Monthly Archives: July 2014

Michael Woodford on QE

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He says,

I think the point is a fairly simple one, and it has to do with the question of why the central bank purchases should be able to move the market price anyway, which, again, people thought was kind of obvious. They said if you’re buying more of something, surely that will tend to make it more expensive. But when you ask whether that should actually happen with a lot of sophisticated traders out there in the market that are also trading against the central bank, what we argue is that if the other traders in the economy aren’t constrained in the financing they can mobilize to take the positions that make sense for them, they will tend to automatically have an incentive to trade against the central bank and to neutralize then the effects of the central bank’s trades.

The case where that won’t happen is if the people who would have an incentive to trade against the central bank are financially constrained. In particular, if people who would wish to shift out of the particular kind of assets that the central bank is buying aren’t able to reduce their exposure to those kinds of risks as much as they would like to, you can have the market valuation changing.

But what may very well be happening is then you’re forcing, in fact, parts of the economy to bear types of risk that they don’t want to. You’re pushing them more tightly against their financial constraints and saying that that’s a victory because you’re changing market prices. You’re doing something, but you have to ask whether you’re doing something that’s making the financial markets function more the way you want them to, or making financial constraints have even more perverse effects because they’re constraining people even more.

Pointer from Alex Tabarrok.

Woodford’s conclusion is very anti-Sumnerian when it comes to monetary offset.

I wish the Fed were speaking more about the need for fiscal policy to take on more of the burden of trying to get the economy moving. I’m afraid that, to some extent, the Fed’s desire to stress the fact that we still have tools, we haven’t used all of our ammunition, has had unfortunate effects. Of course, the intention of that is to reassure the public. The feeling is that letting people be scared that maybe we’re out of ideas would itself create uncertainty about the future that would be undesirable for the economy. And that’s understandable. But I worry that it’s had the undesirable effect of letting Congress off the hook a little too easily by letting them say, “The Fed still has lots of things they can do to take care of the situation, so we can play other games.” And I think maybe the Fed would have helped the public debate if it had pushed back a little more on the view that everybody should be assuming the Fed will save everything.

I am sympathetic with Woodford’s skepticism of monetary policy, but I am at least as skeptical of fiscal policy.

Paul Ryan on Regulatory Process

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He says,

I’d propose a simple rule for all future regulations. If you’re a federal agency, and you want a regulation that would unduly burden low-income families, you’ve got to go to Congress. If they want it, they should have to fight for it—on the record. It’s your government; you deserve a voice and a vote.

My thought is to cross out the phrase “that would unduly burden low-income families.” In other words, all regulations would have to be passed as Congressional legislation. And each regulation would require a separate vote.

Discuss.

Paul Ryan’s Anti-Poverty Proposals

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He says,

Each state that wanted to participate would submit a plan to the federal government. That plan would lay out in detail the state’s proposed alternative. If everything passed muster, the federal government would give the green light. And the state would get more flexibility; it would get to combine into one stream of funding up to eleven different programs—things like food stamps, housing assistance, child care, cash welfare. This new, simpler stream of funding would become the Opportunity Grant, and it would be budget neutral. The state would get the same amount of money as under current law—not a penny less.

In effect, the state would say, “Give us some space, and we can figure this out.” And the federal government would say, “Go to it—on four conditions”: First, you’ve got to spend that money on people in need—not roads, not bridges, no funny business. Second, every person who can work should work. Third, you’ve got to give people choices. The state welfare agency can’t be the only game in town. People must have at least one other option, whether it’s a non-profit, a for-profit, what have you. And fourth, you’ve got to test the results. The federal government and the state must agree on a neutral third party to keep track of progress. That’s the deal.

There is much more here. I will read it and get back to you. Meanwhile, some first thoughts:

1. Devolving responsibility to the state level is a very defensible idea. The most-admired welfare states, from Sweden to Singapore, are much smaller than the United States.

2. My initial reaction to this is much more favorable than my initial reaction to “Room to Grow.” “Room to Grow” involved too much political positioning and gesturing for my taste. Instead Ryan’s proposals are designed to repair a set of programs that have become incoherent, rigid, and dysfunctional.

