A serial accumulation of memory, incident, consideration, reconsideration, personal discovery and attempts at truth.
It is intended for my attention and that of other interested persons
If that changes, I will extensively re-edit.
Warning:
I attempt to use inductive logic.
In
the broad sense, surely not, if only because of demography: the
Japanese combine a low birth rate with a deep cultural aversion to
immigration, so the future role of Japan will be severely constrained by
a shortage of Japanese.
But something very odd is happening on
the short- to medium-term macroeconomic front. For the past three years
macro policy all across the advanced world has been dominated by
Austerian orthodoxy; even where there haven’t been explicit austerity
policies, as in the United States, fear of deficits has led to de facto
fiscal tightening, while monetary policy has fallen far short of the
kind of dramatic expectation-changing moves theoretical analysis suggests are crucial to getting traction in a liquidity trap.
Now, one country seems to be breaking with the orthodoxy — and it is, surprisingly, Japan:
The
Japanese government approved emergency stimulus spending of ¥10.3
trillion Friday, part of an aggressive push by Prime Minister Shinzo Abe
to kick-start growth in a long-moribund economy.
Mr. Abe also
reiterated his desire for the Japanese central bank to make a firmer
commitment to stopping deflation by pumping more money into the economy,
which the prime minister has said is crucial to getting businesses to
invest and consumers to spend.
“We will put an end to this
shrinking and aim to build a stronger economy where earnings and incomes
can grow,” Mr. Abe said. “For that, the government must first take the
initiative to create demand and boost the entire economy.”
This
is especially remarkable because Japan has been held up so often as a
cautionary tale: look at how big their debt is! Disaster looms! Indeed,
back in 2009 there were many stories to the effect that the long-awaited
Japanese debt catastrophe was finally coming.
But,
actually, not. Japanese long-term interest rates rose in the spring of
2009 because of hopes of recovery, not fear of bond vigilantes; and when
those hopes faded, rates went back down, and are currently well under 1 percent.
Now comes Shinzo Abe. As Noah Smith informs us,
he is not anybody’s idea of an economic hero; he’s a nationalist, a
denier of World War II atrocities, a man with little obvious interest in
economic policy. If he’s defying the orthodoxy, it probably reflects
his general contempt for learned opinion rather than a considered
embrace of heterodox theory.
But that may not matter. Abe may be
ignoring the conventional wisdom on spending, and bullying the Bank of
Japan, for all the wrong reasons — but the fact is that he is actually
providing fiscal and monetary stimulus at a time when every other
advanced-country government is too much in the thrall of the Very
Serious People to do something different. And so far the results have
been entirely positive: no spike in interest rates, but a sharp fall in
the yen, which is a very good thing for Japan.
It will be a bitter
irony if a pretty bad guy, with all the wrong motives, ends up doing
the right thing economically, while all the good guys fail because
they’re too determined to be, well, good guys. But that’s what happened
in the 1930s, too …"
http://krugman.blogs.nytimes.com/2013/01/11/a-conversation-with-bill-moyers/ I saw it. There is nothing new. It is concisely stated.
I taped a long talk with Bill Moyers yesterday. Here’s the link. It should also be aired on most PBS stations this weekend; listings at the Moyers site."
"So, have you heard the one about the trillion-dollar coin? It may sound
like a joke. But if we aren’t ready to mint that coin or take some
equivalent action, the joke will be on us — and a very sick joke it will
be, too. Let’s talk for a minute about the vile absurdity of the debt-ceiling confrontation.
Under the Constitution, fiscal decisions rest with Congress, which
passes laws specifying tax rates and establishing spending programs. If
the revenue brought in by those legally established tax rates falls
short of the costs of those legally established programs, the Treasury
Department normally borrows the difference.
Lately, revenue has fallen far short of spending, mainly because of the
depressed state of the economy. If you don’t like this, there’s a simple
remedy: demand that Congress raise taxes or cut back on spending. And
if you’re frustrated by Congress’s failure to act, well, democracy means
that you can’t always get what you want.
Where does the debt ceiling fit into all this? Actually, it doesn’t.
Since Congress already determines revenue and spending, and hence the
amount the Treasury needs to borrow, we shouldn’t need another vote
empowering that borrowing. But for historical reasons any increase in
federal debt must be approved by yet another vote. And now Republicans
in the House are threatening to deny that approval unless President
Obama makes major policy concessions.
It’s crucial to understand three things about this situation. First,
raising the debt ceiling wouldn’t grant the president any new powers;
every dollar he spent would still have to be approved by Congress.
Second, if the debt ceiling isn’t raised, the president will be forced
to break the law, one way or another; either he borrows funds in
defiance of Congress, or he fails to spend money Congress has told him
to spend.
Finally, just consider the vileness of that G.O.P. threat. If we were to
hit the debt ceiling, the U.S. government would end up defaulting on
many of its obligations. This would have disastrous effects on financial
markets, the economy, and our standing in the world. Yet Republicans
are threatening to trigger this disaster unless they get spending cuts
that they weren’t able to enact through normal, Constitutional means.
Republicans go wild at this analogy, but it’s unavoidable. This is
exactly like someone walking into a crowded room, announcing that he has
a bomb strapped to his chest, and threatening to set that bomb off
unless his demands are met.
Which brings us to the coin.
As it happens, an obscure legal clause grants
the secretary of the Treasury the right to mint and issue platinum
coins in any quantity or denomination he chooses. Such coins were, of
course, intended to be collectors’ items, struck to commemorate special
occasions. But the law is the law — and it offers a simple if strange
way out of the crisis.
