tag:blogger.com,1999:blog-2546602206734889307.post6392218302297101384..comments2024-03-28T04:29:22.717+00:00Comments on mainly macro: The 'strong case' critically examinedMainly Macrohttp://www.blogger.com/profile/09984575852247982901noreply@blogger.comBlogger34125tag:blogger.com,1999:blog-2546602206734889307.post-53999673037685264912016-03-18T17:07:29.584+00:002016-03-18T17:07:29.584+00:00> "(...)having a politician choose rates f...> "(...)having a politician choose rates for reasons that are unclear is hardly democratic. "<br /><br />But the politician's reasons would presumably be "because the people wanted them set that way", which would be democratic even if it were also wrong.Pseudonymnoreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-55536022522383606792016-03-13T11:26:38.260+00:002016-03-13T11:26:38.260+00:00Hi Simon,
I am not sure this is the right place, ...Hi Simon,<br /><br />I am not sure this is the right place, but I would like to have your opinion on this idea :<br />inequality targeting policies. Inflation ( or a similar macro target ) targeting is debatable but overall a great idea and there is an international consensus on it. There is also a consensus on the fact that it is not efficient to counter the rising concern of our time on inequalities, which is more a political issue to be tackled by governments.<br /><br />Don't you think that the equivalent of inflation targeting by the ICBs would be some form of inequality targeting by governments ?<br /><br />I strongly feels that governments in general set too many micro objectives that they often cannot control and miss the big picture. <br /><br />The primary tool for inequality targeting would be fiscal policies and minimum income, but the important idea is to set a target.<br /><br />That would also be a key to overcome short term politics, and maybe create a new independent institution responsible for the inequality mandate.<br />journalhttps://www.blogger.com/profile/09242215949223210068noreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-82334093193432766682016-03-10T09:24:32.010+00:002016-03-10T09:24:32.010+00:00I have a cunning (Post K) plan. Set the central ba...I have a cunning (Post K) plan. Set the central bank base rate to zero and leave it there. Shut down the "monetary policy" unit and the MPC. Central bank reverts to being the reserves clearing bank, with permanent overdraft facilities, for deposit taking commercial banks and small business free factoring.<br /><br />The newly named national clearing bank, becomes part of the Treasury and amalgamated with the Treasury Debt Management Office. The National Loans Fund is the consolidated fund. The Treasury “full funding” rule is abandoned, Gilts and Treasuries will only be issued for operational purposes, not free money for pension funds.<br /><br />Fiscal policy becomes the inflation controller applied across each main / sub sector of the economy. Treasury spending and dynamic taxing, will be used to take up spare capacity and increase employment in desired sectors; or, tax it if you want to cool down a sector, or divert some of its output into the public sector. That includes taxing excessive credit creation in the private sector, that creates bubbles like housing and the sub-prime mortgage disaster of 2008. Simples ;-) <br /><br />This will put all the responsibility on elected politicians. They will no longer be able to hide behind a central bank governor (redundant) and his/her well passed its sell buy date, monetary policy.acornhttps://www.blogger.com/profile/16096980683528426092noreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-60132103970181429482016-03-09T16:35:04.862+00:002016-03-09T16:35:04.862+00:00The Great Recession that everyone seems to think s...The Great Recession that everyone seems to think started around 2008.<br />Of course, it looks like it did, but the crash was just the inevitable result of the things that were done in the years before it.<br />If you wait until the crash is happening before trying to stop it, it is like trying to stop an avalanche after it has started falling.<br />You have to do something about the snow piling up before it becomes a hazard. StuartPhttps://www.blogger.com/profile/13748038209546648459noreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-55956458591606406512016-03-09T13:16:23.998+00:002016-03-09T13:16:23.998+00:00I am 100% agree on this point that You have not pr...I am 100% agree on this point that You have not presented a strong case against the independence of central banks, neither in your first nor in this post. That is perhaps no surprise since you yourself are in favor of their independence.wedding photographerhttp://www.craiggarsidephotography.co.uknoreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-63401135172846339352016-03-09T07:32:30.350+00:002016-03-09T07:32:30.350+00:00Why do you assume that a rate chosen by a politici...Why do you assume that a rate chosen by a politician would be for reasons that are less clear than those chosen by a central bank?<br /><br />I would want the MPC to recommend publicly its proposed rate with justification. The expectation would be that the Chancellor would follow this but if he chose not to do so then he should have to present his reasons to Parliament.