How The Fed Directly Subsidizes Corporate Profits And Why The Game Is Over [View article]
"Manufacturing has the largest multipliers, it provides the biggest boost to the economy when capital is invested."
"Manufacturing" has no particular multiplier. Labor-intensive activity has the largest multiplier. When manufacturing here was labor-intensive, it had a big multiplier. Now, it is capital-intensive, and it doesn't. China, India, Bangadesh, Brazil, and other countries want manufacturing to locate there because their industries are labor-intensive, and labor-intensive industries have big multipliers.
Bringing back manufacturing will not bring back the jobs or the multiplier. Our manufacturing is increasingly automated and will continue to become more so. Moreover, the multiplier depends on where the second-order spending occurs. If an American worker buys Chinese workboots, the multiplier happens in China.
Once we recognize that capital invested here will NOT be used to employ Americans, but will be used to buy machines and software, and so will not have much of a multiplier, we can stop bemoaning the fact that the capital is going elsewhere to make things for us to use, and we can look instead to the benefits of trade.
Meanwhile, capital may flee, but its ownership, the wealth it represents, does not. All of that overseas capital owned by Americans - including unrepatriated profits - shows up as wealth on the personal balance sheets of individuals with interests in the enterprises. You can margin your Apple stock to buy a car if you wish, even if Apple is making its money elsewhere. And the car purchase has a multiplier, too, such as it is.
You are saying, I think, that the problem is the genie of globalization - that our wages are too high NOW THAT we can conveniently make things more cheaply elsewhere. I believe the problem is the genie of technology, which has brought us globalization AND automation. It appears that you want to put your genie back in the bottle because you can't figure out what to ask it for. I've got a few wishes left.
We have comparative advantages in things other than labor. We must exploit those advantages, and we are exploiting them. The problem is that capital-intensive production results in concentrated wealth within the US, and we need to share that wealth or the voters simply won't tolerate its creation. Unfortunately, we have not figured how to share wealth other than through employment. Now that making things without employees is precisely where our comparative advantage lies, the distribution problem becomes our national economic challenge. I am not sure how we solve it, but I hope it is not by lowering our wages or closing our ports and the patent office.
The World's Worst Investors, Bernanke's Legacy, And Tragic Lies [View article]
"With Bernanke's legacy on the line, there's no chance he'll start 'slowing the pace of [asset] purchases' until economic growth climbs out of its current rut."
What would he be doing differently if his legacy were not on the line?
How The Fed Directly Subsidizes Corporate Profits And Why The Game Is Over [View article]
" If mechanization were the driver, the US would still be manufacturing automobiles and steel and there would be a large number of factories but with fewer workers. "
I did not say that automation was the driver. I said the the jobs that have gone abroad WOULD HAVE eventually been automated IF they hadn't gone abroad. Thus, automation IS the problem, whether or not it WAS the driver.
Automobile plants are highly automated, and if you watch the right TV, you can even see robots repairing robots in CISCO commercials. Why the jobs left is a very different question from why they won't come back.
None of this vitiates your point about the need for transfer payments, although I think there are other things we could do to reshape the workforce better to match the remaining opportunities.
How The Fed Directly Subsidizes Corporate Profits And Why The Game Is Over [View article]
"The 'problem' with the United States is labor costs."
Increasingly, the problem is not the cost of US labor vs. foreign, but the cost of US labor vs. machines. The jobs that have gone abroad would probably have been automated by now if they hadn't gone abroad. And they will eventually be automated anyway, in which case, the goods might as well be made here. US Manufacturing will recover, but there is no reason to believe that well-paid manufacturing employment - Fordism, in which most workers can afford their own outputs - will ever return. That, I think, is the "problem," and it's a doozy.
I don't believe that we can "retrain" our way out of this mess. Highly paid service work is talent-driven, not training-driven. Most of us can be autoworkers, but we cannot all be supermodels, quarterbacks, brain surgeons, or quants. (Or, perhaps more to the point, nurses or executive assistants or middle managers.)
How The Fed Directly Subsidizes Corporate Profits And Why The Game Is Over [View article]
"What inflation rate should money be subject to? That's a huge question, no?"
