- Links for 02-04-15
- Fed Watch: Brief Comment
- 'Is Democratic Keynesianism Possible?'
- Self-Selection and 'Liberal' Professors
- 'Tough Fedding'
Posted: 04 Feb 2015 12:06 AM PST
Posted: 03 Feb 2015 04:51 PM PST
Posted: 03 Feb 2015 10:44 AM PST
Chris Dillow follows up on Simon Wren-Lewis's call for an independent fiscal policy authority:
Is democratic Keynesianism possible?: Simon calls for fiscal policy to be set independently of government, to prevent it "being corrupted by politics and ideology." This might seem like pointy-headed technocracy. In fact, it is more radical than that. ...
There can be little doubt that business has captured government. We saw an example of this yesterday. Stefano Pessina's claim that a Labour victory would be "catastrophic" was reported as if it were news that a billionaire isn't keen on leftish governments; I doubt that a benefit claimant's view that a Tory victory would be "catastrophic" would get so much attention. This is just on example of how the rich have disproportionate political influence.
In this sense, I read Simon as making a very radical claim - one which is more Marxian than Keynesian. "Democratic" policy-making cannot serve the public interest, because it is subverted by capitalists' interests. This represents a challenge to naive social democracy, which thinks that governments can do the right thing if only they have the will and courage.
In severe downturns, we need fiscal policy to step up to the plate but it's hard to see how political institutions can be altered to make that happen. Given that fiscal policy is severely hampered by the political process and monetary policy alone is not enough to overcome large economic problems, we need to five extra attention to avoiding severe problems in the first place. That is, the risks of financial regulation are asymmetric. Too much regulation may have some negative effects, but too little risks severe problems that last for many, many years. So if we are going to make a regulatory error...
On that note, I didn't expect this from Jim Bullard:
Fed's Bullard Calls For Breaking Up Nation's Biggest Banks: Federal Reserve Bank of St. Louis President James Bullard warned Tuesday regulatory changes haven't solved the too-big-to-fail problem in banking, adding that he'd support a break-up of the biggest banks in the U.S. ...
Mr. Bullard thinks bubbles can be so strong and so irrationally driven that regulatory policy may not be able to put the genie back in the bottle. What's more, when it comes to these new powers, "they are untested, and it's unclear whether they'd really work."
He said a better solution would be to reduce the size of banks that are considered too-big-to-fail. ...
Breaking up banks has been an unpopular view in the Fed. ...
Posted: 03 Feb 2015 09:06 AM PST
Dan Little of Understanding Society:
Posted: 03 Feb 2015 08:54 AM PST
Paul Krugman hopes the Fed is listening:
Tough Fedding: The monetary-policy gap between insiders and outsiders — between economists at the Fed and other policy institutions, who still seem eager to raise rates, and those of us on the outside, who think this is a really, really bad idea — continues to widen. This morning Tim Duy — one of the outsiders who ... has seemed most sympathetic to the urge to hike rates — joins the what-are-they-thinking chorus. Core inflation is drifting downward, not upward, and is now well below the Fed's target. So why hike?
The immediate answer appears to be a fixation on the unemployment rate, which is close to standard estimates of full employment. But is this really a solid justification for raising rates absent any actual sign of the rising inflation we're supposed to see at full employment?
Actually, what do we mean by full employment, anyway? ...
You don't want to push this too hard, but my point is that recent data are perfectly consistent with the view that full employment requires an unemployment rate below 5 percent; the most recent data would suggest an even lower rate. This might or might not be right; I don't know. But the Fed doesn't know either.
And in the face of that uncertainty, the crucial question is what happens if you're wrong. And the risks still seem hugely asymmetric. Raise rates "too late", and inflation briefly overshoots the target. How bad is that? (And why does the Fed sound increasingly as if 2 percent is not a target but a ceiling? Hasn't everything we've seen since 2007 suggested that this is a very bad place to go?) Raise rates too soon, on the other hand, and you risk falling into a deflationary trap that could take years, even decades, to exit.
I really, really hope this is getting through.
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