<br /><br />Such an arrangement would increase visibility of decision making.Anonymoushttps://www.blogger.com/profile/10623963884259918737noreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-35097978080705773112016-03-09T05:59:26.157+00:002016-03-09T05:59:26.157+00:00We are already out of deflation. The problem is sl...We are already out of deflation. The problem is sloppy handling of inflation that under counts it persistently. <br /><br />Central Banks are a mess largely because of poor government accounting do to the 70's inflation hoax(aka population boom created shortages). The key is the massive technological revolution jacking up production like crazy in the late 20th century. We can produce so much, much more than we would ever need. It keeps prices down. It even hit commodities. We can produce far more than in 1970. <br /><br />ICB's have a extremely loose monetary policy in response, of what they think is low inflation as a result. Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-77698386737947984522016-03-09T05:53:35.094+00:002016-03-09T05:53:35.094+00:00Act to stop what recession? Posts like these make ...Act to stop what recession? Posts like these make me wonder what you are thinking...........Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-26502518047299002782016-03-09T05:52:13.366+00:002016-03-09T05:52:13.366+00:00Right, but 70's inflation was unstoppable. Mas...Right, but 70's inflation was unstoppable. Massive population growth coupled with inability to produce the products at a profit for that surge led to huge price inflation. Actual, real monetary inflation was flat in the mid-late 70'sAnonymousnoreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-68222360936968999512016-03-08T22:10:57.350+00:002016-03-08T22:10:57.350+00:00Historically at least, the culture of ICBs, from N...Historically at least, the culture of ICBs, from NZ onwards has been much more focussed on the inflation side of things and much less concerned with jobs or growth. Indeed, much of the theorising of ICB credibility has rested on the willingness to "do a Volcker" and "crash the economy for the greater good." It's a long time since an ICB was significantly and effectively reprimanded for undershooting the inflation target.<br /><br />(Note, I have no useful solution to this conundrum.)<br /><br />All of this is of course amplified by the fuzzy way inflation is discussed. The colloquial ways of both non-economists and many economists leads to conflation of any move in the inflation index with "wage inflation" which then leads us back to the "being as tough as Volcker" moments...Metatonenoreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-6965276934670734682016-03-08T22:03:18.460+00:002016-03-08T22:03:18.460+00:00But this is a recent development. Part of how we g...But this is a recent development. Part of how we got here was grandstanding by prominent economists in favour of austerity. So, for the future, it remains an important question. Even for the present, said grandstanding needs to be seen to be dealt with firmly and very publicly. For as long as it is not, the bolstering effect on politicians like Osborne will remain.<br />Metatonenoreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-49884066073908361602016-03-08T20:52:46.498+00:002016-03-08T20:52:46.498+00:00If ICBs are good because they avoid Monetary Polic...If ICBs are good because they avoid Monetary Policy motivated by political factors (dropping rates at election times) then do you believe that the same applies to Fiscal Policy, and would you accept that an independent Treasury is a step to far down the road of technocracy?<br /><br />Equally is Monetary Policy not inherently a political decision to be made by politicians. You have argued before that Monetary expansion is better than Fiscal expansion based on the assumption that the current public/private good mix is optimal: which is certainly subjective idea for politicians and not Central Bankers to decide.-https://www.blogger.com/profile/05617000109355910830noreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-58677313330243463212016-03-08T20:29:41.107+00:002016-03-08T20:29:41.107+00:00Ironically, the OECD and IMF were two of the organ...Ironically, the OECD and IMF were two of the organisations I had in mind. Granted they are now (belatedly) advocating deficits and/or the investment to which you refer. But at the height of the crisis they were advocating consolidation / austerity. Bill Mitchell has done a few articles on that topic, e.g.:<br /><br />http://bilbo.economicoutlook.net/blog/?p=24922<br />http://bilbo.economicoutlook.net/blog/?p=19034<br />Ralph Musgravehttps://www.blogger.com/profile/09443857766263185665noreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-71288439845073981342016-03-08T20:23:30.637+00:002016-03-08T20:23:30.637+00:00"Perhaps it was too unconventional setting ou..."Perhaps it was too unconventional setting out an argument (against independent central banks, ICBs) that I did not agree with"<br /><br />Isn't that a strawman?Randomhttps://www.blogger.com/profile/04445772572707818311noreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-28718841304518915412016-03-08T20:14:19.883+00:002016-03-08T20:14:19.883+00:00by what workhorse model do the non-work arounds pr...by what workhorse model do the non-work arounds produce the causal dynamics? <br /><br />i think Nick Rowe's answer for negative rates is the IS curve plus Phillips curve (with expectations playing big role in both). <br /><br />i think the big problem with this account--although i should say its the best imho, is that it might seriously muddy our nominal/real distinction in that monetary policy might have a strong real effect and a tenuous nominal effect.