Category: Equitablog

Tim Duy: That Train Left the Station: “I was re-reading some of the recent overshooting debate and it occurred to me that it is comical that we are even having this discussion.

The Fed is not going to deliberately overshoot inflation, period.  That train left the station long ago. So long ago that you can’t even here the rumble on the tracks. The train left the station on January 25, 2012, with this statement by the Federal Reserve: ‘The Committee judges that inflation at the rate of 2 percent, as measured by the annual change in the price index for personal consumption expenditures, is most consistent over the longer run with the Federal Reserve’s statutory mandate.’ On that day, the Federal Reserve locked in the definition of price stability.  They locked it in specifically to prevent even the appearance they might deliberately overshoot as a result of extraordinary monetary policy. They locked it in as a commitment device to tie the hands of future policymakers as they would need to justify changing the definition of price stability, presumably a very high bar for any central banker to cross. On that day, the Federal Reserve took higher inflation expectations off the table.  They pulled it from the toolkit.  They made clear there is one and only one inflation target for all time.  The only tolerable deviations from that target are essentially forecast errors.  That’s it.

Josh Bivens sends us a link to a House of Representatives hearing he participated in, with a striking discussion that takes place at the 45:00 mark…

On the panel, in addition to Josh, were Larry White,[1] Marvin Goodfriend, and Paul Kupiec. Congressman Bill Foster asked why predictions five years ago that the Federal Reserve’s expansion of its balance sheet would produce runaway inflation had been wrong:

Marvin Goodfriend said he would: “forgive people who… did not catch what what the Fed was doing” and so forecast inflation. In his view, the Fed’s “dumping so many reserves into the system created a zero opportunity cost environment and the banks just held the reserves”, and that was not something that we had seen since the 1930s–hence not something people should have been expected to forecast.

Paul Kupiec added: “It was worse than that: [the Fed] pay[s] [banks] 25 basis points on holding reserves…”

And Larry White chimed in: “the Fed has sterilized those injections” that had taken “the monetary base and see[n] it double and triple…” by paying interest on reserves.

On the videotape, Josh Bivens looks visibly flummoxed. I can see him thinking: “All of these guys are relatively orthodox quantity theory guys–they all expect a tripling of the monetary base to cause 200% inflation. And here they are, all saying that what you need to halt that 200% inflation is for the Fed to offer to pay 0.25%/year on reserves. Paying the banks $5 billion a year on their $2 trillion of reserves is enough to stop a 200% inflation in its tracks, and do so indefinitely. Do they really believe this?”

Apparently they do…

Continue reading “In Which I Try and Fail to Understand the Current State of Right-Wing Monetary Economics: Wednesday Focus: March 19, 2014” →

Timothy Noah: Inside Low-wage Workers’ Plan to Sue McDonald’s — and Win: “The wage theft lawsuits filed against McDonald’s last week in New York, Michigan and California threaten to breach a wall that for decades has protected fast-food corporations from the demands of minimum wage workers.
 

The lawsuits accuse McDonald’s restaurants of various illegal labor practices. Many fast food workers, it’s alleged, have been taken “off the clock” either while working or while waiting on site to start or complete a shift; either way, federal law requires that the workers be compensated for their time. Another allegation is that many of these low-wage workers have gotten the cost of their uniforms deducted from their paychecks, effectively reducing their pay to below the federally or state-mandated minimum wage. Yet another allegation is that many fast food workers have been denied legally-mandated overtime pay. What’s unusual here aren’t the claims of labor law violations, which are common enough, but rather, who’s being blamed. The wall that fast food workers hope to blast through with these class-action suits is the franchise system. All of the lawsuits name McDonald’s itself as a defendant, even though most of the targeted restaurants are owned not by McDonald’s but by McDonald’s franchisees.

Jon Cohn: New GOP Health Plan Sounds Exactly Like Old One: “House Republican leaders have come up with a new health care proposal.

And based on a report in the Washington Post, it will look a lot like their old health care proposals—the ones that would have done very little to improve access, reduce financial distress, and contain health care spending. But this new plan would be different in one key respect. Implementing this sort of Republican plan now would probably mean taking away coverage from quite a lot of people who just got it. That’s a pretty big deal…. The interesting question is how Republicans intend to present this plan…. If Republicans intend to repeal the Affordable Care Act and replace it with the framework that Costa’s story describes—or even something with a bit more money behind it—a lot of those people are going to lose… insurance altogether. Until this year, taking away Obamacare meant taking away a hypothetical benefit. Now that benefit is real…. But really, the policy details are sort of irrelevant here. Notwithstanding the efforts of a few dedicated intellectuals and a tiny cadre of federal lawmakers, the vast majority of Republican officials have zero interest in health care reforms that significantly increase access to care. The new House Republican plan was supposed to show otherwise. If they actually manage to produce something—this isn’t the first time they’ve promised a proposal wasn’t imminent—and if it looks like the media reports suggest, the plan will merely confirm everybody’s suspicions: Significantly increasing access to health care just isn’t a priority for today’s Republican Party.

Gavyn Davies ran a little debate over at his place in the FT:

Gavyn Davies: A debate on emerging market turbulence: “I have asked three distinguished international economists… Maurice Obstfeld (University of California, Berkeley), Alan M. Taylor (UC, Davis) and Dominic Wilson (Co-Head of Global Economics, Goldman Sachs)….

Since the text turned out to be fairly lengthy, I would like to offer here a summary of the main points which emerged….

