickly and directly into higher inflation outcomes. The ensuing loss of credibility will be costly to regain…. We have to look for early warning signs so we can take appropriate action to ensure that expectations remain anchored, and I am concerned that we are seeing those warning signs…. Our business and consumer contacts are consistently stressing price pressures as a concern…. We have reduced the targeted funds rate by 225 basis points since August and 125 basis points in just the last six weeks…. The Greenbook suggests that the real funds rate can be negative over the next two years and inflation will continue to decelerate as upside inflation pressure is offset by greater slack in product and labor markets. I am skeptical…

April 29-30, 2008: MR. PLOSSER: I remain concerned, however, about inflation and our calibration of the appropriate level of the fed funds rate consistent with our goals. Inflation readings have abated marginally since our last meeting; but as the Greenbook suggests, there is reason to believe that this is a temporary reprieve… year-over-year CPI inflation was 4 percent in March, and year-over-year PCE inflation was 3.4 percent—well above their 2007 levels…. Markets question our willingness to take actions consistent with sustained and credible price stability. Now, we have often alluded to the idea that near-term weakness will help mitigate some of the inflation pressures. However, I would just like to remind us that this critically depends on inflation expectations remaining well anchored…. I believe that the FOMC’s commitment to price stability remains credible at this time, but just barely…. Now, I know that talking about money in the context of monetary policy is not very fashionable these days. But I would like to note that the monetary aggregates as measured by M2 and MZM have exploded…

MR PLOSSER: What I would like to do… is to make the case for why we should stand pat today…. Easing policy is appropriate in a weaker economy, but continuing to cut rates for as long as the economy remains weak is not appropriate…. A further 25 basis point cut in the funds rate at this point will do nothing to change the near-term outlook of the economy…. We are currently running a very accommodative monetary policy…. Monetary aggregates as measured by M2 and, to some extent, MZM have expanded very rapidly…. Inflation is high, unacceptably high in my view, and has been that way for a sustained period…. The FOMC’s stated goal of price stability cannot remain credible independent of our actions…. I think a pause today would send a strong signal of our commitment to price stability, which could further help anchor inflation expectations, which I consider to be very fragile…. Cutting 25 basis points won’t help the outlook for the economy very much…. I think a cut today will not be a disaster but will contribute to a further eroding of our credibility…

June 24-25, 2008: MR. PLOSSER: Despite the soft economic conditions, the most prominent concern that we have heard from our business contacts across a variety of industries is the run-up in commodity prices and other prices…. Inflation expectations cannot remain in check indefinitely in this current environment. In June, the prices-paid index in our business outlook survey of manufacturers rose to the highest level it has been since 1980…. The continued price increases, particularly in oil and commodities, have been a very unpleasant development. Certainly, economic conditions remain weak, and the recent positive news may prove to be transitory. From the financial side, credit spreads have fallen, bond issuance has risen, and it appears that financial market functioning has at least improved… the tail risk of a very bad outcome has clearly been diminished….

My concerns about the inflation outlook have increased since our last meeting. I am not alone. Inflation has become a predominant concern for many businesses and consumers…. Contributing to the increase in inflation risk is not only the surge in energy and other commodity prices; it is supported also by our own accommodative stance of monetary policy…. Can we really expect inflation expectations to remain anchored?… I have been troubled by stories in the press suggesting that we can be less concerned about inflation than we were in the 1970s because wages haven’t risen and labor unions are less prominent…. The key… is maintaining the credibility that the Fed has worked so hard to achieve…. Our credibility rests on more than just words. We must act in a way that is consistent with our hard-earned reputation…. We should take actions and take back some of the insurance we have put on in the context of elevated downside tail risks….