Not really. You try something and watch the results. If you don't like them, you tweak the system to get another rate. The wonderful mix of professional expertise and political contention resolves to an acceptable level. It's no big deal at all.
I'm fine with 2%. But see Bagno's 1955 paper in which he argues for 4%. (Note the false erudition here - I don't know who Bagno is or whether he has a clue. I just know that some guy on the web cited a paper Bagno wrote in support of a 4% rate.)
I have often advanced - and agree with - the anti-deflation analysis. I have also argued that inflation enables price discovery for downward-sticky prices, especially labor. And that inflation draws money out of mattresses, which is good for economic activity irrespective of the information decay argument.
But all of these benefits have a certain arbitrary feel to them, and I thought it would be useful to consider the information decay aspect - the semiotics of the money supply - as a separate line of inquiry. My background is in insurance, so I am sensitive to the aging of underwriting data, how it becomes less and less reliable as an indicator of risk over time. Since the acceptance of money is an "investment" in the quality of that money, the information imparted by the age of the money just naturally strikes me as relevant.
The idea is original with me only in the sense that I have not encountered it anywhere else. I have long stopped thinking that I am the first person to propound any good idea publicly, but I have never assumed that an argument is not good just because I cannot FIND someone with credentials who made it first. What would be the fun in that? I find the idea provocative, so I have offered it for others to consider.
How The Fed Directly Subsidizes Corporate Profits And Why The Game Is Over [View article]
"Sounds like you think the Uncle Sam is running budget deficits because citizens want to buy Treasuries."
The US runs deficits because taxes suck and there is no reason to balance a budget absent unacceptable inflation.
"If Uncle Sam hadn't had any deficits in the last 30 years, then all the T-Bonds would have matured, and we'd have no T-bonds outstanding."
And the world's dollar reserves would be invested in what? Excess reserves at the Fed, earning what T-bills would be paying if there were T-bills. Dollars ARE government securities. The only question is how they are accounted for, and it really does not matter.
The US Treasury wouldn't issue new T-Bonds just because someone wanted to buy one. That's not how it works."
That's EXACTLY how it works, if you consider the Fed and the Treasury to be the same thing and recognize that a bank's excess reserves are just government securities.
"I think what you are trying to say is that people will always buy T-Bonds for one reason or another. That I can agree with ... but not forever."
How long is forever? How far in the distant future does a problem become someone else's and not yours?
How The Fed Directly Subsidizes Corporate Profits And Why The Game Is Over [View article]
"In the UK £1.00 will now only buy what 1p (one penny) bought in 1900 and 6p in 1940."
Do you know anyone who put his money in a drawer in 1900 and is now suffering from this horrible inflation? How about 1940? You are reciting what happens to money put in a mattress. Why would that concern anyone with the brains to do otherwise?
Money is a medium of EXCHANGE. If you don't EXCHANGE it, it loses value, as it should. I say "should" because the money you get represents the value of something you did at the time you did it. Over time, that value becomes less reliable. Maybe you provided a horse and buggy in 1900. If you were to provide one now, you wouldn't get much for it. Whereas you clearly earned the money when you did what you did, participants in the economy need to know that the amount of money in circulation correlates well with the ability of people to produce outputs for which it can be exchanged. Money earned 100 years ago carries no such message and must be disrespected accordingly.
In general, you can probably do on Tuesday whatever it is that you did to earn money on Monday, and you can provide thereby the same value as you provided to earn it. Such "new" money carries a message, then, about the productive capacity of the economy. So long as money keeps moving into the hands of people who are currently productive, that relationship holds. But if you sit on money, it becomes less likely that you can actually provide today the value you provided to earn it. If too much money is hoarded, the sum of money stops representing the productive capacity of its holders. That is a sort of tragedy of the commons, and it is punished by inflation.
I am not saying that money must be spent on consumables. Quite the contrary. Saving is fine, so long as it becomes investment. Investment puts the money in the hands of the productive entrepreneur, where it represents productive capacity. Money so invested earns a return that offsets the inflation inflicted on those whose money sits idle. But money in a mattress decays with the quality of the information it imparts. (I won't say the Second Law of Thermodynamics literally applies to money, but I will say that it provides an excellent template for thinking about it.)