Here’s how it would work: The Treasury would mint a platinum coin with a
face value of $1 trillion (or many coins with smaller values; it
doesn’t really matter). This coin would immediately be deposited at the
Federal Reserve, which would credit the sum to the government’s account.
And the government could then write checks against that account,
continuing normal operations without issuing new debt.
In case you’re wondering, no, this wouldn’t be an inflationary exercise in printing money. Aside from the fact that printing money isn’t inflationary
under current conditions, the Fed could and would offset the Treasury’s
cash withdrawals by selling other assets or borrowing more from banks,
so that in reality the U.S. government as a whole (which includes the
Fed) would continue to engage in normal borrowing. Basically, this would
just be an accounting trick, but that’s a good thing. The debt ceiling
is a case of accounting nonsense gone malignant; using an accounting
trick to negate it is entirely appropriate.
But wouldn’t the coin trick be undignified? Yes, it would — but better
to look slightly silly than to let a financial and Constitutional crisis
explode.
Now, the platinum coin may not be the only option. Maybe the president
can simply declare that as he understands the Constitution, his duty to
carry out Congressional mandates on taxes and spending takes priority
over the debt ceiling. Or he might be able to finance government
operations by issuing coupons
that look like debt and act like debt but that, he insists, aren’t debt
and, therefore, don’t count against the ceiling.
Or, best of all, there might be enough sane Republicans that the party will blink and stop making destructive threats.
Unless this last possibility materializes, however, it’s the president’s
duty to do whatever it takes, no matter how offbeat or silly it may
sound, to defuse this hostage situation. Mint that coin!"
8 Jan 2013:
The eurozone unemployment rate has hit a record high at
11.8% with 18.8m people out of jobs according to Eurostat and youth
unemployment at a new high. Get the figures for every country 10 comments
7 Jan 2013:
Political fever is heating up in Italy as Silvio Berlusconi
agrees an alliance that throws next month's general election wide open 298 comments
Tumblr is running on automatic. It will tell you about the state of one's interests. It will tell an onlooker nothing about my state.
There are a group that should get invitations. Most will not attend.
There are a few more who should get notices of the event. I have not made a list.
Replacement windows of the glass variety are trickier thanyou might think. The practice has been to remove only the sash and insert the new window in the old casing. This reduces the glass area by about fifteen percent and spoils the proportion and balance of the wall as designed. It does solve some of the worst air leaks but leaves the least repairable of them.
If you want to replace windows, replace the entire assembly.
The result will be much more satisfactory.
As I am very out of condition I will go over and talk to the "Y" about a membership.
I
feel comfortable in my understanding of the economics of the platinum
coin, but don’t claim any legal expertise. However, Laurence Tribe knows
whereof he speaks — and he says that it’s quite legal.
And so there you have it: if we have a crisis over the debt ceiling, it
will be only because the Treasury department would rather see economic
devastation than look silly for a couple of minutes.
There will,
of course, be howls from the usual suspects if that’s how it goes. Some
of these will be howls of frustration because their hostage-taking plan
was frustrated. But some will reflect sincere horror over a policy turn
that their cosmology says must be utterly disastrous. Ed Kilgore
says, in a somewhat different way, much the same thing I and people
like Joe Weisenthal have been saying: what we’re looking at here is a
collision of worldviews, one might even say of epistemology.
For
many people on the right, value is something handed down from on high
It should be measured in terms of eternal standards, mainly gold; I
have, for example, often seen people claiming that stocks are actually
down, not up, over the past couple of generations because the Dow hasn’t
kept up with the gold price, never mind what it buys in terms of the
goods and services people actually consume.
And given that the
laws of value are basically divine, not human, any human meddling in the
process is not just foolish but immoral. Printing money that isn’t tied
to gold is a kind of theft, not to mention blasphemy.
For people
like me, on the other hand, the economy is a social system, created by
and for people. Money is a social contrivance and convenience that makes
this social system work better — and should be adjusted, both in
quantity and in characteristics, whenever there is compelling evidence
that this would lead to better outcomes. It often makes sense to put
constraints on our actions, e.g. by pegging to another currency or
granting the central bank a high degree of independence, but these are
things done for operational convenience or to improve policy
credibility, not moral commitments — and they are always up for
reconsideration when circumstances change.
Now, the money morality
types try to have it both ways; they want us to believe that monetary
blasphemy will produce disastrous results in practical terms too. But
events have proved them wrong.
And I do find myself thinking a lot
about Keynes’s description of the gold standard as a “barbarous relic”;
it applies perfectly to this discussion. The money morality people are
basically adopting a pre-Enlightenment attitude toward monetary and
fiscal policy — and why not? After all, they hate the Enlightenment on
all fronts. The bottom line is that we aren’t really having a rational argument here. Nor can we: rationality has a well-known liberal bias."
Somehow Brad DeLong has managed to produce a pretty good transcript
of Sunday’s panel discussion. It’s inaccurate in one respect: I can’t
believe that I was actually that grammatical. But I think it give you a
very good idea of what I at least said.
Here is the Krugman quote from DeLong:
" DELONG: Paul Krugman, from Princeton? KRUGMAN: I think like probably everybody, I read
Brad’s questions and then decided to do something that I think hits all
the points but not in order. Let me therefore do my best.
