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2
U.S.
Obama Assures Disabled Veterans They Will Get Aid
The president addressed the annual convention of the Disabled American Veterans in Florida, then left for an eight-day vacation.
3
Theater
A Musical’s Unorthodox Genesis
The new Broadway musical “Soul Doctor” stars Eric Anderson, who isn’t Jewish, as the real-life singing rabbi Shlomo Carlebach.
4
Booming
When Cheating’s the Issue, Remorse Helps
If a couple really love each other, they can overcome the effects of an extramarital affair, a marriage and family therapist says.
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6
Business Day
Bank of England Ties Interest Rate to Employment
The Bank of England said Wednesday that it planned to keep interest rates at a record low until unemployment falls to at least 7 percent.The Pigou Effect (Double-super-special-wonkish)
Via Brad DeLong, Robert Waldmann weighs in on the contributions or lack thereof of Milton Friedman, arguing that much of what he said was already there in Samuelson and Solow 1960.
Actually, I’d give him more credit than that; the S-S paper — very
unusually for both men, and for Bob Solow in particular — is one of
those pieces sometimes described as “rich”, with many points alluded to
but not many takeaway lines; to the extent that people did take
something away, it was the crude notion of a usable downward-sloping
Phillips curve, which turned out to be wrong.
Friedman — like Solow, in most of his work — was in the habit of writing crisp papers with very clear morals. So while you can,on a careful read, see from S-S why you should not in fact trust the Phillips curve to be stable, people didn’t actually get that until Friedman and Phelps laid out the point with stark clarity. Credit where credit is due.
Oh, and yes, I modeled my own intellectual style after Bob Solow’s (and Rudi Dornbusch, who was in the same tradition).
What caught me in the Waldmann piece, however, was the brief discussion of the Pigou effect, which supposedly refuted the notion of a liquidity trap. The what effect? Well, Pigou claimed that even if interest rates are up against the zero lower bound, falling prices will be expansionary, because the rising real value of the monetary base will make people wealthier. This is also often taken to mean that expansionary monetary policy also works, because it increases money holdings and thereby increases wealth and hence consumption.
And that’s where I came in (pdf). Looking at Japan in 1998, my gut reaction was similar to those of today’s market monetarists: I was sure that the Bank of Japan could reflate the economy if it were only willing to try. IS-LM said no, but I thought this had to be missing something, basically the Pigou effect: surely if the BoJ just printed enough money, it would burn a hole in peoples’ pockets, and reflation would follow.
But what I did was a little different from what the MMs have done this time around: I set out to prove my instincts right with a little model, a minimal thing that included actual intertemporal decisions instead of using the quasi-static IS-LM framework. [If you have no idea what I'm talking about, you have only yourself to blame -- I warned you in the headline]. And to my considerable surprise, the model told me the opposite of my preconception: there was no Pigou effect. Consumption was tied down in the current period by the Euler equation, so if you couldn’t move the real interest rate, nothing happened.
One way to say this — which Waldmann sort of says — is that even a helicopter drop of money has no effect in a world of Ricardian equivalence, since you know that the government will eventually have to tax the windfall away. Of course, you can invoke various kinds of imperfection to soften this result, but in that case it depends very much who gets the windfall and who pays the taxes, and we’re basically talking about fiscal rather than monetary policy. And it remains true that monetary expansion carried out through open-market operations does nothing at all.
In the simple model, the only channel through which money can operate when you’re against the zero lower bound is by changing expectations of future inflation. And that’s hard to do.
The main point, however, is that we are a very long way from classic monetarism, of the form that says that the central bank can control broad monetary aggregates like M2 at will, and in turn that these broad monetary aggregates determine the course of the economy. That’s not at all true when you’re up against the zero lower bound — which is why Friedman’s analysis of the Great Depression was wrong, and one reason (the other is the madness of the GOP) why modern Friedmanites are a very small group with no real constituency."
Friedman — like Solow, in most of his work — was in the habit of writing crisp papers with very clear morals. So while you can,on a careful read, see from S-S why you should not in fact trust the Phillips curve to be stable, people didn’t actually get that until Friedman and Phelps laid out the point with stark clarity. Credit where credit is due.
Oh, and yes, I modeled my own intellectual style after Bob Solow’s (and Rudi Dornbusch, who was in the same tradition).
What caught me in the Waldmann piece, however, was the brief discussion of the Pigou effect, which supposedly refuted the notion of a liquidity trap. The what effect? Well, Pigou claimed that even if interest rates are up against the zero lower bound, falling prices will be expansionary, because the rising real value of the monetary base will make people wealthier. This is also often taken to mean that expansionary monetary policy also works, because it increases money holdings and thereby increases wealth and hence consumption.