Sudden Stop or Credit Crunch?: I have previously argued that the current EM crisis is likely to be characterised by a domestic credit crunch in many economies, rather than a “sudden stop” in capital inflows, similar to that which occurred in the 1990s…. Everyone agreed that most of the EMs are far better placed to withstand capital outflows than they were… flexibility of exchange rates… structural advances…. [But] there was a clear recognition from the panel that there has been a very worrying build up in leverage and domestic credit in the EMs since 2008, and that this could cause major disruptions…. AMT presented data which showed large rises in domestic leverage in China, South Africa, Turkey, some Baltic countries, Ukraine, Colombia, Brazil and India – a familiar cast list…. There was considerable concern about the possible balance sheet mismatches that might be revealed in such circumstances, since previous crises have always uncovered problems in unexpected places…..

Continue reading “Debate: Gavyn Davies et al. on Emerging Market Turbulence: Wednesday Focus: March 19, 2014” →

Must-Reads:

1. Gretchen Morgenson: A Loan Fraud War That’s Short on Combat: “In the years since the financial crisis of 2008, the Justice Department has been regularly questioned about a lack of criminal prosecutions related to the mortgage mess. Its responses have just about always been the same, whether in public speeches by Eric H. Holder Jr., the attorney general, or in interviews with Lanny A. Breuer, its former criminal division chief. Believe us, they would say, we’ve been working overtime on these matters; if there had been cases to make, we would have made them.Mr. Breuer was especially vocal with these talking points. But last week, a report from the inspector general of the Justice Department, Michael E. Horowitz, set the record straight. Sure enough, the report told us how hard the nation’s law enforcement officials had been investigating these cases. That is, hardly at all. The report, called “Audit of the Department of Justice’s Efforts to Address Mortgage Fraud,” covers the period from 2009 to 2011. It vindicates anyone who ever questioned the government’s claim that the reason there weren’t more mortgage-related fraud cases is because the cases just weren’t there to be made…”

2. Matthew O’Brien: The Fed Absolutely Shouldn’t Give Up on the Long-Term Unemployed: “Are the long-term unemployed just doomed today or doomed forever? That’s the question people are really asking when they ask if labor markets are starting to get “tight.” Now, it’s hard to believe that this is even a debate when unemployment is still at 6.7 percent and core inflation is just 1.1 percent. But it is. The new inflation hawks argue that these headline numbers overstate how much slack is left in the economy. That the labor force is smaller than it sounds, because firms won’t even consider hiring the long-term unemployed. That our productive capacity is lower than it sounds, because we haven’t invested in new factories for too long. And that wages and prices will start rising as companies pay more for the workers and work that they want. In other words, they think that the financial crisis has made us permanently poorer. That the economy can’t grow as fast as it used to, so inflation will pick up sooner than it used to—and we need to get ready to raise rates. (Notice how that’s always the answer no matter the question)…”

Continue reading “Things to Read on the Afternoon of March 18, 2014” →

**Gretchen Morgenson:** A Loan Fraud War That’s Short on Combat: “In the years since the financial crisis of 2008, the Justice Department has been regularly questioned about a lack of criminal prosecutions related to the mortgage mess.

Its responses have just about always been the same, whether in public speeches by Eric H. Holder Jr., the attorney general, or in interviews with Lanny A. Breuer, its former criminal division chief. Believe us, they would say, we’ve been working overtime on these matters; if there had been cases to make, we would have made them.Mr. Breuer was especially vocal with these talking points. But last week, a report from the inspector general of the Justice Department, Michael E. Horowitz, set the record straight. Sure enough, the report told us how hard the nation’s law enforcement officials had been investigating these cases. That is, hardly at all. The report, called “Audit of the Department of Justice’s Efforts to Address Mortgage Fraud,” covers the period from 2009 to 2011. It vindicates anyone who ever questioned the government’s claim that the reason there weren’t more mortgage-related fraud cases is because the cases just weren’t there to be made…

Jared Bernstein learns three four lessons from the National Restaurant Association’s right-wing sock puppets economists letter.

Lesson 1: the NRA would rather not have its role in the debate public:

Jared Bernstein: The Paradoxical Position of the National Restaurant Association in the Minimum Wage Debate: “We learn in today’s paper that unknown to its signers, the opponents’ letter was organized and even partially drafted by the National Restaurant Association (NRA)…. OK, clearly smarmy but biz as usual in DC.  Clearly, the (other) NRA thought they’d lose signatories if they revealed their role, a fear the Economic Policy Institute, a research organization (where I used to work), did not share.

Continue reading “Lessons from the National Restaurant Association Astroturf Letter: Tuesday Focus: March 18, 2014” →

And Nate Silver launches:

FiveThirtyEight | What the Fox Knows.

Let us start with Paul Krugman, commenting on a piece by Noah Smith:

Paul Krugman: Charge of the Right Brigade: “Noah Smith writes about what he calls the ‘finance macro canon’… that money-printing and deficits lead inexorably to runaway inflation,

plus assorted other arguments about why easy money is a terrible thing even in a depressed economy… a view that is dominant on much of Wall Street. I’ve had several recent conversations with finance-industry people… who talk with some wonderment about the failure of high inflation and a plunging dollar to materialize, because “all the experts” told them to expect that outcome….

Continue reading “Understanding the Wall Street View of the World–and Why It Doesn’t Change: Monday Focus: March 17, 2014” →