"The Lord of Light wants his enemies burned. The Drowned God wants them drowned. Why are all the gods such vicious cunts? Where's the God of Tits and Wine?"

- Tyrion Lannister


"The common people pray for rain, healthy children, and a summer that never ends. It is no matter to them if the high lords play their game of thrones, so long as they are left in peace. They never are."

- Jorah Mormont


"These bad people are what I'm good at. Out talking them. Out thinking them."

- Tyrion Lannister


"What happened? I think fundamentals were trumped by mechanics and, to a lesser extent, by demographics."

- Michael Barone

"If you want to know what God thinks of money, just look at the people he gave it to."
- Dorothy Parker

Saturday, January 24, 2015

Kyle Kinane

A ‘Scumbag’ Story: Kyle Kinane is the cult hero of stand-up comedy by JUSTIN HECKERT ON JANUARY 22, 2015

From my neck of the woods, western suburbs of Chicago then Chicago. I think he said he moved to Los Angeles seven or eleven years ago.


Friday, January 23, 2015

Green Lanterns

If what they say is true, then the 1950s, 1960s and 1970s in the U.S., Europe and Japan wasn't possible. But it did happen so they are wrong.


O'Brien on ECB QE

The ECB takes out the bazooka: It’ll buy over 1 trillion euros of bonds to save Europe’s economy by Matt O'Brien
And finally, QE is a little bit of a bailout, but not in the way that Germany's afraid of. Think about it like this: When a country buys its own bonds with newly printed money, it doesn't have to pay interest on that debt anymore. Now it still does, but this is just an accounting fiction. It's moving money from your right hand to your left hand, and then back again to your right. That's because the government pays the central bank the interest that's owed on the bonds, but the central bank turns around and gives the government all the money it just got paid. 
As economist Paul De Grauwe points out, this wipes out each country's interest payments, so it's not as if Germany is bailing out everyone else. They're all bailing themselves out in equal measure. And this matters a lot for a country such as Italy, which would be running a surplus if not for all the interest it owes on its debt. Those payments, together with its still-shrinking economy, are why Italy's debt burden has actually increased despite all its austerity. QE will help this. 
But it might be too little too late. Or maybe too late too little. It's hard to tell in Europe.

Glanser on Nick Rowe, Friedman and Meade

Nick Rowe Goes Bonkers over Milton Friedman by David Glasner

In his 1977 Nobel Lecture, as Marcus Nunes informed us a few days ago, Meade explicitly advocated targeting nominal GDP writing as follows: 
I have told this particular story simply to make the point that the choice between fiscal action and monetary action must often depend upon basic policy issues which should certainly be the responsibility of the government rather than of any independent monetary authority. Perhaps the best compromise is an independent monetary authority charged so to manage the money supply and the market rate of interest as to maintain the growth of total money income on its 5-per-cent-per-annum target path, after taking into account whatever fiscal policies the government may adopt. 
So let me ask Nick the following: Was Meade right or left? And was he on the winning side or the losing side?
James E. Meade

Thursday, January 22, 2015

"monetary socialism"

My new banner. I welcome the Green Lanterns' hatred.

Via Tony Yates
The best that is to be said for EZ QE is that will probably do no harm, and is worth a shot. Unless its labelling as ‘monetary socialism’ [Tweeted extract from German press, HT Mark Shieritz/Christian Odendahl] leads Northern politicians to redouble their opposition to good old fiscal ‘socialism’, which would, in fact, be a much better bet right now.
We prioritize fiscal policy but understand it's a fiscal-monetary mix. NGDP path level targeting will highlight the failures of Kaleckian Central Banks who are in no rush to tighten labor markets.

We don't view it as giving money to the financial sector. We consider it to be the euthanasia of the rentier. They ration credit as to keep labor markets loose and wages stagnant.

DeLong and QE

Morning Must-Read: Paul de Grauwe: Quantitative Easing and the Euro Zone: The Sad Consequences of the Fear of QE by DeLong