Self-publishing and e-books

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Hugh Howey writes,

Publishers can foster that change by further lowering the prices of their e-books. The record margins they’re currently earning are certainly seductive, but taking advantage of authors is not a sustainable business model. Hollywood studios had to capitulate to their writers when a new digital stream emerged. Publishers will likewise need to pay authors a fair share of the proceeds for e-book sales. 50% of net for every author is a good start.

There is much more, pointer from Tyler Cowen.

My best experience publishing was self-publishing The Three Languages of Politics.

My worst experience publishing was with Unchecked and Unbalanced. The publisher insists on pricing it not to sell on Kindle. I do not understand this. With zero marginal cost of distributing it as an e-book, I would think that the goal would be to maximize revenue. I don’t want 50 percent of the e-book revenue. I just want there to be e-book revenue. Publishers that are so stupid do not deserve stay in business.

Profit vs. Nonprofit

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Natalie Scholl writes,

AEI’s Values and Capitalism program just released a new book titled “Entrepreneurship for Human Flourishing.” In it, the authors, Chris Horst and Peter Greer, argue that entrepreneurial businesses, “which sustain productive development long after charitable giving dries up,” are the real engine of true human flourishing. Here, Horst and Greer answer a few questions about the book.

In a number of posts, I have argued that we should raise our estimate of the moral standing of profit-seeking enterprises relative to that of non-profits.

Russ Roberts and Chris Blattman

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Interesting throughout. One early excerpt:

Russ: Yeah. I have a different perspective. I give money to food banks, also. But I also like giving cash to poor people, particularly [?]–I hate to say this; my offense on people, and I don’t know if I’ve talked about this on EconTalk because, particularly if they are going to spend it on drugs and alcohol, I sometimes feel like it’s good to give them cash. Because sometimes when you are desperately miserable, drugs and alcohol might be what you want. People say to me: Doesn’t the donor have a right to decide what the money is spent on? Of course the donor can earmark it. You can give to the food kitchen if you want, or I can. But I like the idea that I respect the recipient, and I treat the recipient like an adult, not like a child, and I don’t decide for that person what’s good for them. I let them make that decision. And I think that’s a dignified way to interact with desperately poor people. Even when they are a little bit off the beaten track

This Story Angered Me

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It is about Brandeis professors.

Basically, they expressed some typically left-wing, occasionally anti-Semitic opinions on a Listserv.

In response, the university vigorously defended their right of free speech. Which is absolutely the correct response, in my opinion.

However, this is the same Brandeis that would not allow Ayaan Hirsi Ali to receive an honorary degree. Where was the vigorous defense of free speech back then?

I don’t think it occurs to Brandeis administrators and others on the left that if they are going to defend free speech and open inquiry, that this includes opinions with which they disagree.

Scott Sumner on AS-AD

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A good post. Read the whole thing. He ends up,

I’d like to dispense with all discussion of AS and AD, and replace it with nominal shocks and real shocks. A nominal shock is an unexpected change in NGDP. A real shock changes the price/output split for any given level of NGDP. As Tyler suggests, one type of shock is often entangled with the other. But it’s still important to keep them clear as a theoretical matter, so that we can think clearly about how monetary policy should respond (or not respond) to various types of situations.

PSST is all about real shocks. I am inclined to think of money and inflation as “consensual hallucinations.” That is, people get into habitual ways of undertaking transactions and adjusting prices. In the 1970s, these habits changed quite a bit. In other periods, they have been more stable. Often, the “noise” in prices (problems with measuring the “aggregate price level”) is large relative to any signal that might be inferred from changes in the measured rate of inflation. So I think that attempts to explain inflation on the basis of alleged causal variables, whether monetary or real (e.g., the unemployment rate) involve torturing the data to obtain a confession.

John Hussman on the Phillips Curve

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He writes,

The resulting relationship can be stated very simply: wages rise, relative to other prices, when unemployment is low and labor is scarce; wages fall, relative to other prices, when unemployment is high and labor is abundant. The chart below nicely illustrates this relationship in U.S. data. It relates current unemployment to subsequent real wage inflation.

The charts (at the link) shows very noisy relationships between nominal variables and unemployment but a reasonably strong inverse relationship between unemployment now and real wage growth later.

Thanks to a commenter for the pointer. I remain concerned that macroeconomists have very elastic theories and empirical methods that can be used to confirm almost any story.