Category: Equitablog

David Beckworth: The Seesaw Approach to Monetary Policy: “‘A NGDP target aims to stabilize total dollar spending.

It is one target that has embedded in it both the supply of and the demand for money (i.e. total dollar spending = money supply x velocity of money). The beauty of a NGDP target is that the Fed does not need to know what is exactly happening to the money supply or money demand. All the Fed only needs to worry about is the product of the two components. There is no need to track the money supply or estimate money demand. By focusing on total dollar spending, the Fed will be fostering a stable monetary environment where movements in money supply and money demand are offsetting each other.

Another way of saying this is that if the Fed targets the growth path of NGDP it will be taking a seesaw approach to monetary stability. That is, endogenous changes in the money supply will be automatically offset by changes in money velocity and vice versa…. Now to be clear, most money is inside money–money endogenously created by banks and other financial firms–and the Fed only indirectly influences its creation. However, it does so in an important way by shaping the macroeconomic environment in which money gets created…. By successfully stabilizing the expected growth path of total dollar spending, the Fed will be causing this seesaw process to work properly…. Even though the Fed was not officially targeting NGDP, it effectively seem to be practicing the seesaw approach to monetary policy over much of the Great Moderation period…. One way, then, to view the Fed’s job is that it should aim to keep the monetary seesaw process working properly. For a long time it did that, but failed spectacularly in 2008-2009. It would be whole lot easier going forward if the Fed explicitly adopted a NGDP level target.

Jonathan Cohn: Massachusetts Health Reform Saved Lives, So May Obamacare: “Benjamin Sommers… Katherine Baicker… and Sharon Long…

…were able to isolate causes of mortality “amenable to health care.”… Then they compared how the people in Massachusetts fared relative to groups of people from around New England… [who] lived in states where similar expansions of health insurance were not underway…. For every 830 people who got insurance in Massachusetts, about one person avoided a premature death. That’s a big payoff…. Obamacare might have one, too. If millions of additional Americans end up with health insurance because of the law… at least that a few thousand are going to live longer…

The intelligent and thoughtful Ricardo Hausmann wants to make two three four points:

First, that what economists know about long-run economic growth is a Sokratic form of “knowledge”: they know that they do not know–that the secret to long-run economic growth is neither market allocations that capture Harberger triangles, education, infrastructure, buildings, or machines:

Ricardo Hausmann: Technological Diffusion and Economic Theory: “One idea about which economists agree almost unanimously is that…

…beyond mineral wealth, the bulk of the huge income difference between rich and poor countries is attributable to neither capital nor education, but rather to “technology.” So what is technology?… “Technology” is measured as a kind of “none of the above” category, a residual…. So, while agreeing that technology underpins the wealth of nations sounds more meaningful than confessing our ignorance, it really is not. And it is our ignorance that we need to address….

Continue reading “Technology: Its Identity, Its Diffusion, and the Near-Bankruptcy of Modern Economic Theory: Monday Focus: May 5, 2014” →

Should-Reads:

1. Matthew Yglesias: Why Yellen and Obama shouldn’t celebrate last week’s jobs numbers: “According to data released last Friday, the US economy added 288,000 jobs in April. It was a good report… [that] even shocked people out of their partisan silos, with Larry Kudlow explaining to conservatives that there’s no sense in trying to debunk the strong number…. [But] to fill in [our] 7.1 million gap, we’d need to add 288,000 jobs per month every month for… three full years to get us back to normal. And the really scary thing is that there’s absolutely no indication that we will add 288,000 jobs a month. The May report was a big deal because job growth that strong has been extremely rare in recent years…”

2. Christina D. Romer and David H. Romer: Transfer Payments and the Macroeconomy: The Effects of Social Security Benefit Changes, 1952-1991: “From the early 1950s to the early 1990s, increases in Social Security benefits in the United States varied widely in size and timing, and were only rarely undertaken in response to short-run macroeconomic developments. This paper uses these benefit increases to investigate the macroeconomic effects of changes in transfer payments. It finds a large, immediate, and statistically significant response of consumption to permanent changes in transfers. The response appears to decline at longer horizons, however, and there is no clear evidence of effects on industrial production or employment. These effects differ sharply from the effects of relatively exogenous tax changes: the impact of transfers is faster, but much less persistent and dramatically smaller overall. Finally, we find strong statistical and narrative evidence of a sharply contractionary monetary policy response to permanent benefit increases that is not present for tax changes. This may account for the lower persistence of the consumption effects of transfers and their failure to spread to broader indicators of economic activity.”

3. Digby: Four Dead in Ohio: “I know this seems like ancient history. And it sort of is. But it was scary and abnormal even then. This sort of thing happens when there are too many loaded guns and too many people high on adrenaline with itchy trigger fingers. And it doesn’t matter which “side” is armed, if it’s the jackboots or the ‘militia’–or both, innocent people get killed:”

Should Be Aware of:

Continue reading “Things to Read at Lunchtime on May 5, 2014” →

http://www.gallup.com/poll/168821/uninsured-rate-drops.aspx

Richard Mayhew: Rural Hospitals, DSH payments, and Vegas hotels: “A commenter asked why so many rural hospitals in Georgia are closing…

…a decent chunk of the explanation is PPACA via the a—ole Chief Justice et al, and the remainder of the explanation is the economics of running a hospital or a Vegas hotel…. Hospitals have very high costs to open up the doors…. However, the marginal cost of treating the next patient for most situations (high end drug treatments excluded) are not that high. Hospitals with high census or heads in beds counts are able to use the high usage of their facilities to cover fixed costs and then operating costs. A recent article on a hospital in Georgia closing illustrates this point:

Lower Oconee Community Hospital in southeast Georgia has closed due to financial problems, becoming the state’s fourth rural hospital to do so in the past two years…. The Wheeler County area had a 23 percent uninsured rate, and 10 percent of citizens are unemployed…. Forty-one percent of the county’s children live in poverty. “We just did not have sufficient volume to support the expenses,” O’Neal told WMAZ. “It’s a terrible situation, and it’s tragic, the loss of jobs and the economic impact.”

