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February 4, 2013

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Latest Posts from Economist's View


Posted: 19 Jan 2013 12:30 AM PST
David Altig tries to clarify his views on NGDP targeting:
Still a Skeptic: Addressing a Few Questions about Nominal GDP Targeting, Macroblog: In a comment to last week's post on inflation versus price-level targeting, David Beckworth asks the following (referring back to an even earlier post on nominal gross domestic product [NGDP] targeting):
You refer back to your previous post on NGDP level targeting, but fail to take note of the comments that respond to your concerns about it. Specifically, see the ones by Andy Harless and Gregor Bush. Would love to see your response to those ones. Do you have a response for them? I am listening if you have one.
Here is an excerpt from the Harless comment...
Most people who advocate NGDP targeting today advocate level path targeting, not growth rate targeting. I don't believe that your "historical justification" applies in this case. Indeed, I think it makes the case for level targeting (of either the price level or NGDP, but there are reasons to prefer the latter) relative to the current system which centers on a growth rate target for the price level (in other words, an inflation target).
...and here is the Bush comment:
Just to add to Andy's point, advocates of NGDP level targeting argue that it's precisely because of uncertainty around estimates [of] potential output [that] NGDP targeting should be adopted. They argue that [as] long as the central bank keeps nominal spending on, say, a 5% trend line, there will be neither demand side recessions (mass unemployment) nor high inflation. In other words, AD will be stable and this will produce a stable macroeconomic environment. Whether inflation is 2% and real output [grows] at 3% or inflation is 3% and real output grows at 2% is of no concern.
In the post on NGDP targeting I was in fact thinking about level targeting, and Gregor Bush's last sentence gets to—in fact is—the heart of our disagreement. I am just not willing to concede that anchoring long-term inflation by saying something like "2 percent, 3 percent, whatever" is the path to sustaining central bank credibility. Over the longer term, inflation is the only thing that monetary policy can reliably deliver, as the Federal Open Market Committee (FOMC) has clearly articulated in its statement of longer-run goals and policy strategy:
The inflation rate over the longer run is primarily determined by monetary policy, and hence the Committee has the ability to specify a longer-run goal for inflation. The Committee judges that inflation at the rate of 2 percent, as measured by the annual change in the price index for personal consumption expenditures, is most consistent over the longer run with the Federal Reserve's statutory mandate...
The maximum level of employment is largely determined by nonmonetary factors that affect the structure and dynamics of the labor market. These factors may change over time and may not be directly measurable. Consequently, it would not be appropriate to specify a fixed goal for employment; rather, the Committee's policy decisions must be informed by assessments of the maximum level of employment, recognizing that such assessments are necessarily uncertain and subject to revision.
This excerpt does not imply, of course, that the Fed need slavishly pursue a numerical inflation target in the shorter run and, as I have pointed out before, in his last press conference Chairman Bernanke explicitly indicated that the FOMC does not intend to do so:
The Committee... intends to look through purely transitory fluctuations in inflation, such as those induced by short-term variations in the prices of internationally traded commodities, and to focus instead on the underlying inflation trend.
My price-level targeting post, co-authored with Mike Bryan, was exactly making the point that, over the past couple of decades, the FOMC has essentially delivered on a 2 percent longer-term price-level growth objective, while accepting plenty of shorter-term variability.
In the end, it is an open question whether credibility in delivering price stability, hard won in the '80s and early '90s, could be sustained if the FOMC says it does not care so much about the exact level of the average rate of inflation, even in the long run. To be truthful, I can't give you an answer to that question. But neither can the proponents of NGDP targeting. I just don't feel that this is an opportune time for an experiment.
Posted: 19 Jan 2013 12:06 AM PST
Posted: 18 Jan 2013 12:53 PM PST
Brad DeLong:
Jake Sherman:
House Republicans plan debt ceiling vote: House Republicans will vote next week on a bill that would raise the nation's debt ceiling for three months and stop pay for members of Congress if the Senate doesn't pass a budget, GOP officials said Friday…. It's also a shift from House Speaker John Boehner…. But Boehner isn't retreating on the debt ceiling without conditions; He's framing this as a way to force Senate Democrats to lay out a budget…
Twenty-seventh Amendment to the United States Constitution:
No law, varying the compensation for the services of the Senators and Representatives, shall take effect, until an election of Representatives shall have intervened.
Everybody in the House and Senate now knows that this Charles Krauthammer-John Boehner "no pay for the Senate unless it passes a Budget Resolution" condition is unconstitutional.
But Jake Sherman does not tell the readers of Politico. Why not?
Why oh why can't we have a better press corps?
Paul Krugman:
Not With A Bang But With A Whimper: When you're wrong, you're wrong. I thought that by ruling out any way to bypass the debt limit, the White House was setting itself up, at least potentially, for an ignominious cave-in. But it appears that the strategy has worked, and it's the Republicans giving up. I'm happy to concede that the president and team called this one right.
And it's a big deal. Yes, the GOP could come back on the debt ceiling, but that seems unlikely. It could try to make a big deal of the sequester, but that's ... not good, but not potentially catastrophic, and therefore poor terrain for the "we're crazier than you are" strategy. And while Republicans could shut down the government, my guess is that Democrats would actually be gleeful at that prospect: the PR would be overwhelmingly favorable for Obama...
The key point to remember here is that Obama achieves his main goals simply by surviving. Above all, health reform gets implemented, and probably becomes irreversible.
A good day for sanity, all around.
I'm finding it hard to convince myself that this ends the era of the manufactured crisis, it's difficult to believe that Republicans won't regroup and strike again when they get the chance. But that's the thing, short of creative steps not yet on the radar, it's hard to see when a chance will come that isn't likely to backfire in the ways described above (or here).
Posted: 18 Jan 2013 11:14 AM PST
On health care rationing in the US:
Health Care Rationing Is Nothing New [Excerpt], by Beatrix Hoffman: ... Opponents of the 2010 Patient Protection and Affordable Care Act warn that the new health care law will lead to rationing, or limits on medical services. But many observers point out that health care is already rationed in the United States. "We've done it for years," said Dr. Arthur Kellermann, professor of emergency medicine and associate dean for health policy at Emory University School of Medicine. "In this country, we mainly ration on the ability to pay." ...
Countries with universal health systems ration health care via controlled distribution, whether through national budgeting, government setting of prices and provider fees, restrictions on some services, or a combination of methods. The United States health care system rations primarily by price and insurance coverage—and ... many other methods as well. Americans have learned to fear European or Canadian types of rationing, but don't see that the United States practices both price rationing and other types of rationing in health care.
Rationing in the United States is ... practiced by government agencies, private health insurance companies, hospitals, and providers, in ways both official and unofficial, intended and unintended, visible and invisible. The American way of rationing is a complex, fragmented, and often contradictory blend of policies and practices, unique to the United States. ... Health care has been rationed by race, in the case of the Jim Crow health system and other types of racial discrimination; by region, in the case of the uneven distribution of health facilities and personnel throughout the country; by employment and occupation, in the case of the job-based health insurance system; by address, in the case of residency requirements for various kinds of health care; by type of insurance coverage, in the case of health insurance that limits benefits and choice of doctor and hospital; by parental status, in the case of Medicaid (childless individuals are often excluded); by age, in the case of Medicare and the State Children's Health Insurance Programs—and the list goes on. These types of health care organization ... have rarely been called rationing. ...

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