In Defense of the Conventional Wisdom
41 minutes ago
This blog was previously devoted to seeing to it that Larry Summers get to spend more time with his family. Mission accomplished! The next mission is to provide the President with sage Economic advice.
House Minority Leader John Boehner (R-Ohio) will call Tuesday for the mass firing of the Obama administration’s economic team, including Treasury Secretary Timothy Geithner and White House adviser Larry Summers, arguing that November’s midterm elections are shaping up as a referendum on sustained unemployment across the nation and saying the “writing is on the wall.”Sucks he's basically right. That Boehner himself was also on the wrong side of all the recent economic policy debates hardly matters. Obama was elected to put the economy in order. He hasn't done that. He pushed through a stimulus which was too small, waited 16 months on an FOMC appointment, and made a stupid decision to reappoint Bernanke.
This comment makes three observations about Donohue and Levitt’s paper on abortion and crime (Quarterly Journal of Economics 119(1) (2001), 249–275). First, there is a coding mistake in the concluding regressions, which identify abortion’s effect on crime by comparing the experiences of different age cohorts within the same state and year. Second, correcting this error and using a more appropriate per capita specification for the crime variable generates much weaker results. Third, earlier tests in the paper, which exploit cross-state rather than withinstate variation, are not robust to allowing for differential state trends based on statewide crime rates that predate the period when abortion could have had a causal effect on crime.Although this may look like "shocking" revelations to some, if you take essentially any major result in economics over the past 30-40 years and dig around with their data, you're quite likely to discover that the central finding is fraudulent.
While that action could be helpful, it carries some risk, said Christopher L. House, an economics professor at the University of Michigan.Of course, this logic holds if the federal funds rate is at .25. If the Fed is expecting inflation of .9% over the next year, then why should a 25 basis point cut get us to uncontrollable inflation? More likely it would shift us toward inflation of 1 or 1.1%. That's clearly some magical thinking that a 25 basis point cut, alone, would take inflation from .9% to, say, 3.4%, much less that it would happen so suddenly that the Fed would be unable to keep a lid on inflation via repeated rate increases. Did the NYT quote anyone on the other side? Anyone who thought the Fed is not doing enough? NO.
“If they were to simultaneously lower the rate to zero while leaving $1 trillion in reserves in the banking system, they would have a lot of reason to worry about inflation,” he said.
On top of those reports, Tuesday’s decision by the Fed to begin buying at least $10 billion a month in new Treasury securities caught some traders off-guard.They shoulda been reading their EFFLS, and they'd have known in advance that's what the Fed was going to do...
She also was reported to have butted heads with other members of Obama’s economic team, in particular Larry Summers, director of the National Economic Council. In December, the she sand Summers even seemed to contradict each other — in interviews conducted on the same day — on whether the recession had ended.I think that shows she's got more human, and better, instincts than Summers. When unemployment has been above 9.5% for over a year and the economy is shedding jobs, you cannot try to pretend like everything is OK when you are in office. It makes you look out of touch. In Summers case, of course, he is out of touch. So it's not just framing...
“Everybody agrees that the recession is over,” Summers said.
“Of course not,” Romer said in a separate interview.
The clash appeared at the time to speak not just to the differing views on the economy within Obama’s inner circle but also to the sharply conflicting signals out of the economy itself, which continues to struggle to rebound.
We distinguish between quantitative easing in the strict sense and targeted asset purchases by a central bank, and argue that while the former is likely be ineffective at all times, the latter dimension of policy can be effective when financial markets are sufficiently disrupted.I have a few problems with this. First is that Quantitative easing is usually defined as targeted asset purchases by a central bank, of assets other than short-term Treasuries. Second, that "quantitative easing ... "is likely be ineffective at all times". (I wish I could get away with such grammar lapses in my Abstract for papers I submit...) In any case, he's arguing that even if the Fed creates trillions of dollars out of thin air and monetizes the entire US debt, that it will have no impact on inflation, gdp, or other economic variables. However, "targeted asset purchases of non-liquid assets", such as MBS, are likely to help.
Diamond favors “maintenance of the current level of ease” in monetary policy, “with vigilance to circumstances that might call for a change in either direction,” according to his responses to written follow-up questions from Shelby.Hard to interpret that, though, since I would also state support for the current policy in front of congress and then pull a 180 the second the next round of economic data come out...