Obviously, things are not good. If you had polled people at this
meeting three years ago, I think a majority would have thought by now we
would be talking about this great economic crisis in the past tense.
But it still goes on.
Given the people on this panel, given the research they have done, it
seems that the core issue here will be the effect of fiscal policy. Let
me try to talk about where I think we stand and what the fiscal-policy
issues ought to be.
The basic story—at least as many of us see it—is that we had this
really, really dramatic shock to private spending. This is the
private-sector financial deficit: gross private domestic investment
minus gross private domestic saving as a share of potential GDP as
estimated by the CBO. This is not the first time in the post-WWII era we
have had a big drop, but it is the biggest: 10% of potential GDP.
[30:00] The previous ones in the mid-1970s and early-1980s were
associated with tight monetary policy, very high interest rates, and
collapses in housing investment driven by tight monetary policy—which,
of course, sprang back as soon as the Federal Reserve decided that the
American economy had suffered enough.
This time is different. This time it came spontaneously. This time it
came in spite of drastic cuts in interest rates to essentially zero.
The question is: “What do we do?”
There is an interesting debate: “When did economics go all wrong?
When did macroeconomics go all wrong?” Bob Gordon has rather
persuasively made the case that it went all wrong about 1978—that we
would have done a better job at macro policy if we had met this crisis
with the intellectual panoply we had then and had not had the thirty
years since. I saw John Quiggin just made the argument that things
actually went all wrong about 1958.
If an economist from 1958 had seen what is going on now, he—and back
in 1958 it would have been “he”—would have said: “OK. Private sector
does not want to spend. The government should spend. This is a powerful
case for fiscal stimulus to prevent this from causing a persistent
slump.” We have not done that. We had some fiscal stimulus delivered for
a brief period of time in 2009. We have had a fair bit of allowing
automatic stabilizers to operate. But at the same time we have had quite
a lot of policy austerity. We had a worldwide or at least an
advanced-world turn to austerity in 2010 inspired to some extent by the
lessons that were drawn—I would say mostly wrongly—from the story of
Greece but then applied across the board, and also from a reversion to
pre-Keynesian modes of thinking about the macroeconomy. Whatever the
reasons—and there are a mixture of political-economy reasons and just
plain bad-economics reasons—we made a big turn to austerity. Now we
debate: “Was that wrong? How wrong was it? Should we really be doing as
much fiscal stimulus as the man from 1958 would say?”
Think about the objections to stimulus. I would put them into three categories:
First, perhaps we do not have nearly as much economic slack as people
like—well—me say. Perhaps there is something much more structural going
on, and we do not have that much room to expand. We have a huge
economic failure, but the failure is not for the most part a simple
failure of aggregate demand.
Second—you do not hear this story that much, but it is important to
set up the third—is that we should not be using fiscal policy but should
instead by using monetary policy. That is a more popular argument in
the more informal discussion in the econoblogosphere than it is in
academia. But there is the question of what you can do.
Third, even though we are at the zero lower bound, fiscal policy is a
lot less effective than the man from 1958 would say it is, and that
multipliers are quite low even under urgent conditions.
About limited economic slack:
There is a whole literature trying to identify structural issues—what
does the shift in the Beveridge Curve mean—that would be an entirely
different discussion. I think the most important argument that has the
biggest impact is the argument: “If we have all that economic slack,
where is the deflation?” When we look at core inflation, it dropped a
lot in the crisis, but has been fluctuating in a 1-2%/year range since
then and has not been declining. You will see the argument, which is
consistent with what most Principles of Economics or Intermediate Macroeconomics
textbooks say or would have said before the crisis, that if we really
had a large output gap we should be seeing not just low but declining
inflation. The stability of the core inflation rate is an indication
that there is not a lot of economic slack. The most recent speech by
James Bullard makes that case. The San Francisco Fed has a nice updated
chart estimating the output gap by backing it out of a linear
expectational Phillips Curve and comparing it to the CBO output gap
which is a gussied-up trend. The difference is striking. The stability
of inflation says that there is hardly any output gap. Comparing us to
the pre-crisis trend says that there is still a very large output gap:
$900 billion/year of potential non-inflationary production of goods and
services is simply not happening.
Brad asked: “What have we changed our views about?” The inflation
process is one area in which I have changed my views. It has become much
more apparent that downward nominal rigidity—not just stickiness but
people don’t like to cut nominal prices and wages—is a very significant
factor. When you have a depressed economy in a state of initially low
inflation the zero bound not just on interest rates but on wage changes
becomes a really big deal. Again, more San Francisco Fed stuff: they
have tried to back out how many people are literally getting zero wage
change. The answer is: “a lot”. That suggests that we are indeed an
economy in its depressed state, and that the reason that average wages
continue to rise is that we have truncated the left edge of the
distribution, not that we have anything close to full employment.
That is very important, if true. Among other things, it means that
the whole basis on which we constructed monetary policy during the Great
Moderation, which is that stabilizing inflation and stabilizing output
are the same thing, is all wrong: you can have a sustained period of low
but not negative inflation consistent with an economy operating far
below its potential productive capacity. That is what I believe is
happening now. If so, we are failing dismally in responding to this
economic crisis. This is in contrast to what some central bankers are
saying—that we have done well because inflation has stayed relatively
stable.