And that’s where I came in (pdf). Looking at Japan in 1998, my gut reaction was similar to those of today’s market monetarists: I was sure that the Bank of Japan could reflate the economy if it were only willing to try. IS-LM said no, but I thought this had to be missing something, basically the Pigou effect: surely if the BoJ just printed enough money, it would burn a hole in peoples’ pockets, and reflation would follow.
But what I did was a little different from what the MMs have done this time around: I set out to prove my instincts right with a little model, a minimal thing that included actual intertemporal decisions instead of using the quasi-static IS-LM framework. [If you have no idea what I'm talking about, you have only yourself to blame -- I warned you in the headline]. And to my considerable surprise, the model told me the opposite of my preconception: there was no Pigou effect. Consumption was tied down in the current period by the Euler equation, so if you couldn’t move the real interest rate, nothing happened.
One way to say this — which Waldmann sort of says — is that even a helicopter drop of money has no effect in a world of Ricardian equivalence, since you know that the government will eventually have to tax the windfall away. Of course, you can invoke various kinds of imperfection to soften this result, but in that case it depends very much who gets the windfall and who pays the taxes, and we’re basically talking about fiscal rather than monetary policy. And it remains true that monetary expansion carried out through open-market operations does nothing at all.
In the simple model, the only channel through which money can operate when you’re against the zero lower bound is by changing expectations of future inflation. And that’s hard to do.
The main point, however, is that we are a very long way from classic monetarism, of the form that says that the central bank can control broad monetary aggregates like M2 at will, and in turn that these broad monetary aggregates determine the course of the economy. That’s not at all true when you’re up against the zero lower bound — which is why Friedman’s analysis of the Great Depression was wrong, and one reason (the other is the madness of the GOP) why modern Friedmanites are a very small group with no real constituency."
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Business Day
New Claims by Jobless Are Lowest Since 2007
The Labor Department said that the average number of people who applied for benefits over the last four weeks dropped to its lowest level since November 2007.
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Health
Rituals Make Our Food More Flavorful
Even simple acts like scraping wooden chopsticks together or tapping a soda can before pulling the tab can raise people’s interest in what they are eating or drinking, a series of experiments found.
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N.Y. / Region
Judge Raises Prospect of Criminal Charges in Hospital Case
A judge asked a lawyer whether he had reported allegations of criminal interference with emergency room services at Long Island College Hospital to the Brooklyn district attorney.Editorial
Wrestling With Dying Hospitals
By THE EDITORIAL BOARD
Published: August 11, 2013
Think about New York City and public health, and the mind instantly goes
to soda cups and cigarette bans, to Mayor Michael Bloomberg’s 12-year
campaign of behavioral modification to make his fellow citizens ditch
their bad habits. But eating better is not the only way to a healthier
city, especially when so many New Yorkers lack access to decent health
care in their own neighborhoods. On that, the Democratic candidates agree about the need for more primary
and preventive care and far less reliance on the emergency room. One
candidate, Bill de Blasio, has taken on that problem with a plan to save
dying community hospitals in his home borough, Brooklyn.
Mr. de Blasio was arrested
last month, protesting plans by the State University of New York to
close Long Island College Hospital in Cobble Hill, which has hemorrhaged
money and patients for years.
Mr. de Blasio has made fighting hospital closings a crusade, and his
office sued to block the shutdown, arguing that it lacked proper review
and would rob the community of needed services. A court order is keeping
the hospital open for now, though it has only a handful of patients and
no apparent future.
It’s easy to dismiss Mr. de Blasio’s arrest as a way to broadcast his
solidarity with 1199 S.E.I.U., the health care workers’ union, which has
endorsed him. But he has elevated an important issue on which Mr.
Bloomberg long ago checked out. Struggling community hospitals,
including the two on the brink of extinction — Long Island College
Hospital and Interfaith Medical Center in Bedford-Stuyvesant, which is
in bankruptcy court — have been badly managed and are ill equipped to
survive in a changing marketplace. Many are disappearing under mountains
of debt and need to be either rescued or reinvented.
Mr. de Blasio is proposing to try to do both, through a new entity, a
Brooklyn Health Authority, run jointly by the city and state, with the
power to modernize hospital systems boroughwide, coordinate the spending
of health care dollars and set higher standards of care. He argues that
haphazardly closing hospitals without a plan to transform the system
would be disastrous in the short run, especially for emergency and
psychiatric care. Long Island College Hospital and Interfaith, as Nina
Bernstein reported in The Times, serve a swath of the city where 250,000 people live, many of them poor and uninsured.