It seems pretty clear to me that, if the economy continues to evolve as it has over the past couple of months, we should move to raise the funds rate…. I assume that the funds rate will reach 2.75 percent by the end of 2008 and move up to 4.5 percent by the end of 2009. This steeper funds rate path is necessary, in my view, to deliver inflation that is declining back toward our goal…

July 24, 2008: MR. PLOSSER: “I’ll pass, except for just a brief comment. I agree with what President Lacker was saying about the options. If we are going to create new specialized facilities, the hurdle for the problem we think we will be solving ought to be a little higher than just, well, we think it might help a little. That’s all…

August 5, 2008: MR. PLOSSER: If we think about the phrase… “financial headwinds”…. I can also think of the financial sector as having been hit by a very significant productivity shock…. If you think that type of shock is driving potential output down… it is going to affect your estimates of the gaps and therefore your estimates of inflation [and raise them]…

MR. PLOSSER: For some time my business contacts have expressed concern about rising energy and commodity and transport prices…. On the national level, the incoming data since our June meeting have been mixed but largely in line with my expectations…. The strength is a remarkable testament to the ability of this economy to weather shocks from financial market disruptions…. My outlook for the economy is little changed, although the financial market developments since our last meeting have marginally increased the uncertainty…. I read the conditions in the financial markets and the wide spreads on selected assets as having improved…. We should not use such spreads as the primary criteria for assessing the fragility of the financial markets…. We must be cautious in using monetary policy or other tools at our disposal as a form of forbearance that delays the necessary adjustments in the pricing of various financial claims….

The inflation outlook remains a cause of concern. Headline inflation is higher, and there is evidence of modest pass-through to core inflation measures…. Markets are uncertain about the long-run path of inflation. This is not terribly comforting. It suggests that our credibility may be waning…. I remain uncomfortable with the longer-term inflation outlook. Indeed, the focus of monetary policy must be on the intermediate to longer term, and we must resist the temptation to act as if our funds rate decisions can manage the outcomes over the very near term. Year-over-year inflation, headline CPI and PCE inflation, have now been consistently above 3 percent since October 1987…. Near term, we might get some moderation in headline inflation…. The real source of intermediate-term to longer-term inflationary pressures comes from our own accommodative policy, whose consequences for inflation will be felt only over time…. Should we maintain our accommodative stance for too much longer, my view is that we are likely to see higher trend inflation in the intermediate term and a ratcheting up of inflation expectations….

To be sure, shifting policy to a less accommodative stance will be a difficult decision to make, given the continued volatility in financial markets and the projected near-term weakness…. I do not believe that we can wait until employment growth and the financial markets have completely turned around to begin to reverse course. But by our aggressive attention to short-term risk to growth and financial turmoil, we do put at some risk our ability to deliver on our intermediate- and longer-term goals of both price stability and sustainable growth…

MR. PLOSSER: We’re unlikely, in my view, to get confirming or convincing evidence about whether expectations have become unanchored until well after the fact. I agree there has been very little wage–price pressure to date. But that will be the last shoe to drop in this sequence of raising expectations, and by the time we get to that, I’m afraid it will be too late…. Monetary policy is accommodative, and with all due respect, Mr. Chairman, when I look at the data comparing the levels of borrowing rates of consumers and businesses, both the levels in real and nominal terms and the spreads, what we see in this period looks remarkably similar to what we’ve seen in lots of other recessionary, slow growth periods…. I think it’s important that we begin to prepare the markets for an impending shift to a tighter policy….

I’m pleased with a lot of the discussion around the table. We are actually beginning to talk, I think, about what our exit strategy is going to be from this…. I can accept leaving the funds rate unchanged today as long as our language is sufficiently strong about inflation…