Monetary policy: When I arrived at Princeton in 2000 there was a
group of us—“Japan worriers”. I am the only one still there. Mike
Woodford, Lars Svensson, who is now run off to the Riksbank, me, and Ben
Bernanke—I wonder what happened to him? All of us were very concerned
by what was happening to Japan in the 1990s. Some people looked at it
and said: “That just shows how messed up the Japanese are.” Some of us
looked at us and said: “Surface differences apart, Japan looks a lot
like us: big advanced country, lots of room to maneuver, government
officials who might not be the most brilliant but who were not complete
idiots, and if they could get trapped in this sort of deflationary
stagnation then it could happen to us.” Sure enough, it did.
At the time, all of the discussion was about what you could do by way
of monetary policy. Could the central bank by unconventional purchases
of non-standard assets move expectations? The simple fact is that
dramatic changes in the simplest measures of what central banks are
doing—the size of the monetary base—have been invisible in their effect
on either inflation or output. I think we have to say that at this point
to make the argument that if only the central bank really wanted to we
would be doing much better needs to be accompanied by a very clear
explanation of how that it is supposed to work and why the effects of
monetary policy to date have been so limited. There is in principle the
expectations channel. If a central bank can credibly promise that it
will allow a higher inflation rate over the medium term then it ought to
be able to reduce real interest rates and have a significant
expansionary effect on the economy. The problem is how do you in fact
make that promise credible. There are multiple hurdles that you have to
cross. First, you have to cross the threshold of the political
acceptability of the policy of changing the inflation target, which has
proved virtually impossible to tackle in part because people do not
think that this is a permanent crisis. They may be right. But that means
that it is then very very hard to say that we should change the
price-level target for five or ten years in the future to deal with a
crisis that everybody expects will be over in a year .
Then, how do you make it credible? Why will the people running the
central bank five or ten years from now—who are not the people running
it now—go through with it? In an unfortunate phrase I used back in 1998
about Japan, they have to credibly promise to be irresponsible. That is
the issue. It has turned out, I think, that, as Michael Woodford says,
while in principle unorthodox monetary policy can deal with a situation
like what we have now, in practice it is really really hard to see how
this could work. And that makes you lean on fiscal policy.
Last comes the question about the effectiveness of fiscal policy.
Valerie Ramey will present evidence on the size of multipliers. What are
multipliers? That is a critical issue. The trouble is that fiscal
policy is very hard to assess econometrically from the historical
record. The basic rule is that when all is said and done, no matter how
much effort we put it and in spite of all the valid work we do, unless
you can show clear natural experiments people are not convinced. Even
with natural experiments people are often not convinced, but it is your
best chance. And convincing natural experiments are hard to come by. The
clearly-exogenous changes in government spending are pretty much those
associated with wars. This is just the very simple stuff that Bob Hall
did just a little while back. They clearly show that expansionary policy
is expansionary. They also show that the multiplier is less than one,
which is not what an enthusiastic advocate of Keynesian fiscal stimulus
would like to see. Again, the IMF tried recently very carefully to tease
out the answer, and again found that expansionary policy is
expansionary and contractionary policy is contractionary, but once again
multipliers are less than one.
The IMF has changed its mind, or at least Oliver has changed his mind. But that’s where we are.
The question then becomes: is this historical evidence relevant for
what we face now? The historical evidence incorporates a lot of
crowding-out. The question is then: where is this crowding-out coming
from? One answer is the old textbook crowding-out: crowding-out via
rising interest rates. That is clearly relevant to the historical cases
but not relevant now. A second answer is that in wartime other things
are happening. I believe that a lot of the literature on this
understates the seriousness of this issue. It’s not just that the
multiplier is lower at full employment. During World War II there was
severe rationing of consumer goods. During World War II—I have not seen
this mentioned at all—there was essentially a prohibition on private
construction. You look at World War II and say “private spending fell”.
What relevance does that have? We are not about to have such controls on
private investment. [45:00]
We can look at periods that do not have war complicating the picture,
and the problem is that there is not a lot of that. For the U.S., the
World War II period before wartime controls come in is about a year and a
half, six quarters. If you are going to use VAR time-series methods,
you can look at quarters that have both high unemployment and large
changes or news of large changes in military spending, the problem is
that the impulse response period extends well into the period of wartime
controls. It is not at all easy to get past that.
Finally, Ricardian effects. It is really important to understand how
many people misunderstand that. There are many people who believe that
higher government spending now means higher taxes later and this will
crowd-out private spending now. But higher spending now means higher
incomes now as well. In the simplest Ricardian setup, if you believe
that resources are unemployed and if interest rates are zero, the
multiplier is not zero but one. It is very difficult to come up with a
story in which the current multiplier would be less than one. Invoking
the expectation of future tax increases as a reason for a multiplier
less than one is a much more difficult story to tell than people seem to
imagine.
Our evidence is not great. The closest thing to a really good natural
experiment is what is happening now—the scary policies of recent years.
It is not perfect. But look at the euro area countries—we talk about
the great mistake of 1937, Roosevelt’s turn to austerity, but his turn
to austerity was less than 3% of GDP. Compare that to what is happening
to Greece or Ireland now, that is nothing. In Greece, if the whole
program is implemented, we are talking about austerity on the order of
16% of GDP. These are enormous shocks. And if you do a simple regression
it looks like a multiplier of 1.3.
The immediate objection is that causation is not reversed? This is
where the Blanchard-Leigh stuff comes in: They look at forecast errors
in output growth and forecast errors in future policy, and find that
their forecasts of output growth which assumed a multiplier of 0.5
underestimated the true multiplier by about 1.0, systematically
understating economic contraction in countries with larger-than-expected
degrees of austerity.
