Friday, November 19, 2010
A Keynesian Defense of QE2
This article by Alan Blinder, a highly-respected Keynesian economist and former vice-chair of the Fed, gives a good explanation of what Bernanke hopes to do with the "quantitative-easing" policy which was put into effect last week.
Tuesday, November 16, 2010
YouTube - Quantitative Easing Explained
This video is very amusing, and, unfortunately, largely [but not entirely] true.
Friday, November 12, 2010
Do Americans Really Hate Each Other?
In an New York Times article David Brooks asked "How can you love your country if you hate the other half of it?” (“National Greatness Agenda,” Nov. 12). In response, Don Boudreaux (one of my favorite bloggers) writes:
"One half of America doesn’t hate the other half. Americans cooperate in countless polite ways with each other every day. I just bought gasoline from an American-owned station near my home; I have no knowledge of the owner’s politics and he none of mine. And neither of us cares, for our interest in a successful commercial transaction is mutual. Ditto for everyone else who buys or sells gasoline – and groceries and clothing and restaurant meals and nights at B&Bs and copies of the New York Times and on and on and on. Americans get along peacefully and productively with each other every moment of the day in ways too many to list.
"The only place the hatred mentioned by Mr. Brooks consistently arises is in the political arena, for it’s there that Jones takes from Smith and Smith tries to protect himself from Jones. In that setting, both persons naturally oppose, curse, and hate the other. This hatred will only intensify the more our lives are politicized, whether by ‘Progressives’ or by ‘national-greatness’ conservatives.
"One half of America doesn’t hate the other half. Americans cooperate in countless polite ways with each other every day. I just bought gasoline from an American-owned station near my home; I have no knowledge of the owner’s politics and he none of mine. And neither of us cares, for our interest in a successful commercial transaction is mutual. Ditto for everyone else who buys or sells gasoline – and groceries and clothing and restaurant meals and nights at B&Bs and copies of the New York Times and on and on and on. Americans get along peacefully and productively with each other every moment of the day in ways too many to list.
"The only place the hatred mentioned by Mr. Brooks consistently arises is in the political arena, for it’s there that Jones takes from Smith and Smith tries to protect himself from Jones. In that setting, both persons naturally oppose, curse, and hate the other. This hatred will only intensify the more our lives are politicized, whether by ‘Progressives’ or by ‘national-greatness’ conservatives.
Sticky Wages Hold Back Job Growth - Real Time Economics - WSJ
EXCERPTS:
"It’s something workers don’t want to hear, but one reason the economic recovery isn’t generating more jobs is that wages are too high, said Robert Shimer, an economist at the University of Chicago.
Speaking on the sidelines of a conference at the Federal Reserve Bank of Atlanta focusing on problems with the U.S. job market, Shimer said a relatively small decline in wage levels of 3% to 5% would result in “significant growth in employment and consumption.” Shimer presented a paper on the topic at the two-day conference on Friday.
One reason this is a particular problem today is the U.S.’s very low inflation rate, said Shirmer. When inflation is high, employers can cut their labor costs simply by stopping or constraining pay increases. When that happens in the face of higher inflation, the cost of employing a worker falls as inflation erodes the value of that worker’s paycheck. One alternative is to offer lower wages to new workers, but that also creates problems, said Shimer. “Companies are reluctant to do that because it creates equity issues.”
“Wages will fall eventually,” which will help revive hiring, he said, but it will take a long time. That’s one reason he predicts the economy won’t return to more normal levels of unemployment, say 5.5%, for “many years.”
“But I really don’t have an answer for the question of how long it will take for wages to adjust,” he said. “It depends on things I can’t foresee — like how much inflation [the Fed’s bond-buying program known as] QE2 will generate.”
COMMENT:
Does this sound familiar? It should. If it doesn't, reread chapter 8 on what happens when the economy experiences a recessionary gap.
"It’s something workers don’t want to hear, but one reason the economic recovery isn’t generating more jobs is that wages are too high, said Robert Shimer, an economist at the University of Chicago.
Speaking on the sidelines of a conference at the Federal Reserve Bank of Atlanta focusing on problems with the U.S. job market, Shimer said a relatively small decline in wage levels of 3% to 5% would result in “significant growth in employment and consumption.” Shimer presented a paper on the topic at the two-day conference on Friday.