How The Fed Directly Subsidizes Corporate Profits And Why The Game Is Over [View article]
"Since, Americans in the private sector do not earn significantly more than their government counterparts, there is no long-term way to pay for all of this social spending."
This claim totally misconstrues how we pay for the things the government buys.
Suppose the government buys a battleship with newly printed money. How do we "pay" for that? Building the battleship requires labor and materials. The resources used are not available to anyone else. If someone has to do without those resources because the government is using them, or if someone has to pay more to get replacement resources, then those people are "paying" for the battleship to the extent that their economic position is worsened by the shortage. But if there is no shortage created, there is no "payment" to be made, as no one is economically disadvantaged by the expenditure (and we all may sleep a bit more soundly). It's easy to see what a subjective, contingent, and squishy concept such payment presents. But that's not the fault of the analysis; it's just how things are.
Hard as it may be to measure this "cost," we do know that it varies from time to time, depending on whether resources are in short supply. That's why Keynes argued that governments should run deficits in slack times and surpluses in good times. The surpluses are not supposed to "pay for" the deficits. Each period simply stands on its own. When the resources are sitting idle, no one is deprived of their use when the government uses them. When the resources are busy, government spending impairs private activity. There is no a priori reason why the periods of deficit and surplus should match, or cancel out. They should be what they should be.
One would think that Keynes's prescription would produce a state of surplus in a prosperous nation, i.e., there would be more good years than bad years, and more surpluses than deficits. But that's not the way things work. First, the amount of surplus needed to offset excess activity may be less than the amount of deficit that can safely be run in slack times. The numbers do not need to match. Second, and more important, we are constantly looking for ways to improve the output engine. Our entrepreneurs strive daily to create excess capacity, or, more precisely, to render their competitors' capacity excess. At least some of that resulting excess capacity is perfectly serviceable. The government should take advantage of that capacity, at its marginal cost - virtually zero - to achieve its mission Accordingly, we should expect the government to run deficits in most years as technology accelerates, and we should expect the cumulative record of those deficits (sovereign "debt," especially to the central bank) to grow steadily.
And what is the government's "mission." It's right there in the Preamble to the Constitution, and it includes providing for the general welfare. I don't mean to be cute by suggesting that the Preamble somehow gives "welfare" payments a privileged status. I mean, rather, that one way in which the government can tap excess capacity FOR the general welfare is to give its less successful citizens access to some of it. Such programs are fraught with danger, including vote-buying and moral hazard. But we seem to have solved that problem to some extent by focusing payments on the elderly, whose motivation to work we need not preserve so assiduously, and by limiting what we pay to others to a level that, for the most part, encourages those who can work to seek the opportunity to do so.
Allowing, then, for the risks of transfer payments as opposed to payments for hard assets, the economic principle remains the same: unless a government expenditure results in a shortage of some resource, the expenditure need never be paid for, or, if we insist that it be deemed "paid for," the government can be said to have picked it up really cheaply at the outlet mall.
The Bernanke Agenda - It Isn't What You Think It Is [View article]
"I'm not following you on this."
In 1937, the powers that be decided that the economy was recovering too quickly and so applied the monetary and fiscal brakes. The economy tanked. Bernanke does not want to tighten lest that happen again. The risk is that the world will stop wanting dollars because we are printing so many of them. That risk seems less troubling to BB than the risk of repeating the errors of 1937.
The "pressure" thing is my pet peeve. It's a bad metaphor, and BB shouldn't use it either. The Fed cannot STIMULATE. All it can do is prevent the engine from running at full throttle, which (running at full throttle, that is) is almost always dangerous. When the headwinds get severe enough, and full throttle is appropriate, the Fed can release the restraints. But it cannot push, and I think we lead our wonking in the wrong direction if we entertain the notion that it can, or thinks it can, or is trying to but failing.
The Bernanke Agenda - It Isn't What You Think It Is [View article]
"So, what will he do - keep up the program longer to keep as much pressure on as possible?"