I think their work is good. Of course, it fits what I wanted to
believe, so you have to be careful. But very important stuff, if true.
The final point is policy: Are we sure that expansionary fiscal
policy is the right thing to be doing and that austerity is a terrible,
terrible mistake? No. We are absolutely sure of nothing. But the
consequences, if that is the truth, and I think the evidence tilts that
way, is that what we are doing right now is absolutely disastrous. And
that is where we are right now. DELONG: Valerie Ramey, from UCSD, who is lucky enough to have this weather all the time."
There is more Krugman here if you have the patience:
"KRUGMAN: Since I already criticized myself can I spend a couple of minutes criticizing other people? DELONG: Two minutes. Only two minutes. KRUGMAN: OK. I disagreed with everything Harald
said. With respect to Valerie, there are two points I want to make—more
that I want to make, only two that I can make in the time I have.
I am baffled by the discussion of things like the increase in labor
participation during World War II as affecting the multiplier. A lot of
people, including people I respect a lot, say that. But that seems to me
to be a confusion between supply and demand. Government purchases
increase and that increases spending through the multiplier. The
increase in labor force participation makes it possible for that
increase in spending to show up as an increase in output rather than
inflation. But I don’t see that as changing the multiplier, which is a
demand story. And I do not see any way to tell the story of World War II
in such a way that government command-and-control would lead us to
overestimate the multiplier using World War II data. And we are not here
talking here about anything that might remotely push us up to the
bounds of capacity.
Structural reform—we are all for structural reform, we are always for
structural reform. But when it is advanced as the answer to a cyclical
downturn, I and some of my economic-doctrine friends get exasperated. I
think the best statement came from Kevin O’Rourke of Oxford, back in
2010, when Ireland was really hitting the skids. He said that there were
two views being expressed by the “structuralists”: one was that Ireland
could get out of this through structural reforms; the other was that
Ireland was going to be OK because it had already done all its
structural reforms and had such a great and flexible economy. He said
that those cannot both be true. Some of the rest of us then said that if
you believe that story then you should not undertake structural reforms
in normal times in order to preserve inefficiency so you can deliver
some structural reform the next time you hit a recession. At some point
you have to stop saying that structural reform is the answer. You have
to say that if bad things happen to a perfectly flexible economy there
has to be some way of dealing with the cyclical demand problem through
cyclical problems? DELONG: There doesn’t have to be some way… KRUGMAN: Well, if you want to say something useful... DELONG: Well… KRUGMAN: Let me say just one more thing. There is
this wise saying that we need to think about the long run and not the
short run. But (a) in the long run we are all dead, and (b) there is a
lot of reason—I am surprised that Brad of all people has not mentioned
it—that a failure to deal with the short run is inflicting very large
long run costs. I believe that we are deeply in DeLong-Summers territory
where we are crippling our future as well as our present by falling to
do what is needed to deal with the short run. DELONG: Well I am the moderator. I am not supposed
to take over the panel. But I think there was a view—ten years ago you
would have said that for Japan at least that even if everything
else—increasing the balance sheet, driving short-term nominal interest
rates to zero—did not work, the last resort of monetary policy would be
to adopt an exchange rate target and depreciate the yen at 5%/year until
nominal spending is back on track because that is guaranteed to boost
expectations of inflation and the money stock. For we know that
governments can credibly promise to peg exchange rates wherever they
want. KRUGMAN: That was Lars Svensson, not me. I was less confident that you could actually do it. DELONG: So I am confusing my Princeton
Japan-worriers of the 1990s. It seemed to me then to be a smart thing
for Lars to say. But I think now I certainly would, you would, I don’t
know what Lars would, say that we have grave doubts over whether
monetary policy can in fact do the job. It may indeed be the case that
some demand management problems cannot be resolved with the tools
governments have at their disposal. It may be that all we can do then is
recommend structural reforms to boost potential output. I don’t want to
be there. Valerie does not want to be in a world where the
policy-relevant multiplier is 0.5 rather than 2.5.
But there is little enough time left. So let me open up this panel to questions."
And:
QUESTION: A question for Dr. Krugman. You said that
the amount of stimulus was insufficient. I take it you were talking
about the 2009 Recovery Act. What would you call $1 trillion/year
deficits if not sufficient stimulus? KRUGMAN: What we have is automatic stabilizers at
work. Relative to a world in which we only had lump-sum taxes and social
insurance programs were not responsive to economic conditions, this
would be a large stimulus. But we do not have a large policy stimulus
right now. The deficit right now is overwhelmingly the result of the
collapse in revenue from the recession plus secondarily the increase in
spending on social insurance from the recession—unemployment insurance,
food stamps, and a few other things that are cyclically sensitive. On
the PPE basis—the proof of the pudding is in the eating—we have a large
output gap, spending is insufficient, and it’s very hard to come up with
stories that could fill that gap other than some rise in government
spending. We should not be talking about hiring people to dig holes and
fill them in. The truth is that we have had a dramatic fall in public
investment, have laid off hundreds of thousands of school teachers, and
all we want is to restore some of that public investment and rehire
those schoolteachers. We are not talking about doing new and dubious
projects. We are talking about reversing the large austerity that has
already taken place. [1:45:00] DELONG: Let me abuse moderatorial privilege by
adding two historical footnotes. John Maynard Keynes wrote so damned
well and was so clever that he does not fit well with our world of
soundbites. The Keynes quote “in the long run we are all dead”: In
context that is not a claim that we should worry only about the short
run and ignore the long run. In context that is an attack on comparative
statics—a plea for economists to do dynamics, and not be satisfied with
saying nothing more than the quantity theory of money doctrine that
when the money stock increases the equilibrium is a proportional
increase in the price level. The Keynes quote about how it would be
effective to dig holes in the ground and put bottles of money in them:
In context that is a critique of gold-bugs saying that recovery had to
come of itself and that the money stock should be increased simply by an
increase in gold mining. Keynes was pointing out that an increase in
monetary gold via mining was the equivalent of (a) printing currency,
(b) burying the currency in the ground in bottles, and (c ) having
people then dig the currency up. The point was that that would be
effective, yes, but more effective would be simply (a) and then spending
the government money in (b) employing people to do things that were
useful. It is an attack on goldbugs, not a serious claim that the
government should hire people to dig holes in the ground to fight
recession."