September 16, 2008: MR. PLOSSER: I appreciate the memo that the staff produced…. According to the memo, the current stance of policy is not unusually accommodative. However, I would like to note that that conclusion depends critically on the specific forecast and the nature of the FRB/US model. A different model, one that says that inflation expectations are more forward looking, may well lead to a very different conclusion…. I continue to believe that monetary policy at its current level is accommodative and that, if this current stance is sustained, the economy will experience faster inflation in the medium term…. It is my view that the current stance of policy is inconsistent with price stability in the intermediate term…. Now, I acknowledge that there are risks to economic growth going forward…. Now is probably not the time to shock markets by raising rates. But neither is it a time to panic and lower rates. A cut today may be reassuring to some in the financial markets, but it also may serve to scare markets…. I am uncomfortable with the current Greenbook baseline path that has the funds rate remaining unchanged well into the second half of next year. In my view, that will not deliver an acceptable path of inflation outcome…. At some point, before the unemployment rate begins to improve substantially, I believe this Committee will need to raise rates in order to deliver on our inflation objectives…

September 29, 2008: MR. PLOSSER: [NO STATEMENTS]

October 7, 2008: MR. PLOSSER: I do not like intermeeting cuts. I think they signal more panic than they do stability…. I am reluctantly or modestly comfortable with this… because I don’t think that anything that we do today—cutting the funds rate 50 basis points or whatever—is going to make the next couple of months in terms of the overall economy any less painful…. I like in the statement the stressing of the point that… this is based on a deteriorating economic outlook… as opposed to just volatility in the financial markets…. I’d just like to make an observation about the sentence on inflation. It reads, “Inflation has been high, but the Committee believes that the decline in energy and other commodity prices and the weaker prospects for economic activity have materially reduced the upside risks to inflation.”… I would put on the table for discussion that we change the phrase “materially reduced” to these things have “mitigated near-term upside risks to inflation.”… I’m not necessarily convinced—and it’s very model dependent—as to what inflation might do in the latter part of ’09…
October 29, 2008: MR. PLOSSER: On the governance side, I continue to believe that the FOMC is the appropriate body for making monetary policy decisions and that replacing monetary policy with credit policies that are unconstrained by this Committee is to violate both good governance and the spirit of the operating understanding of the FOMC. Yesterday and in my memo to the Committee earlier this week, I argued that the directive and the statement should clearly state that we are in a new regime and should articulate how that new regime will operate going forward…. The proposed language… say[s] that the Board of Governors will continue credit market interventions…. The implicit message is… that the FOMC has ceded monetary policy decisions to the Board of Governors, and I think that will be damaging…. Once the Committee sets the precedent that the Board of Governors can assume sole responsibility for monetary policy, we run the risk of losing the strength and the diversity of views that the System has always brought…

MR. PLOSSER: We may well have to do more, but I think we are near the end of what we can do with monetary policy. Of course, it’s difficult to determine the appropriate level of the funds rate, and I want to draw your attention to the Greenbook, which showed that, whether we cut today or don’t cut today, the paths of GDP, employment, and inflation over the next year or two are not much different. In fact, in most models, cuts of that magnitude do not show up very heavily in real variables. I would also note that, according to the Greenbook, we could cut the rate to zero and have no effect on inflation, apparently, for the next four years. However, given the fact that rate cuts don’t have much effect, even in the Greenbook simulations, we have cut rates. It may not make much difference, as President Hoenig was saying. My preference at this meeting would be to stand pat and see how the data and financial markets improve…. Now, delaying necessary rate cuts is not desirable. But given the considerable uncertainty around our forecast, it is not clear that further cuts are either necessary or desirable or are going to be effective. And doing so for purely psychological reasons, from my standpoint, is a dubious way to conduct policy…

MR PLOSSER: The forecast… is really the result of very large adjustments to the financial constraints piece…. Those spreads… can rise very quickly, as we’ve seen. They also can fall very quickly sometimes…. If our facilities are successful, they actually may fall further—knock on wood; that would be very nice. But I get a little nervous making our forecast be driven so much by something that’s potentially very, very volatile…. The “more rapid financial recovery” scenario is what the forecast would look like had we not done the additional add factors in October…. The real data… have driven the forecast down a little, but not a whole lot…