<br /><br />take the following special case where nominal perpetual bonds yield zero and cash yields zero--now lets say zero nominal yields happen to be exactly those required for full employment (pick what ever inflation rate you want towards which these nominal bond yields are in the service and guarantee this outcome)<br /><br />now lets say that the monetary authority lowers bond yields and cash yields--while keeping them equal--more than 1-1 to offset a fall in inflation expectations. my argument is that this is more than sufficient to restore full enployment, but that its effect on the future price level is ambiguous. one could think of many reasons why this might be true in theory, for eample the future price level could adjust downwards by the slight margin needed to ensure only full employment and no more and the monetary authority might passively accept this change. While this specific example is highly stylized, this is not just academic, if you look at the ratio of m2/gdp in various countries, even BROAD monetary aggregates are very sensitive to the opportunity cost of holding money (and btw the Pigou effect doesnt seem to pull up the price level even at very large real money balance---incidentally why i am very skeptical of helicopter money).<br /><br />to wrap up, in the basic model, if you keep pusing rates below r*, eventually you get inflation via the phillips curve--otherwise you could just push unemployment to zero--and if you perform the counterfactual of holding rates constant at that time, real rates would get progressively more negative reinforcing the whole loop and driving inflation up, up and away. it is precisely the prohibition of this path via a policy rule that estabishles a RE equilibrium. <br /><br />as far as it goes, this is a credible and causally robust model. it has one major deficit though. <br /><br />if the return to bonds and cash is expected to be equal for a functionally long enough period, i dont think its very good at tieing down the future price level. Nothing new here at all of course.Mc.https://www.blogger.com/profile/13838848946370207573noreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-15206219826169933262016-03-08T19:55:29.686+00:002016-03-08T19:55:29.686+00:00"Another possibility is that the government (..."Another possibility is that the government (in its saner moments) gives ICBs the power to undertake helicopter money."<br /><br />Disagree. I think the government should give me the power to create money to buy chocolate and have my own theme park. That is a far superior suggestion. Or am I lacking an awesome beard?Randomhttps://www.blogger.com/profile/04445772572707818311noreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-35771474942105184192016-03-08T19:37:12.292+00:002016-03-08T19:37:12.292+00:00"helicopter money does not preclude using fis..."helicopter money does not preclude using fiscal policy in a more sensible way. Think of it as a way a government can commit itself not to screw up the economy at some later date after a recession."<br /><br />Of course it does! Do you think your readers are dumb? If the central bank hands outs free money there is less fiscal space without causing inflation. Combined with high interest rates will mean your project cannot be funded. Much better low interest rates + no free money.<br /><br />Couldn't ICBs blackmail governments by refusing helicopter money? Or conversely government pressures CB to introduce HM?<br /><br />"ICBs have at least been trying to get us out of deflation, while governments have been acting against them."<br /><br />Sure the Conservative government has, but the opposition has supported "money financed" PQE or at least did until it was dropped for "CB Independence."<br /><br />BTW Carney has been scaremongering over the EU Referendum:<br /><br />http://www.telegraph.co.uk/news/newstopics/eureferendum/12187164/eu-referendum-mark-carney-priti-patel-suffragettes-brexit-live.html<br /><br />"EU referendum: Mark Carney warns Brexit is biggest risk to Britain's financial stability"Randomhttps://www.blogger.com/profile/04445772572707818311noreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-43930084380445787672016-03-08T19:23:42.738+00:002016-03-08T19:23:42.738+00:00"that ranks alongside deficit obsession is th..."that ranks alongside deficit obsession is the evil of printing money in any circumstances."<br /><br />I can never understand that.<br /><br />All bank lending is balance sheet expansion aka printing money. All government spending is printing money.<br /><br />Factoring companies and debt recovery firms that trade delinquent debts are creating money. Any liability that passes around changing title is a form of endogenous money. It allows spending without requiring saving ahead of time. Randomhttps://www.blogger.com/profile/04445772572707818311noreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-18373494958413900702016-03-08T13:07:34.192+00:002016-03-08T13:07:34.192+00:00When governments get it wrong, we need to change t...When governments get it wrong, we need to change the government.Anonymoushttps://www.blogger.com/profile/10623963884259918737noreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-65339878342217363542016-03-08T12:39:35.552+00:002016-03-08T12:39:35.552+00:00Prof. Wren-Lewis,