Mr. de Blasio’s plan hinges on New York State getting a federal waiver
to keep $10 billion in savings it has wrung from Medicaid to invest in
health reforms statewide. It also requires approval by lawmakers in
Albany, who may resist creating a new authority with the teeth to compel
mergers and contain costs.
Mr. de Blasio’s answer may not be perfect or ultimately achievable. His
rival Christine Quinn agrees that Long Island College Hospital should
stay open and that getting the Medicaid waiver is the key to financing
needed innovations in health care, but she doesn’t think Mr. de Blasio
has the whole answer. She says a solution is needed citywide, not just
in Brooklyn, and is wary of passing on this huge task to a newly
invented bureaucracy.
Institutions like Long Island College Hospital cannot remain as they
have been. It’s encouraging that the candidates at least agree that the
city’s weak hospitals must have the focused attention of the next mayor."
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U.S.
Threats Test Obama’s Balancing Act on Surveillance
The debate has grown far larger than administration officials anticipated, with lawmakers of both parties and half of Americans calling for restraint.
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N.Y. / Region
Albany, Long Buried in Paper, Resolves to Save a Small Forest
The delivery of bills to New York State lawmakers on tablets or laptop computers requires a constitutional amendment, which the Legislature will put before voters on the statewide ballot next year.
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Opinion
‘A Town Without Pity’
With so many Americans looking at the poor with disgust, no wonder we send so many empathy-challenged lawmakers to Congress.Friedman and the Austrians
Still thinking about the Bloomberg Businessweek interview with Rand Paul, in which he nominated Milton Friedman’s corpse for Fed chairman. Before learning that Friedman was dead, Paul did concede that he wasn’t an Austrian. But I’ll bet he had no idea about the extent to which Friedman really, really wasn’t an Austrian.In his “Comments on the critics” (of his Monetary Framework) Friedman described the “London School (really Austrian) view”
that the depression was an inevitable result of the prior boom, that it was deepened by the attempts to prevent prices and wages from falling and firms from going bankrupt, that the monetary authorities had brought on the depression by inflationary policies before the crash and had prolonged it by “easy money” policies thereafter; that the only sound policy was to let the depression run its course, bring down money costs, and eliminate weak and unsound firms.and dubbed this view an “atrophied and rigid caricature” of the quantity theory. The Chicago School, he claimed, never believed in such nonsense.
I have, incidentally, seen attempts to claim that nobody believed this, or at any rate that Hayek never believed this, and that characterizing Hayek as a liquidationist is some kind of liberal libel. This is really a case of who are you gonna believe, me or your lying eyes. Let’s go to the text (pdf), p. 275:
And, if we pass from the moment of actual crisis to the situation in the following depression, it is still more difficult to see what lasting good effects can come from credit expansion. The thing which is needed to secure healthy conditions is the most speedy and complete adaptation possible of the structure of production to the proportion between the demand for consumers’ goods and the demand for producers’ goods as determined by voluntary saving and spending. If the proportion as determined by the voluntary decisions of individuals is distorted by the creation of artificial demand, it must mean that part of the available resources is again led into a wrong direction and a definite and lasting adjustment is again postponed. And, even if the absorption of the unemployed resources were to be quickened in this way, it would only mean that the seed would already be sown for new disturbances and new crises. The only way permanently to “mobilize” all available resources is, therefore, not to use artificial stimulants—whether during a crisis or thereafter—but to leave it to time to effect a permanent cure by the slow process of adapting the structure of production to the means available for capital purposes. (10) And so, at the end of our analysis, we arrive at results which only confirm the old truth that we may perhaps prevent a crisis by checking expansion in time, but that we can do nothing to get out of it before its natural end, once it has come.If that’s not liquidationism, I’ll eat my structure of production."
But the most interesting moment may have been when Mr. Paul was asked
whom he would choose, ideally, to head the Federal Reserve and he
suggested Milton Friedman — “he’s not an Austrian, but he would be
better than what we have.” The interviewer then gently informed him that
Friedman — who would have been 101 years old if he were still alive —
is, in fact, dead. O.K., said Mr. Paul, “Let’s just go with dead,
because then you probably really wouldn’t have much of a functioning
Federal Reserve.”
Which suggests an interesting question: What ever happened to Friedman’s
role as a free-market icon? The answer to that question says a lot
about what has happened to modern conservatism.