So how did this hospital survive so long despite serving a very poor and underinsured area?… Disprorpotionate Share Hospital payments… Medicaid reimbursement bonuses to hospitals that serve underinsured and overly poor areas…. PPACA reduced the pool…. The policy logic… was that the Medicaid expansion and Exchange subsidies should significantly reduce the number of people who are uninsured… therefore the need for DSH payments would decrease.  That logic is sound… as long as… Medicaid… and expansion was a single program that every state in the nation would take as the deal was too damn good to pass up. It is working in the Expansion states. [But] tThanks to the a—oles on the Supreme Court and the sadists and sociopaths in the Republican Party, half the states have not taken up free federal money to cover their poor… massive resistance to Exchange implementation… Georgia as a particularly egregious example…

Should-Reads:

1. Tim Harford: Have living standards really stopped rising?: “Income inequality is soaring…. So I claimed…. But was I right?… The everyday technology of today was the stuff of science fiction in the 1970s when this apparent stagnation began. Perhaps inflation measures haven’t kept up…. 40 per cent of the consumer price index (CPI) tracks the cost of housing and related costs such as domestic heating; another 30 per cent tracks the cost of food and drink. If two-thirds of my income goes on basics such as food and shelter, and my income is barely keeping pace with the price of such basics, there is a limit to how ecstatic I am likely to feel about the fact that iPhones exist…. Most of these objections should lead us to conclude that growth is not quite as slow as we fear, and increasing inequality not quite as stark as it first seems. None of them is powerful enough to put my mind at rest…”

2. David Leonhardt: Inequality Has Been Going On Forever… But That Doesn’t Mean It’s Inevitable: “A true attack on inequality would require that the country move the issue to the center of every political debate: how we tax wealth, how we tax the income of the middle class and poor (often stealthily through the payroll tax), how we finance schools and measure their results, how we tolerate income-sapping waste in health care, how we build roads, transit systems and broadband networks. These are precisely the sort of policies pursued by countries with better recent middle-class income growth than the United States…”

Continue reading “Things to Read on the Morning of May 4, 2014” →

Simon Wren-Lewis: Pareto, Inequality and Government Debt: “The only possibly original point…

…is that the absurdity of restricting policies to Pareto improvements becomes immediately apparent if we think about government debt. Measures to reduce current… debt… almost certainly make current generations worse off…. Yet I do not often hear people arguing that we have to let debt stay high because the government can only implement Pareto improvements…. Textbooks still make a big deal of dynamic inefficiency…. Government intervention to discouraging saving would be a Pareto improvement: the current generation consumes more because they save less… future generations consume more because less output needs to go to replacement investment. The symmetrical case is where there is too little capital…. Yet the implication… is that this case is not one we should worry about, because to change it (by raising saving) would make the current generation worse off and is therefore not a Pareto improvement…. We don’t think this way about government debt, so why should we when it comes to productive capital?

Why is there this emphasis on only looking at Pareto improvements? I think you would have to work quite hard to argue that it was intrinsic to economic theory…. Many economists use social welfare functions…. One thing that is intrinsic to economic theory is the diminishing marginal utility of consumption. Couple that with the idea of representative agents… and you have a natural bias towards equality. Focusing just on Pareto improvements neutralises that possibility. Now I mention this not to imply that the emphasis put on Pareto improvements in textbooks and elsewhere is a right wing plot–I do not know enough to argue that…

Tyler Cowen (July 2013): Wealth Taxes: A Future Battleground: “The coming battles over wealth taxation may prove especially bitter and polarizing….

It doesn’t seem fair to the holders of that wealth to suddenly pay additional taxes on assets that they thought were in the clear, and such taxes would signal that previous policy has failed. Higher wealth in a nation means that there is more to take, and growing inequality means there are more problems that its government might seek to remedy. At the same time, however, this new economic configuration will mean greater political influence for the holders of that wealth, and that will make higher wealth taxes harder to achieve. Historically, economists–including me–have generally favored taxes on consumption, on the grounds that they would do the least damage to long-term savings, investment and economic growth. Yet in some eyes, rising wealth will become a tempting target for short-term political gain. And note that while most Republicans currently oppose consumption taxes, they may dislike the relevant alternative, namely wealth taxes, even more. Get ready to choose a side.

Let me just give the microphone to Ta-Nehisi Coates at The Atlantic:

**Ta-Nehisi Coates:** This Town Needs a Better Class of Racist: “The question Cliven Bundy put to his audience last week…

…Was the black family better off as property?—is as immoral as it unoriginal… economists Walter Williams and Thomas Sowell, former congressman Allen West, sitting Representative Trent Franks, singer Ted Nugent, and presidential aspirants Rick Santorum and Michele Bachmann… each… is careful to not praise slavery and to note his or her disgust at the practice. This is neither distinction nor difference….

Continue reading “Elegant and Oafish Racism in America Today: Friday Focus: May 2, 2014” →