One reason this is a particular problem today is the U.S.’s very low inflation rate, said Shirmer. When inflation is high, employers can cut their labor costs simply by stopping or constraining pay increases. When that happens in the face of higher inflation, the cost of employing a worker falls as inflation erodes the value of that worker’s paycheck. One alternative is to offer lower wages to new workers, but that also creates problems, said Shimer. “Companies are reluctant to do that because it creates equity issues.”
“Wages will fall eventually,” which will help revive hiring, he said, but it will take a long time. That’s one reason he predicts the economy won’t return to more normal levels of unemployment, say 5.5%, for “many years.”
“But I really don’t have an answer for the question of how long it will take for wages to adjust,” he said. “It depends on things I can’t foresee — like how much inflation [the Fed’s bond-buying program known as] QE2 will generate.”
COMMENT:
Does this sound familiar? It should. If it doesn't, reread chapter 8 on what happens when the economy experiences a recessionary gap.
Wednesday, November 10, 2010
"We have tried spending money ... and it did not work." - Who said it?
EXCERPTS:
"Guess who said the following: "We have tried spending money. We are spending more than we have ever spent before and it does not work." Was it Sarah Palin? Rush Limbaugh? Karl Rove?
Not even close. It was Henry Morgenthau, Secretary of the Treasury under Franklin D. Roosevelt and one of FDR's closest advisers. He added, "after eight years of this Administration we have just as much unemployment as when we started. . . And an enormous debt to boot!
"This is just one of the remarkable and eye-opening facts in a must-read book titled "New Deal or Raw Deal?" by Professor Burton W. Folsom, Jr., of Hillsdale College. Ordinarily, what happened in the 1930s might be something to be left for historians to be concerned about. But the very same kinds of policies that were tried-- and failed-- during the 1930s are being carried out in Washington today, with the advocates of such policies often invoking FDR's New Deal as a model.
"Guess who said the following: "We have tried spending money. We are spending more than we have ever spent before and it does not work." Was it Sarah Palin? Rush Limbaugh? Karl Rove?
Not even close. It was Henry Morgenthau, Secretary of the Treasury under Franklin D. Roosevelt and one of FDR's closest advisers. He added, "after eight years of this Administration we have just as much unemployment as when we started. . . And an enormous debt to boot!
"This is just one of the remarkable and eye-opening facts in a must-read book titled "New Deal or Raw Deal?" by Professor Burton W. Folsom, Jr., of Hillsdale College. Ordinarily, what happened in the 1930s might be something to be left for historians to be concerned about. But the very same kinds of policies that were tried-- and failed-- during the 1930s are being carried out in Washington today, with the advocates of such policies often invoking FDR's New Deal as a model.
YouTube - Joe Biden's Weak Case for Government Meddling
YouTube - Joe Biden's Weak Case for Government Meddling: "- Sent using Google Toolbar"
Saturday, November 6, 2010
Fed Treads Into Once-Taboo Realm - WSJ.com
EXCERPTS:
"The Federal Reserve will print money to buy nearly as much U.S. Treasury debt in the next eight months as the U.S. government will issue.
The Fed's decision this week to buy $600 billion more of U.S. Treasury debt is setting off a debate about the risks of a central bank entwining its policies so tightly with the government's fiscal fortunes. The Fed is essentially lending enough money to the government to fund its operations for several months, something called "monetizing the debt."
In normal times, this is one of the great taboos of central banking because it is seen as a step toward spiraling inflation and because it risks encouraging reckless government spending.
The central bank is betting these aren't normal times. Financial markets Thursday responded warmly to the Fed move, but outspoken critics of the policy issued full-throated critiques.
"The Federal Reserve will print money to buy nearly as much U.S. Treasury debt in the next eight months as the U.S. government will issue.
The Fed's decision this week to buy $600 billion more of U.S. Treasury debt is setting off a debate about the risks of a central bank entwining its policies so tightly with the government's fiscal fortunes. The Fed is essentially lending enough money to the government to fund its operations for several months, something called "monetizing the debt."
In normal times, this is one of the great taboos of central banking because it is seen as a step toward spiraling inflation and because it risks encouraging reckless government spending.
The central bank is betting these aren't normal times. Financial markets Thursday responded warmly to the Fed move, but outspoken critics of the policy issued full-throated critiques.
Subscribe to:
Posts (Atom)