MR. PLOSSER: I expect the economy to contract during the second half of this year and perhaps in the first quarter of next year—but that’s less clear…. By the end of 2009 we’re getting back toward what might be considered trend growth…. I expect the unemployment rate to peak around mid- ’09 at about 7 1⁄4 and then to decline gradually to its long-run rate of about 5 percent by the end of 2010…. I expect core inflation to decline gradually from the current levels to my goal of about 1.7 percent by 2010…. My overall forecast… is similar to what we talked about as the “more rapid financial recovery” scenario…. The risks around the Greenbook baseline forecast are to the upside…. It’s very risky to base monetary policy, which ought to be taking a longer-term perspective, on week-to-week movements in such volatile variables…

December 15-16, 2008: MR. PLOSSER: If we hope to affect expectations, we need to explain our policies in a way that the public can understand…. Optimal policy in these circumstances would involve price-level targeting, as I said, and it would be very difficult to explain, particularly since the FOMC has never formalized its inflation target, let alone a price-level target. I think we would be better off trying to communicate something simpler. First, we need to tell the public that we have lowered the funds rate as low as we think it is beneficial to go.

I do have some concerns about lowering the target rate all the way to zero. We still do not understand why having interest rates on reserves isn’t working to keep the funds rate at its target…. I do not want to go all the way to zero. But I think we do need to communicate clearly to the public that, when we reach whatever that effective zero rate is, we are done…. There are two additional practical advantages I see that argue for bounding our target rate above zero. First, it will allow additional time for banks to become more proficient at managing their reserves…. Second, I believe that when the time comes to raise rates, even by modest amounts, we will be in a better position to do so from a non-zero position…. We certainly need to communicate that we do not wish deflation in a very weak economy. We also may wish to convey that we are going to keep the nominal funds rate low for some period of time because we desire higher inflation….

Regarding the use of nonstandard policy tools—in my view, we are already there. With the funds rate trading below target, we are effectively conducting monetary policy through quantitative easing…. I believe we need to publicly convey that we have entered a new regime. Otherwise, it may look as though we have lost control of monetary policy…. My preference is for the directive to specify objectives in terms of asset quantities rather than the level of non-funds-rate interest rates or interest rate spreads…. Setting a quantity limit on the size of the balance sheet is more familiar—similar to our experience with operating a reserves-based target…. I would prefer to see us purchasing Treasuries rather than riskier assets, as I would favor the purchases of long-term Treasuries over new 13(3) facilities….

We also need to recognize that, as the economy begins to recover, these programs will need to be unwound, and this may occur before all financial institutions are fully recovered…. We need to be concerned about the health of our balance sheet so that we can ensure that we can finance the interest rates on reserves and pay them…

MR. PLOSSER: Although I’m still not quite as pessimistic as the Greenbook, I admit that the Greenbook is no longer an outlier as I am used to
thinking about it. The forecasts for output are nearly as bad as or are worse than the economy experienced in 1974-75. Inflation has moderated significantly, and near-term inflationary expectations have also moderated…. With the growth prospects so weak and inflation expectations decelerating, the appropriate real funds rate obviously will probably decline, raising the possibility as we discussed yesterday that the zero bound on nominal rates will pose a problem for us….

I believe that we need to acknowledge publicly that we are now in a new regime…. The Board of Governors and the FOMC will have to decide how they will handle the governance issues surrounding this new regime. It seems clear to me that monetary policy determinations should remain in the purview of the FOMC regardless of whether we are using standard or nonstandard policy tools…. We need to be explicit and to communicate that monetary policy remains under the purview of the FOMC….

Willem H. Buiter: The Simple Analytics of Helicopter Money: Why It Works – Always: “A permanent/irreversible increase in the nominal stock…

…of fiat base money rate which respects the intertemporal budget constraint of the consolidated Central Bank and Treasury…. Three conditions must be satisfied for helicopter money always to boost aggregate demand. First, there must be benefits from holding fiat base money other than its pecuniary rate of return. Second, fiat base money is irredeemable – viewed as an asset by the holder but not as a liability by the issuer. Third, the price of money is positive. Given these three conditions, there always exists – even in a permanent liquidity trap – a combined monetary and fiscal policy action that boosts private demand – in principle without limit. Deflation, ‘lowflation’ and secular stagnation are therefore unnecessary. They are policy choices.