What pressure? The Fed does not apply pressure. It has reins that it can tighen or loosen, but it has no whip. Ben also said that things would be a lot worse if the Fed weren't accommodating, so it makes no sense, under his view of things, for the Fed to join the headwinds by allowing interest rates to rise, further suppressing activity.
"will the market start to react to all the underlying issues soon anyway?"
Who knows what the market will do? But Bernanke's obviously more worried about replaying 1937 than causing a loss of faith in the dollar.
The Bernanke Agenda - It Isn't What You Think It Is [View article]
"This way the Banks don't have to lend. "
It costs money to run a bank. Electric bills, employees, lawyers, etc. It costs money to hold a deposit uninvested. That's what vaults are for, and the bank charges people to hold their money in a vault. If there are no good borrowers, taking deposits is a SERVICE to the owner of the money. If that money exists because the Fed has bought Treasuries from the owner of the money, and the owner of the money has to stash it somewhere, it's not unreasonable for the Fed to pay the banks for accepting deposits it does not need. That's why these are called "excess" reserves: the bank does not want them, has to service them, and damn well needs to be paid by SOMEONE for holding them.
Would you have the banks make dumb loans with these deposits? Didn't we see that movie in 2009? I'm sure you can get it on cable.(And that wouldn't solve the problem anyway. Banks don't LEND deposits; they CREATE deposits by lending, at least enough to make lending a poor way to reduce "excess" reserves.)
Ben wants to be able to increase IoER to suppress lending when the time comes. That's why he says that barring IoER would be inflationary. A reserve at the Fed is, functionally, a Federal security. As such, it absorbs money that would otherwise be spent in the private sector. So, instead of selling Treasuries to raise rates, the Fed can raise the opportunity cost of lending by "selling" reserve accounts to banks at an increasingly attractive price. That, he hinted, is how he plans to exit QE without selling bonds. If he cannot do that, then the money will be lent as the economy recovers, demand will soar, and inflation will become a real problem.
"Wasn't the Fed's charge not only to control inflation but to promote full employment?"
Ben answered that question (whether or not it was actually asked) by asserting that he was out of bullets, that monetary policy was doing all it could for employment, but the headwinds of globalization, Europe's woes, and fiscal restraint were more than monetary policy can overcome.
At the end of the day, though, I think you need to think long and hard about any step that would "force" banks to lend to stay afloat without regard to the quality of credit available to serve. That is a prescription for disaster.
Many Conservatives Don't See A Reason To Celebrate The Shrinking Deficit: Here's Why [View article]
EK -
I believe your reading of "absolute" is uncharitable. The word "absolute" is a brain fart, nothing more. If you think "cumulative" would be redundant, then you wouldn't use it; I think it would focus the reader's mind on the fact that the ratio of debt/GDP is increasing, whatever the consequences may be, but either way, it's just a matter of style about which you are making too much. (Likewise, CR's anatomical analogy would have been better if he had used an increasing BMI instead of weight, but I'm prepared to accuse him ON THAT ACCOUNT only of imprecision, not incoherence.)
At the same time, I agree that CR's argument is not clear. He does not connect the dots between a debt that is growing (relative to the economy) to a government that "reduces the productive base" of the economy. Although CR dismisses hyperinflation as a concern, he does not dismiss excessive "ordinary" inflation, something that can best be prevented by steps that will shrink the economy (higher taxes or higher interest rates). He does not dismiss it, but he doesn't mention it either, which is odd. I believe that the MMT-approvable, conservative case against excessive debt arises from the fear that we will have to print "too much" money, i.e., if the debt becomes large enough in relation to the economy, we will have to choose between inflation or suppression of private activity.
All in all, I think this article is a pretty weak effort. I just wish that people would read it with less antipathy so that the real issues, and not insignificant errors in style, might emerge.
How The Fed Directly Subsidizes Corporate Profits And Why The Game Is Over [View article]
"Manufacturing" has no particular multiplier. Labor-intensive activity has the largest multiplier. When manufacturing here was labor-intensive, it had a big multiplier. Now, it is capital-intensive, and it doesn't. China, India, Bangadesh, Brazil, and other countries want manufacturing to locate there because their industries are labor-intensive, and labor-intensive industries have big multipliers.