And:
QUESTION: The share of debt to GDP influences fiscal
policies. The capability of government to collect taxes is an important
factor and that is better than in Ukraine and even more in Spain.
Another factor is that a country needs to have a currency it fully
controls. Japan has so much leverage and leeway because it has such a
currency. One reason that so many EU countries suffer is that they do
not. As concerns the United States, it is still on the side of Japan. QUESTION: Blinder and Zandi two years ago showed
that the fiscal multiplier of the TARP was much higher than for ordinary
spending. Recapitalizing banks was a high-value thing to do. I asked a
question of Olivier yesterday, and he made the same point about
recapitalizing European banks. Is it possible that you could reengineer
fiscal spending in times of buying shares when investment is low and
therefor reengineer the fiscal multiplier. KRUGMAN: You want to distinguish between things you
do to deal with an acute financial crisis and things you do to deal with
a depressed economy that is not at the edge of collapse. Most people
would agree that QE I—keeping the banks and commercial paper market
functioning—was effective. When the Fed stepped in and acted as lender
of last resort that was effective. That is very different from QE II and
QE III. Similarly, stepping in and recapitalizing the banks when there
was a collapse of confidence in the financial system is probably a
pretty effective tool. But taking a system that is not on the edge of
collapse and stuffing more capital into the banks is unlikely to have
big positive effects.
There is more and the opinions of other economists. The discussion became choppy.
The cover on the world economy is wearing thin.
The rot that is the euro is showing through.
I do not know when or where the break will come.
The internal strains will break it.
I am not certain that the pound will survive.
The dollar probably will.
I celebrate your release from the east bay.
I like what looks to be the direction of your thoughts.
The times seems to have a difiicult time with my browser as it stands.
The business office keeps asking me to sign in. They look to be greedy.
My identity and password are unchanged and my subscription is paid.
XP keeps tripping over itself. I will check Tumblr in the morning.
This piece is very silly.
There is no lender of last resort for the euro.
These rules do not provide the hope of one.
We have the Federal Reserve and the Treasury.
Our lender of last resort is in good order as is the Bank of England.
We need bank regulation but this is not it.
As I read this a great many Europeans will soon loose their savings.
"A group of top regulators and central bankers on Sunday gave banks
around the world more time to meet new rules aimed at preventing
financial crises, saying they wanted to avoid the possibility of
damaging the economic recovery.
Brendan Mcdermid/Reuters
Mervyn A. King, governor of the Bank of England and
chairman of the group, said there was no intent to go easier on lenders.
The rules are meant to make sure banks have enough liquid assets on hand
to survive the kind of market chaos that followed the collapse of
Lehman Brothers in 2008. Meeting in Basel, Switzerland, the committee,
made up of bank regulators from 26 countries, also loosened the
definition of liquid assets.
The decision marks the first time regulators have publicly backed away
from the strict rules imposed by the Basel Committee in 2010. The easing
takes some pressure off banks, which have complained that the new
guidelines would throttle lending and hurt economic growth.
Mervyn A. King, governor of the Bank of England and chairman of the
group, said there was no intent to go easier on lenders. “Nobody set out
to make it stronger or weaker,” he said of the rules in a conference
call with reporters, “but to make it more realistic.”
Still, the decision was a public concession from the authors of the
so-called Basel III rules that the regulations could hurt growth if
applied too rigorously. It was endorsed unanimously by participants,
including Ben S. Bernanke, chairman of the Federal Reserve, and Mario
Draghi, president of the European Central Bank.
The rules were drafted by the Basel Committee on Banking Supervision,
named after the Swiss city where many of the discussions have taken
place. The Basel rules are not binding on individual countries, but
there is substantial international pressure for countries to comply.
Much of the debate so far has focused on increasing the amount of
capital that banks hold in reserve to absorb losses. After Lehman’s
collapse, trust among financial institutions evaporated and banks
refused to lend to one another. Many banks discovered that they did not
have enough cash or readily salable assets to meet short-term
obligations. In some cases, banks that were otherwise solvent faced
collapse.
The rules require banks to have enough cash or liquid assets on hand to
survive a 30-day crisis, like a run on deposits or a credit rating
downgrade. They will not take full effect on Jan. 1, 2015, as originally
planned, but will be phased in more gradually and not take full effect
until Jan. 1, 2019.
This so-called liquidity coverage ratio also defines what qualifies as
liquid assets: the assets cannot be already pledged as collateral, for
example, and they must be under the control of a bank’s central
treasury, so it can act quickly to raise cash if needed.