In your two posts, you repeated...Prof. Wren-Lewis,<br /><br />In your two posts, you repeated what you have been saying for as long as anyone can remember: That central banks and governments were consistently wrong in their reactions to the great recession since 2007.<br /><br />But, in your two posts, there is nary a word linking those mistakes to central banks' independence, or that anyone holds such a theory.<br /><br />So you do not present anybody's case against central banks' independence, let alone a strong case.<br /><br />Some people might find that odd, or even funny.<br />Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-50219567784953850032016-03-08T12:22:40.863+00:002016-03-08T12:22:40.863+00:00Ah, thanks Simon. Maybe I'm paranoid. Or maybe...Ah, thanks Simon. Maybe I'm paranoid. Or maybe I don't understand English English any more (it's a weird language).<br /><br />I really dislike the idea of abolishing hand-to-hand currency, though not for any narrowly economic reasons. As JP Koning tweeted a few weeks ago, George Orwell got monetary policy totally wrong in 1984, because currency still exists. Margaret Atwood got it right in The Handmaid's Tale, where currency has been abolished.<br /><br />If it really came to the crunch, with a very negative natural rate, why should the government necessarily provide a price support program for savers to prevent the economy crashing? Raise the Inflation/Price level path/NGDP level path temporarily, if need be. Or just privatise currency, and let the commercial banks issue currency with a crawling peg devaluation rate.<br /><br />I think we have a theoretical disagreement on helicopter money. I insist that monetary transfers are not net wealth unless they are expected to be permanent (relative to the counterfactual), so that helicopter money is theoretically equivalent to a temporary increase in the inflation target (a permanent increase in the price level target). And (appeals to authority) I'm pretty sure Patinkin and Buiter are on my side with this. (Please take as read an old-school rant about whippersnapper New Keynesians forgetting M and the old "Is Money Net Wealth?" debate of the 60's/70's, which is another thing that got swept aside and lost in the New Classical/New Keynesian revolution.)Nick Rowehttps://www.blogger.com/profile/04982579343160429422noreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-150186613381786952016-03-08T11:40:08.231+00:002016-03-08T11:40:08.231+00:00ICBs have at least been trying to get us out of de...ICBs have at least been trying to get us out of deflation, while governments have been acting against them. My earlier case against ICBs did not rest on their competence, both rather that the institution took away an instrument.<br /><br />As I said in an earlier post, helicopter money does not preclude using fiscal policy in a more sensible way. Think of it as a way a government can commit itself not to screw up the economy at some later date after a recession. Or as the government giving the ICB the instrument it needs when the ZLB arises. Mainly Macrohttps://www.blogger.com/profile/09984575852247982901noreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-55892428895182439692016-03-08T11:34:50.136+00:002016-03-08T11:34:50.136+00:00I'm not sure who the 'economists' you ...I'm not sure who the 'economists' you have in mind are. All the economists I can think of, plus the OECD and IMF, are arguing for higher public investment now. The problems is that economists are being ignored.Mainly Macrohttps://www.blogger.com/profile/09984575852247982901noreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-63239712003442136612016-03-08T11:32:51.354+00:002016-03-08T11:32:51.354+00:00I thought I had presented a case that appeared to ...I thought I had presented a case that appeared to link ICBs directly to the slow recovery from the Great Recession. I then said why I thought that case was wrong, or at least misdirected. You are welcome to disagree with both arguments, and say why. <br /><br />But quite why the exercise was 'beneath me' I cannot see. It is after all a pretty standard exercise to put what you think is the best case of the opposing side, and then try to knock it down. Mainly Macrohttps://www.blogger.com/profile/09984575852247982901noreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-16363516756717066042016-03-08T11:25:48.541+00:002016-03-08T11:25:48.541+00:00While I like your logic, I would argue with your f...While I like your logic, I would argue with your first point, at least as far as the wave of ICBs created over the last couple of decades. When I talked about not trusting politicians, what I had in mind were relatively minor indiscretions, not creating rampant inflation. An ICB in the US did not stop 70s inflation.<br /><br />You are right that taking away fiscal policy from governments might solve the deficit obsession problem, but for many reasons that kind of delegation is much more problematic. Delegation with monetary policy does not reduce democracy in my view, because having a politician choose rates for reasons that are unclear is hardly democratic. Mainly Macrohttps://www.blogger.com/profile/09984575852247982901noreply@blogger.com