Over at Equitable Growth: From my perspective, QE has always seemed to me to be likely to be:
  1. Very effective if it changes expectations of the future price level--that shakes rates rates of return significantly, and gives real people powerful incentives to spend their cash now.
  2. But setting up QE in such a way that it changes expectations of the future price level is difficult: the problem is that QE transactions are easily undone in the future, and there is every reason to think that an inflation-targeting central bank will undo them in the future.
  3. And if QE does not change expectations of the future price level its effects on real rates of return are minimal. READ MOAR
Think of it: for the ECB to buy €1 trillion of ten-year EU government bonds which have a term premium of 0.1%-point per year of duration means that the ECB takes duration risk off of private-sector balance sheets that the private market currently charges €10 billion/year to bear. It frees-up that risk-bearing capacity to be deployed elsewhere. In a €20 trillion/year Eurozone economy that is 0.05%. You can blather about financial accelerators and credit multipliers all you want, but it is a very uphill task to convince me that that is a big deal.
So why do it?
  1. It is a small plus.
  2. It might become part of a process that moves expectations and turns into a big plus.
  3. There is nothing else politically practical on the agenda that might be done that QE takes attention away from.
The very sharp Paul de Grauwe:
Paul de GrauweQuantitative Easing and the Euro Zone: The Sad Consequences of the Fear of QE: "I see two reasons why the case for [Eurozone] QE is overwhelming...
...First, QE is merely a correction for... the last two years... [when] the ECB withdrew about €1 trillion out of the euro-zone economy.... Second, the euro-zone economy is not getting off the ground.... Since Milton Friedman we have all become monetarists. In order to raise inflation it will be necessary to increase the growth rate of the money stock. This requires that the ECB increase the money base. And to achieve the latter there is only one practical instrument, ie, an open-market purchase of government bonds.... But... QE... is necessary but not sufficient. The fact that it is not sufficient, however, should not lead to the conclusion that it can be dispensed with....
There is much misunderstanding and fear regarding QE, especially in Germany. There is the fear that... German taxpayers risk having to foot the bill.... [But] if... say the Italian government were to default... [it] would stop paying interest but at the same time (applying the 'juste retour') it would not get any interest refund... no fiscal transfers.... [Any] write down ]of] the Italian bonds... [would be] purely an accounting operation.... A central bank... does not need equity.... This confusion between accounting losses and real losses... has led to long hesitation to act... leads to bad ideas and wrong proposals...

Sunday, January 18, 2015

Krugman on Swiss peg

Switzerland: QE Too
by Krugman
OK, arrived in Hong Kong, and IT is working a lot better. So let me weigh in a bit more on the Swiss miss. Basically, my take is the same as Brad DeLong’s: what we have here is a central bank that let itself be bullied by the balance sheet bugaboo brigade. 
The way to think about the franc peg, I’d argue, is to view currency intervention as essentially a form of quantitative easing. What we mean by QE is open-market operations in which the central bank buys stuff other than the usual purchases of short-term government debt. This could be long-term assets, it could be private-sector debt, or it could be foreign securities. Obviously the channels of influence depend to some extent on which route you choose, although remember that the Fed was accused of waging currency war when it was only purchasing domestic assets, and the main clear effect of Abenomics so far has run through the exchange rate. But the main point is to think of any kind of non-Treasury-bill open market operation as a form of QE. 
This in turn helps us put the explicit exchange rate target into the right slot: it was about making QE effective through commitment, so that you got the maximum impact on expectations. Actually, the success of the currency program suggests that other central banks might want to try things like setting a ceiling on some long-term interest rate. 
But back to Switzerland: they had a policy that was working, so why did they stop? And the answer, Brad and I both suspect, is that the SNB, like the Fed, faced constant pressure from finance types saying “Your balance sheet is too big! Debasement! Inflation! Unnatural monetary acts! Francisco d’Anconia!” But unlike the Fed, the SNB lacked the intellectual self-confidence (and perhaps the institutional strength, seeing as how it’s partially privately owned) to stand up to that pressure. 
The irony is that having been bullied into worrying about its own profitability, which is not what central banks should do, the SNB ended up imposing huge losses on itself. But that’s neither here nor there for Swiss national interests. The main thing is that the credibility essential to getting traction at the zero lower bound has been dissipated for Switzerland, and damaged for everyone else.

Expenditure changing versus expenditure switching

Expenditure Changing and Expenditure Switching policies

In an open economy setting, policymakers need to achieve two goals of macroeconomic stability, viz. internal and external balances. Internal balance is a state in which the economy is at its potential level of output, i.e., it maintains the full employment of a country’s resources and domestic price levels are stable.

External balance is attained when a country is running neither excessive current account deficit nor surplus (i.e., net exports are equal or close to zero). Attaining  internal and external balances requires two independent policy tools (also see Swan diagram). One is expenditure changing policy and the other is expenditure switching policy.

Expenditure changing policy aims to affect income and employment with the goal of equating domestic expenditure or absorption and production and takes  the form of fiscal or monetary policy. Expenditure switching is a macroeconomic policy that affects the composition of a country’s expenditure on foreign and domestic goods. More specifically it is a policy to balance a country’s current account by altering the composition of expenditures on foreign and domestic goods (see Balance of payments account). Not only does it affect current account balances, but it can influence total demand, and thereby the equilibrium output level.


more on the Swiss Peg

Switzerland drops its currency peg by James Hamilton

Reply to Tyler Cowen by Scott Sumner

Friday, January 16, 2015

Robert Wisdom and The Wire coincidence

Yesterday I had this post about The Wire and Colvin's Hamsterdam.

Tonight, Robert Wisdom the actor who played Colvin was on SyFy's show 12 Monkeys. His character mentions a "Senator Royce" who of course shares a name with The Wire's Baltimore Mayor Royce.

Swiss, Baker versus Krugman

I think Dean Baker is wrong.