On Sunday the central bankers and regulators broadened the definition of
liquid assets. For example, banks will be allowed to use securities
backed by mortgages to meet a portion of the requirement.
A large majority of big banks already meet the requirements, but some do
not, Mr. King said. The decision reduces pressure on those banks to
hold more cash or buy high-quality government bonds to meet the rules on
liquid assets.
The panel said it was continuing to discuss another set of regulations
aimed at preventing banks from becoming overly dependent on short-term
funds. But it did not announce any new decisions Sunday.
Before the Lehman bankruptcy, some institutions made long-term loans
using money borrowed for very short periods. The practice is a normal
part of banking, but it can, if carried to extremes, make a bank
vulnerable to market disruptions.
Depfa, an Irish bank owned by Hypo Real Estate of Germany, issued
long-term loans to governments using money it borrowed in short-term
money markets. The bank made a profit from the difference between what
it could charge for the long-term loans and what it paid to borrow short
term. But after Lehman collapsed, Depfa was no longer able to roll over
its obligations by borrowing on international money markets. Its parent
company required a taxpayer bailout to survive.
The new rules seek to ensure that banks have a variety of fund sources
and are not overly dependent on one market or lender.
Although the Basel Committee drafts global banking rules, it is up to
individual countries to write them into law. The United States has
lagged countries including China, India and Saudi Arabia in putting the
rules into force, according to an assessment by the Basel Committee in
September. The American delay has led to some grumbling from other
members.
Bank industry representatives have argued that stricter capital and
liquidity requirements increase banks’ financing costs, which they must
pass on to customers. One of the most vocal critics of the new
regulations is the Institute of International Finance in Washington,
whose members include many large American and European banks, including
Goldman Sachs, Morgan Stanley and Deutsche Bank.
In October, the institute issued a report arguing that the rules would
make banks less willing to issue longer-term loans or hold debt issued
by smaller companies, whose bonds usually have lower credit ratings. The
rules would also penalize banks in emerging countries, the institute
said, because they have less access to low-risk assets.
Proponents of the new rules argue that banks will be able to raise money
more cheaply if they are perceived as being less vulnerable, thus
offsetting the cost of the new rules. They point out that American banks
have generally recovered from the crisis more quickly than European
banks because United States regulators forced them to raise new capital."
"Proponents of the new rules" do not believe in liquidity traps or in government debt as a way out of them.
Usually rescue by the Federal Reserve has meant unemployment for bankers.
"DEMOCRACY is like a bicycle: if you don’t keep pedaling, you fall.
Unfortunately, the bicycle of Greek democracy has long been broken.
After the military junta collapsed in 1974, Greece
created only a hybrid, diluted form of democracy. You can vote, belong
to a party and protest. In essence, however, a small clique exercises
all meaningful political power.
For all that has been said about the Greek crisis, much has been left
unsaid. The crisis has become a battleground of interests and
ideologies. At stake is the role of the public sector and the welfare
state. Yes, in Greece we have a dysfunctional public sector; for the
past 40 years the ruling parties handed out government jobs to their
supporters, regardless of their qualifications.
But the real problem with the public sector is the tiny elite of
business people who live off the Greek state while passing themselves
off as “entrepreneurs.” They bribe politicians to get fat government
contracts, usually at inflated prices. They also own many of the
country’s media outlets, and thus manage to ensure that their actions
are clothed in silence. Sometimes they’ll even buy a soccer team in
order to drum up popular support and shield their crimes behind popular
protection, as the drug lord Pablo Escobar did in Colombia, and as the
paramilitary leader Arkan did in Serbia.
In 2011, Evangelos Venizelos, who was then the finance minister and is
now the leader of the socialist party, Pasok, instituted a new
property-tax law. But for properties larger than 2,000 square meters —
about 21,000 square feet — the tax was reduced by 60 percent. Mr.
Venizelos thus carved out a big exemption for the only people who could
afford to pay the tax: the rich. (Mr. Venizelos is also the man
responsible for a law granting broad immunity to government ministers.)
Such shenanigans have gone on for decades. The public is deprived of
real information, as television stations, newspapers and online news
sites are controlled by the economic and political elite.
Another scandal involves the so-called Lagarde List. In 2010, Christine Lagarde,
then the French finance minister (and now the head of the International
Monetary Fund), gave the Greek government a list of roughly 2,000 Greek
citizens with Swiss bank accounts, to help uncover tax fraud. Greek
officials did virtually nothing with the list; two former finance
ministers, George Papaconstantinou and his successor, Mr. Venizelos,
reportedly even told Parliament they did not know where it was.
Meanwhile, several media outlets falsely accused some politicians and
business figures of being on the list in order to conceal the ugly
reality: rich people were evading taxes while their desperate fellow
citizens were searching the trash for food.
When Hot Doc, the monthly magazine I edit and publish, made the list public in October, I was arrested
and charged with violating personal privacy, but was acquitted. The
result didn’t please those in power. So I am being brought back for a
second trial (a date has yet to be set) on similarly vague allegations.
Throughout the entire process — the publication of the list, my arrest,
my acquittal — the Greek media were absent. The case was a top story in
the international press, but not in the country where it took place.
The reason is simple. The Lagarde list implicates a corrupt group that
answers to the name of democracy even as it casually nullifies it:
officials with offshore companies, friends and relatives of government
ministers, bankers, publishers and those involved in the black market.