Cardiff Garcia: Video and review: “The System Worked”, by Dan Drezner “I kept thinking of the well-publicised conversation… in January 2009….

…Geithner: ‘Your accomplishment is going to be preventing a second Great Depression.’ Obama: ‘That’s not enough for me. I’m not going to be defined by what I’ve prevented.’ Geithner: ‘If you don’t prevent a depression, you won’t be able to do anything else.’ Obama: ‘I know. But it’s not enough.’ For global economic governance, as opposed to Presidential legacies, avoiding economic catastrophe when catastrophe was a non-trivial possibility is enough. That’s the case made by Drezner…. So, was it indeed good enough? Sluggish recovery in the US accompanied by lower median incomes. Double-dip recession in Europe…. Ongoing stagnation in Japan pending the outcome of Abenomics. Slowing growth in China…. A Bank for International Settlements that called for tighter money earlier than any reasonable analysis could justify. Currency wars. An IMF that pushed austerity before a later volte-face, not to mention its numerous mistakes in tackling the euro zone crises…. All of these items would suggest a deep failure…..

Drezner… begins by highlighting the scale of the global collapse…. And yet, despite important local exceptions, the worst global consequences of the Depression were avoided…. Later mistakes were inexcusable, especially the turn to austerity and premature monetary tightening in Europe. Yet many of these subsequent errors were national policy failures and ‘had little or nothing to do with foreign economic policy or adherence to global governance structures’–admittedly a fine and not always obvious distinction…. I find the argument persuasive….

But ‘good enough’ is a tough sell, and my colleague Alan Beattie isn’t buying…. Alan writes: ‘The truth, as both of us I think admit, is that the record of global governance is patchy, and its results even now uncertain’…. whether the system as a whole worked is probably less important than knowing how to distinguish between the parts that worked and the parts that failed. The forthcoming book by Barry Eichengreen, whose data Drezner cites, appears to split the difference. Beattie refers to the resilience of wrong-headed ideologies…. Consider how much commentary about the crisis has naturally focused on the long list of subsequent policy failures. It’s good to have at least one book emphasising that the list could have been much longer still…

Alex Tabarrok: Ferguson and the Modern Debtor’s Prison: “How does a stop for jaywalking…

…turn into a homicide and how does that turn into an American town essentially coming under military control with snipers, tear gas, and a no-fly zone? We don’t yet know exactly what happened between the two individuals on the day in question but events like this don’t happen without a deeper context. Part of the context is the return of debtor’s prisons that I wrote about in 2012…. You don’t get $321 in fines and fees and 3 warrants per household from an about-average crime rate. You get numbers like this from bullshit arrests for jaywalking and constant ‘low level harassment involving traffic stops, court appearances, high fines, and the threat of jail for failure to pay’…

Scott Sumner: Black Swans: “Brad DeLong… is mildly critical of Shiller…

…in almost precisely the same way that I am…. DeLong and I think… the real mystery [is] not so much why stocks were so high in 1929, 2000, and now, but rather why they were so low 90% of the time. I think WWI is a great black swan example, but… I’d like to throw out another possible black swan—1968…. Switching to a permanent fiat system was much more inconceivable to people in the old days than you might imagine…. Even Keynes opposed a pure fiat regime, and viewed these historical examples as sort of pathological cases…. DeLong identifies three periods when stock investors did poorly over the following 10 years—right before WWI, the late 1960s and early 1970s, and the late 1990s. Even today I’m not sure exactly how much of the poor stock market performance of 1968-81 was due to the Great Inflation…. I am confident, however, that moving to a fiat money regime was a black swan for the US 30-year Treasury bond market, and pretty much every other bond market as well.