Paul Krugman and the Swiss Movement

Friday, 16 January 2015 06:01

It isn't often that I think Paul Krugman gets one wrong, but I think he wrongly attacks those chocolate loving cuckoo clock making Swiss in his column today. His complaint is that the Swiss central bank abandoned its commitment to keep down the value of the Swiss franc against the euro. Krugman sees this a failure of will, with the central bank giving up a commitment to pursue an inflationary policy. This is part of a larger saga of feckless central banks that continue to obsess about inflation when the real problem facing world economies is an inflation rate that is too low.

While the general point is right, it is hard to see how this story applies to Switzerland. Switzerland did not see the same sort of downturn as the rest of the OECD in 2008. Furthermore, it has fully recovered from its downturn with a GDP that is 8 percent above its pre-recession level and an unemployment rate of 3.5 percent.

In this context, it is actually doing what we should want Switzerland to do as a good world citizen. By allowing its currency to rise, it will make its goods and services less competitive internationally. This means it will import more from its trading partners and export less, effectively providing them with an economic boost. This is what we should want to see. The countries that are at or near full employment should be running larger trade deficits or smaller surpluses.

So give the Swiss a gold star. They called this one right. (Now if we can get them to talk to China ....)

Thursday, January 15, 2015

Piketty and DeLong

Link

Over at Equitable Growth: Thomas Piketty: On the Elasticity of Capital-Labor Substitution

Piketty Finger Exercises numbers


Over at Equitable Growth: As I have said before in Very Rough: Exploding Wealth Inequality and Its Rent-Seeking Society Consequences (backed up by the numbers of "Roughing Out a Piketty Model") and elsewhere, in my view Thomas because he really needed a rent seeking society chapter in his Capital in the 21st Century. The underlying logic of his argument seems to be that wealth can take two forms: investments in capital-embodied technological wealth that boost wages in the economy, or investments in rent-seeking wealth that erode wages in the economy. And, I think, his argument is that we are headed for a society with a higher wealth-to-income ratio, and in such a society a greater share of wealth will find its way into the second channel. READ MOAR

Maybe that is not what Pikitty's argument is. But I at least think that it is what Piketty's argument should be--because I think it is highly likely to be true...


Thomas PikettyOn the Elasticity of Capital-Labor Substitution: "I do not believe in the basic neoclassical model...
...But I think it is a language that is important to use in order to respond to those who believe that if the world worked that way everything would be fine. And one of the messages of my book is, first, it does not work that way, and second, even if it did, things would still be almost as bad....
My response to Summers and others is... what we observe... [is] a rise in the capital/income ratio and a rise in the capital share... [in] the standard neoclassical model... the only possible logical... expla[nation]... would be an elasticity of substitution somewhat bigger than 1... that there are more and more different uses for capital over time and maybe in the future robots will make substitution even more.... Now, does this mean that it is the right explanation for what we have seen in recent decades? Certainly not....
All I am saying to neoclassical economists is this: if you really want to stick to your standard model, very small departures from it like an elasticity of substitution slightly above 1 will be enough to generate what we observe in recent decades. But there are many other, and in my view more plausible, ways to explain it.... It is perfectly clear to me that the decline of labor unions, globalization, and the possibility of international investors to put different countries in competition... have contributed to the rise in the capital share...



Cf.: Suresh NaiduCapital Eats the World, and The Slack Wire: Notes from Capital in the 21st Century Panel; and me: The Hourly Piketty: Paul Krugman, "Gattopardo Economics", and Economic Modelling, and The Honest Broker: Mr. Piketty and the “Neoclassicists”: A Suggested Interpretation: For the Week of May 17, 2014.

The Wire and legalization

HBO ran all 5 seasons of the Wire in 5 days. I recorded them and have been re-watching the show at a leisurely pace. Season 3 had the plot line with Major Colvin, Hamsterdam, and drug legalization. That was in 2004 and ten years later pot is legal in Colorado, Washington, Oregon and Alaska.

Obama is right, it's one of the best shows ever on television and Omar Little is probably my favorite character too although there are a lot of good characters. The creators of Game of Thrones explicitly said they modeled their vast canvas on The Wire.

Tuesday, January 13, 2015

JW Mason on asymmetry

Discussion on Wolfers

when the wage share falls, this is attributed to "technology" and is seen as inevitable, while when the wage share rises, this must generate inflation and should be prevented

That's a good point. There is a funny asymmetry in the mainstream discussion of wages. For liberals like Wolfers, if wages are rising faster labor productivity, that's a sign of excess demand that the Fed needs to do something about. But if wages are rising more slowly than productivity, as they most have been for decades, that's a sign of technological change, or China, or something else that has nothing to do with demand.

Monday, January 12, 2015

wage growth

The Non-Accelerating What Now Rate of Inflation by JW Mason

Annual wages growth is running at 1.7%. Yellen says "normal" is 3.5-4%. The recovery has a long way to run before the Fed needs choke it off

Sunday, January 11, 2015

Philomena

Philomena


growth and wages

Captain Recovery gets awfully close to liftoff but is held back by stagnating wage growth  by Jared Bernstein
But policy makers who want our support must articulate the policy architecture — the connective policy tissue — that will reunite growth and broadly shared prosperity.