After my magazine released the list, the Greek government made not a single statement about the case.
When Mr. Venizelos left the Finance Ministry last March, he failed to
turn the CD with the list over to his successor. He took it with him.
Only when his successor, Yannis Stournaras, told The Financial Times in
October that he had never received the list did Mr. Venizelos turn it
over to the prime minister’s office. He was never asked about the delay,
and leaders of the three parties in the coalition government have not
referred his conduct to Parliament’s investigatory committee.
Meanwhile, a newly released version of the list made clear that someone
had removed the names of three relatives of Mr. Papaconstantinou, who
was the finance minister from 2009 to 2011, before Mr. Venizelos. Last
month, Mr. Papaconstantinou was expelled from Pasok. He now faces
a Parliamentary investigation, the potential lifting of his immunity
from prosecution as a former minister, and charges of tampering with the
data. It appears that he may become a new Iphigenia, a scapegoat
sacrificed so that the corrupt political system can survive.
This is all unfolding at a time when Greece is walking a tightrope above
the abyss of bankruptcy, while the coalition government is instituting
new taxes on the lower classes. Half of young Greeks are unemployed. The
economy is shrinking at an annual rate of 6.9 percent. People are
scrounging for food. And a neo-Nazi party, Golden Dawn, is on the rise,
exploiting the resentment and rage toward the ruling class.
The Greek people must remount their bicycle of democracy by demanding an
end to deception and corruption. Journalists need to resist
manipulation and rediscover their journalistic duties. And the
government should revive Greece’s ancient democratic heritage — instead
of killing the messenger.
Kostas Vaxevanis is a magazine publisher and television journalist. This essay was translated by Karen Emmerich from the Greek.
Should
President Obama be willing to print a $1 trillion platinum coin if
Republicans try to force America into default? Yes, absolutely. He will,
after all, be faced with a choice between two alternatives: one that’s
silly but benign, the other that’s equally silly but both vile and
disastrous. The decision should be obvious.
For those new to this,
here’s the story. First of all, we have the weird and destructive
institution of the debt ceiling; this lets Congress approve tax and
spending bills that imply a large budget deficit — tax and spending
bills the president is legally required to implement — and then lets
Congress refuse to grant the president authority to borrow, preventing
him from carrying out his legal duties and provoking a possibly
catastrophic default.
And Republicans are openly threatening to
use that potential for catastrophe to blackmail the president into
implementing policies they can’t pass through normal constitutional
processes.
Enter the platinum coin. There’s a legal loophole
allowing the Treasury to mint platinum coins in any denomination the
secretary chooses. Yes, it was intended to allow commemorative
collector’s items — but that’s not what the letter of the law says. And
by minting a $1 trillion coin, then depositing it at the Fed, the
Treasury could acquire enough cash to sidestep the debt ceiling — while
doing no economic harm at all.
So why not?
It’s
easy to make sententious remarks to the effect that we shouldn’t look
for gimmicks, we should sit down like serious people and deal with our
problems realistically. That may sound reasonable — if you’ve been
living in a cave for the past four years.Given the realities of our
political situation, and in particular the mixture of ruthlessness and
craziness that now characterizes House Republicans, it’s just ridiculous
— far more ridiculous than the notion of the coin.
So if the 14th
amendment solution — simply declaring that the debt ceiling is
unconstitutional — isn’t workable, go with the coin.
This still
leaves the question of whose face goes on the coin — but that’s easy:
John Boehner. Because without him and his colleagues, this wouldn’t be
necessary."
Don’t
like the platinum coin option? Here’s a functionally equivalent
alternative: have the Treasury sell pieces of paper labeled “moral
obligation coupons”, which declare the intention of the government to
redeem these coupons at face value in one year.
It should be
clearly stated on the coupons that the government has no, repeat no,
legal obligation to pay anything at all; you see, they’re not debt, and
therefore don’t count against the debt limit. But that shouldn’t keep
them from having substantial market value. Consider, for example, the
fact that the government has no legal responsibility for guaranteeing
the debt of Fannie and Freddie; nonetheless, it is widely believed that
there is an implicit guarantee (because there is!), and this is very
much reflected in the price of that debt.
So the government should
have no trouble raising a lot of money by selling MOCs. It’s true that
if they’re sold on the open market, they would probably sell at a
substantial discount from face value, so this would in effect be
high-interest-rate financing. But that’s better than either default or
giving in to blackmail.
And maybe the coupons wouldn’t have to be
sold on the open market; why not just have the Fed buy them? Bear in
mind that the Fed doesn’t always buy safe assets; it’s buying a lot of
mortgage-backed securities (from Fannie and Freddie; see above), and
during the worst of the financial crisis it bought lots of commercial
paper. So why not slightly speculative pieces of paper sold by the
Treasury?
Again, while this may all seem kind of dodgy, it’s important to realize that unless the president does something like this he will be forced to do something illegal:
namely, fail to spend money that, by act of Congress, he is legally
obliged to spend. Fancy footwork is by far a better alternative; and if
it enrages Mitch McConnell, well, that’s just an extra bonus. Update:
If there is a legal problem even with selling these coupons, there are
still alternatives, such as paying suppliers with these coupons and then
having the Fed buy them. The mechanics really don’t matter; as long as
we’re in a liquidity trap, printing money, printing conventional debt
securities, or printing funny money with no legal standing that
nonetheless lets the government pay its bills are all equivalent."
