- Links for 11-20-14
- 'On Mark Thoma: Marginalism, Marx etc'
- 'Fiscal Responsibility Claims Another Victim'
- 'The Effect of Oil Price Declines on Consumer Prices'
- The Long-Term and Short-Term Unemployed are Remarkably Similar
Posted: 20 Nov 2014 12:06 AM PST
Posted: 19 Nov 2014 12:21 PM PST
Branko Milanovic has a very nice follow-up to my column yesterday:
On Mark Thoma: marginalism, Marx etc: Mark Thoma has written a very nice blog on how Piketty's work is transforming economics by bringing it closer too it political economy roots. I found the post excellent, and wanted just to point out one thing which I think is very pertinently argued by Thoma and another where he somewhat simplifies the matter. ...[continue]...
Posted: 19 Nov 2014 11:43 AM PST
Fiscal Responsibility Claims Another Victim: A few more thoughts on Japan.
The bad growth news shows, pretty clearly, that the consumption tax hike was a big mistake. It also shows, by the way, how weak the market monetarist argument — which is that fiscal policy doesn't matter, because central banks can always achieve the nominal GDP they want — really is; do you seriously want to contend that Kuroda likes what he sees, that he isn't trying as hard as he can to boost Japan out of deflation?
Beyond that, the Japanese story is another example of the damage wrought by the rhetoric of fiscal responsibility in a depressed economy.
Leave on one side the expansionary austerity nonsense. Even among relatively sensible people, you often encounter calls for a strategy that couples loose fiscal policy, maybe even stimulus, in the short run with measures to address long-run sustainability. ... But ... the urgency of the stimulus part gets lost, and in fact the practical result is generally austerity even in depression.
So it was with Japan... — the country that has offered many useful lessons to the West, none of which our policymakers have been willing to learn.
Posted: 19 Nov 2014 10:30 AM PST
From Ben Craig and Sara Millington of the Cleveland Fed:
The Effect of Oil Price Declines on Consumer Prices, by Ben Craig and Sara Millington: Oil prices have declined significantly in recent weeks, reaching levels not seen in several years. At the same time, the year-over-year percent change in the most widely known measure of inflation, the Consumer Price Index (CPI), came in at 1.7 percent for September, which is below policymakers' targeted levels. Given these circumstances, there is some concern that low oil prices, which have continued to remain below $90 a barrel through October, will keep inflation persistently below or even push it further from targeted levels. A look at historical relationships between oil prices and various price measures can help gauge the potential pass-through of the recent oil-price declines to other domestic prices. ...
Oil price changes can potentially play a large role in the US economy. With respect to inflation, the two most likely channels through which they could do so are retail gasoline prices and producer prices. However, as consumers use savings from lower energy prices for other goods and services, these prices are likely to rise in response, offsetting the initial disinflationary impact of lower oil prices. Accordingly, as the FOMC observed in its Statement on Longer-Run Goals and Monetary Policy Strategy, "the inflation rate over the longer run is primarily determined by monetary policy," rather than by movements in individual price components.
I'm not as sure as they are that other prices will rise as demand shifts from oil to other goods and services. In an economy like this one where demand is deficient and firms are operating below capacity (and therefore presumably below the minimum point on their average total cost curves assuming they were at or near the minimum before the recession, or at least on the flat part of the curve if the minimum extends over a range of output), shouldn't there be some room for demand to expand without putting upward pressure on prices (e.g. wages shouldn't rise until there are shortages in the labor market, but as noted here there is excess labor supply across the board)? The statement from the FOMC is about the long-run, and an economy operating near capacity, but we aren't there yet and won't be for some time at the present rate of recovery.
Posted: 19 Nov 2014 08:44 AM PST
Or, as I said here, we shouldn't ignore the long-term unemployed.
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