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September 22, 2014

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Paul Krugman: Those Lazy Jobless

Posted: 22 Sep 2014 12:24 AM PDT

Why are conservatives are blaming the victims of the recession despite "evidence and logic" to the contrary?:

Those Lazy Jobless, by Paul Krugman, Commentary, NY Times: Last week John Boehner, the speaker of the House, explained to an audience at the American Enterprise Institute what's holding back employment in America: laziness. People, he said, have "this idea" that "I really don't have to work. I don't really want to do this. I think I'd rather just sit around." Holy 47 percent, Batman!
It's hardly the first time a prominent conservative has said something along these lines. Ever since a financial crisis plunged us into recession it has been a nonstop refrain on the right that the unemployed aren't trying hard enough, that they are taking it easy thanks to generous unemployment benefits, which are constantly characterized as "paying people not to work." And the urge to blame the victims of a depressed economy has proved impervious to logic and evidence.
But it's still amazing — and revealing — to hear this line being repeated now. For the blame-the-victim crowd has gotten everything it wanted: Benefits, especially for the long-term unemployed, have been slashed or eliminated. So now we have rants against the bums on welfare when they aren't bums — they never were — and there's no welfare. Why? ...
Is it race? That's always a hypothesis worth considering in American politics. It's true that most of the unemployed are white, and they make up an even larger share of those receiving unemployment benefits. But conservatives may not know this, treating the unemployed as part of a vaguely defined, dark-skinned crowd of "takers."
My guess, however, is that it's mainly about the closed information loop of the modern right. In a nation where the Republican base gets what it thinks are facts from Fox News and Rush Limbaugh, where the party's elite gets what it imagines to be policy analysis from the American Enterprise Institute or the Heritage Foundation, the right lives in its own intellectual universe, aware of neither the reality of unemployment nor what life is like for the jobless. You might think that personal experience — almost everyone has acquaintances or relatives who can't find work — would still break through, but apparently not.
Whatever the explanation, Mr. Boehner was clearly saying what he and everyone around him really thinks, what they say to each other when they don't expect others to hear. Some conservatives have been trying to reinvent their image, professing sympathy for the less fortunate. But what their party really believes is that if you're poor or unemployed, it's your own fault.

Fed Watch: Hawkish Undertone

Posted: 22 Sep 2014 12:15 AM PDT

Tim Duy:

Hawkish Undertone, by Tim Duy: The Fed co«ntinuous to moves toward policy normalization.
Slowly. Very slowly.
They believe they are making every effort to avoid a premature withdrawal of accommodation. Every step is sequenced. And that sequencing did not allow for the removal of the considerable period language just yet.
That said, Federal Reserve Chair Janet Yellen noted in the associated press conference that, considerable period or not, the statement does not represent a promise to maintain a particular policy path. Moreover, the ambiguous definition of "considerable time" gives the Fed sufficient flexibility without breaking a promise in any event. Assuming asset prices end in October as the Fed expects, even a rate hike as early as March could still be considered a "considerable period." So too arguably would be a hike as early as January. It seems then that the considerable period language could survive longer than I anticipated.
Of course, if the statement is not a promise and "considerable period" has no fixed meaning, then the path of policy is strictly data dependent. And that is the idea now emphasized repeatedly by Yellen and Co. If the economy performs better than expected, rates hikes will come sooner and faster currently anticipated. If worse, the withdrawal of monetary accommodation will be delayed.
This is where the dot-plot comes into play. If we combine the midpoint of the economic estimates with the median of the rate expectations, you see the central tendency of the FOMC is to still expect a considerable period of time until rate normalization:

TAYLOR091714

Normalization is coming. But slowly. Very slowly. They have yet to see sufficient evidence to believe that policy will need to be considerably more aggressive than expected.
But where must the FOMC believe the balance of risks lies? Given the progress toward goals already achieved, and the wide spread between traditional metrics of appropriate policy and expected actual policy, it is reasonable to believe the FOMC is cautious that the risks are balanced toward tighter than expected policy. Indeed, the slow but steady increases in federal funds rate projections suggests that the data are indeed moving in such a direction. Hence, the Fed wants to disabuse market participants of the notion that the statement represents a promise. It is an only a policy expectation dependent on a particular set of assumptions. When those assumptions change, so too will the expectation.
Simply put, the Fed believes the statement accurately conveys their expectations given the current state of knowledge. It must then be somewhat disconcerting to the FOMC that while the possibility of a tighter than anticipating policy path is very real, financial market participants appear to believe the risks are weighted in the opposite direction. That, at least, is the message delivered by the San Francisco Federal Reserve in a well-publicized research note. The note also suggested much less uncertainty about the rate outlook than that of the FOMC. See also the Financial Times:
The FOMC's median rate for the fed funds rate by the end of 2015 was raised to 1.375 per cent from 1.125 per cent, with the key overnight borrowing rate seen reaching 2.875 per cent, rather than 2.50 per cent by the end of 2016.
In contrast, the bond market expects a funds rate of 0.76 per cent by the end of 2015 and 1.82 per cent a year later.
When asked about these divergent expectations, Yellen suggested that other research found more aligned expectations. And even if the expectations did differ, they can be explained by different forecasts:
They are taking into account the possibility that there can be different economic outcomes, including--even if they're not very likely--ones in which outcomes will be characterized by low inflation or low growth and the appropriate path of rates will be low. So, differences in probabilities of different outcomes can explain part of that.
I would suggest another explanation. Financial market participants are attempting to find Yellen's dots as an indicator of the median policy expectation (note that Jon Hilsenrath of the Wall Street Journal asked her to reveal her dots during the press conference). The focus has fallen on the lower sets of dots in recognition of her reputation as a policy doves and, I think, the view that she repeatedly made an explicit policy promise with her optimal control framework. Specifically:

Yellen20121113a

No policy liftoff until 2016 - a rate path that is more consistent with the lower or lowest set of dots in the Fed's SEP than the median policy expectation. The assumption is that Yellen's dots are bigger in practice than the other dots, hence an emphasis on expecting a more prolonged period of low rates than the median FOMC participant.
It would be helpful if Yellen revisited her optimal control theory now that unemployment is hovering near 6%. But it is reasonable to believe that she is less certain of her previously suggested path of monetary policy now that the Fed is closer to meeting its stated goals. Hence the ambiguity in her message beginning with Jackson Hole. She is telling us that the time of commitment to low interest rates is drawing to an end. The data now take precedence. As long as the data cut in the direction of what are believed to be Yellen's dots, then those dots will yield a fairly accurate forecast. But if the data cut in a more positive direction, then more hawkish dots will have been the better forecast.
And, importantly, the Federal Reserve wants market participants to figure this out on there own. Policymakers believe they have sent sufficient signals regarding their likely reaction function. Now they want to see participants adjust pricing according to that reaction function, not on the basis of some promise that was never really a promise in the first place. Or, in Yellen's own words:
What can I say is that it is important for market participants to understand what our likely response or reaction function is to the data and our job is to try to communicate as clearly as we can the way in which our policy stance will depend on the data, and I promise to try to do that.
Bottom Line: The outcome of last week's meeting had little impact on my policy outlook. I continue to expect a rate hike in the middle of next year, with my distribution of risks weighted toward second over third quarter outcomes. And note that the second quarter would include a June meeting - still nine months away. I anticipate a generally positive pace of activity that will push the unemployment rate well below 6% by that time. As the unemployment rate moves below 6%, the FOMC will simply worry that accommodation is straying too far past traditional metrics to be consistent with stable inflation. They would not want this to come as a surprise, hence the emphasis on the ambiguity of the forecast. An ultra-low rate future is not guaranteed. The Fed is emphasizing the uncertainty of the forecast to ensure that market participants recognize another future is possible - and even perhaps more likely - than the lowest set of dots, as suggested by the upward drift in median rate projections. If that upward drift is prescient, don't say the Fed didn't warn you. Follow the data, just as the Fed is telling you.

Links for 9-22-14

Posted: 22 Sep 2014 12:06 AM PDT

'Climate Realities'

Posted: 21 Sep 2014 10:17 AM PDT

Robert Stavins:

Climate Realities: ...It is true that, in theory, we can avoid the worst consequences of climate change with an intensive global effort over the next several decades. But given real-world economic and, in particular, political realities, that seems unlikely..., let's look at the sobering reality.
The world is now on track to more than double current greenhouse gas concentrations in the atmosphere by the end of the century. This would push up average global temperatures by three to eight degrees Celsius and could mean the disappearance of glaciers, droughts in the mid-to-low latitudes, decreased crop productivity, increased sea levels and flooding, vanishing islands and coastal wetlands, greater storm frequency and intensity, the risk of species extinction and a significant spread of infectious disease.
The United Nations has set a goal of keeping global temperatures from rising by no more than two degrees Celsius above preindustrial levels. ... Meeting this goal would require a worldwide reduction in greenhouse gas emissions of 40 to 70 percent by midcentury, according to the Intergovernmental Panel on Climate Change. That's an immense challenge. ...
Of course, the political climate in the United States presents its own challenges. It will require immense effort — and profound good fortune — to find political openings that can resolve the debilitating partisan divide on climate change. But if destructive politics have been at the heart of the problem, the best hope may be that creative politics and leadership can help provide a solution.

He also talks about the cost of climate change (saying it will be large), as do Peter Dorman  (in response to Paul Krugman) and John Quiggin. See also Scientists Report Global Rise in Greenhouse Gas Emissions.

'Capitalism & the Low-Paid'

Posted: 21 Sep 2014 10:16 AM PDT

Chris Dillow:

Capitalism & the low-paid: Is capitalism compatible with decent living standards for the worst off*? This old Marxian question is outside the Overton window, but it's the one raised by Ed Miliband's promise to raise the minimum wage to £8 by 2020. ...
* Note for rightists: As Adam Smith said, the notion of what's decent rises as incomes rise. And the fact that capitalism has massively improved workers' living standards in the past does not guarantee it will do so in future. As Marx said, a mode of production which increases productive powers can eventually restrain them. And as Bertrand Russell pointed out, inductive reasoning can go badly wrong. ...

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