For Friedman, who used to be the ultimate avatar of conservative
economics, has essentially disappeared from right-wing discourse. Oh, he
gets name-checked now and then — but only for his political polemics,
never for his monetary theories. Instead, Rand Paul turns to the
“Austrian” view of thinkers like Friedrich Hayek — a view Friedman once described as an “atrophied and rigid caricature”
— while Paul Ryan, the G.O.P.’s de facto intellectual leader, gets his
monetary economics from Ayn Rand, or more precisely from fictional characters in “Atlas Shrugged.”
How did that happen? Friedman, it turns out, was too nuanced and realist
a figure for the modern right, which doesn’t do nuance and rejects
reality, which has a well-known liberal bias.
One way to think about Friedman is that he was the man who tried to save
free-market ideology from itself, by offering an answer to the obvious
question: “If free markets are so great, how come we have depressions?”
Until he came along, the answer of most conservative economists was
basically that depressions served a necessary function and should simply
be endured. Hayek, for example, argued that “we may perhaps prevent a
crisis by checking expansion in time,” but “we can do nothing to get out
of it before its natural end, once it has come.” Such dismal answers
drove many economists into the arms of John Maynard Keynes.
Friedman, however, gave a different answer. He was willing to give a
little ground, and admit that government action was indeed necessary to
prevent depressions. But the required government action, he insisted,
was of a very narrow kind: all you needed was an appropriately active
Federal Reserve. In particular, he argued that the Fed could have
prevented the Great Depression — with no need for new government
programs — if only it had acted to save failing banks and pumped enough
reserves into the banking system to prevent a sharp decline in the money
supply.
This was, as I said, a move toward realism (although it looks wrong in
the light of recent experience). But realism has no place in today’s
Republican Party: both Mr. Paul and Mr. Ryan have furiously attacked Ben
Bernanke for responding to the 2008 financial crisis by doing exactly
what Friedman said the Fed should have done in the 1930s — advice he repeated to the Bank of Japan
in 2000. “There is nothing more insidious that a country can do to its
citizens,” Mr. Ryan lectured Mr. Bernanke, “than debase its currency.”
Oh, and while we’re on the subject of debasing currencies: one of
Friedman’s most enduring pieces of straight economic analysis was his
1953 argument in favor of flexible exchange rates,
in which he argued that countries finding themselves with excessively
high wages and prices relative to their trading partners — like the
nations of southern Europe today — would be better served by devaluing
their currencies than by enduring years of high unemployment “until the
deflation has run its sorry course.” Again, there’s no room for that
kind of pragmatism in a party in which many members hanker for a return
to the gold standard.
Now, I don’t want to put Friedman on a pedestal. In fact, I’d argue that
the experience of the past 15 years, first in Japan and now across the
Western world, shows that Keynes was right and Friedman was wrong about
the ability of unaided monetary policy to fight depressions. The truth
is that we need a more activist government than Friedman was willing to
countenance.
The point, however, is that modern conservatism has moved so far to the
right that it no longer has room for even small concessions to reality.
Friedman tried to save free-market conservatism from itself — but the
ideologues who now dominate the G.O.P. are beyond saving."
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World
Food-Safety Microscope on High-End Kitchens
Brazil is trying to improve restaurant standards as it prepares for the international attention that comes with the 2014 World Cup and 2016 Olympics.
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Magazine
‘She Told Herself She Couldn’t Die Because She Had To Write His Story’
How a forgotten musical genius became one woman’s obsession — and she, in turn, became mine.
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World
To American Watchdog on Afghan Reconstruction, Bluntness Is a Weapon
As the special inspector general for Afghan reconstruction, John F. Sopko says that “embarrassing people” is part of his job cataloging waste, mismanagement and fraud.
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Job Market
A Responsibility to Give Back
The chief executive of AARP says his grandfather, a minister, taught him the importance of making life better for others.
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Real Estate
In TriBeCa, Squeezing in Some Condo Pizazz
The 21-story condo, to be called Tribeca Royale, has refocused attention on an area where controversy stalled plans for a Muslim Community Center.
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Your Money
Skip the Romance; She’s Going to Court
After an earlier Haggler column about a dating service, more dissatisfied customers tell of their dashed romantic expectations — and communication failures.
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Booming
Never a Seven-Year Itch
Because of Clifford Marr’s work schedule, his wife, Jerilyn, jokes that the time they’ve spent together over 47 years doesn’t add up to seven — but they have dinner together every night.
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