Bringing back manufacturing will not bring back the jobs or the multiplier. Our manufacturing is increasingly automated and will continue to become more so. Moreover, the multiplier depends on where the second-order spending occurs. If an American worker buys Chinese workboots, the multiplier happens in China.
Once we recognize that capital invested here will NOT be used to employ Americans, but will be used to buy machines and software, and so will not have much of a multiplier, we can stop bemoaning the fact that the capital is going elsewhere to make things for us to use, and we can look instead to the benefits of trade.
Meanwhile, capital may flee, but its ownership, the wealth it represents, does not. All of that overseas capital owned by Americans - including unrepatriated profits - shows up as wealth on the personal balance sheets of individuals with interests in the enterprises. You can margin your Apple stock to buy a car if you wish, even if Apple is making its money elsewhere. And the car purchase has a multiplier, too, such as it is.
You are saying, I think, that the problem is the genie of globalization - that our wages are too high NOW THAT we can conveniently make things more cheaply elsewhere. I believe the problem is the genie of technology, which has brought us globalization AND automation. It appears that you want to put your genie back in the bottle because you can't figure out what to ask it for. I've got a few wishes left.
We have comparative advantages in things other than labor. We must exploit those advantages, and we are exploiting them. The problem is that capital-intensive production results in concentrated wealth within the US, and we need to share that wealth or the voters simply won't tolerate its creation. Unfortunately, we have not figured how to share wealth other than through employment. Now that making things without employees is precisely where our comparative advantage lies, the distribution problem becomes our national economic challenge. I am not sure how we solve it, but I hope it is not by lowering our wages or closing our ports and the patent office.
The World's Worst Investors, Bernanke's Legacy, And Tragic Lies [View article]
What would he be doing differently if his legacy were not on the line?
How The Fed Directly Subsidizes Corporate Profits And Why The Game Is Over [View article]
I did not say that automation was the driver. I said the the jobs that have gone abroad WOULD HAVE eventually been automated IF they hadn't gone abroad. Thus, automation IS the problem, whether or not it WAS the driver.
Automobile plants are highly automated, and if you watch the right TV, you can even see robots repairing robots in CISCO commercials. Why the jobs left is a very different question from why they won't come back.
None of this vitiates your point about the need for transfer payments, although I think there are other things we could do to reshape the workforce better to match the remaining opportunities.
How The Fed Directly Subsidizes Corporate Profits And Why The Game Is Over [View article]
Increasingly, the problem is not the cost of US labor vs. foreign, but the cost of US labor vs. machines. The jobs that have gone abroad would probably have been automated by now if they hadn't gone abroad. And they will eventually be automated anyway, in which case, the goods might as well be made here. US Manufacturing will recover, but there is no reason to believe that well-paid manufacturing employment - Fordism, in which most workers can afford their own outputs - will ever return. That, I think, is the "problem," and it's a doozy.
I don't believe that we can "retrain" our way out of this mess. Highly paid service work is talent-driven, not training-driven. Most of us can be autoworkers, but we cannot all be supermodels, quarterbacks, brain surgeons, or quants. (Or, perhaps more to the point, nurses or executive assistants or middle managers.)
How The Fed Directly Subsidizes Corporate Profits And Why The Game Is Over [View article]
Not really. You try something and watch the results. If you don't like them, you tweak the system to get another rate. The wonderful mix of professional expertise and political contention resolves to an acceptable level. It's no big deal at all.
I'm fine with 2%. But see Bagno's 1955 paper in which he argues for 4%. (Note the false erudition here - I don't know who Bagno is or whether he has a clue. I just know that some guy on the web cited a paper Bagno wrote in support of a 4% rate.)
I have often advanced - and agree with - the anti-deflation analysis. I have also argued that inflation enables price discovery for downward-sticky prices, especially labor. And that inflation draws money out of mattresses, which is good for economic activity irrespective of the information decay argument.
But all of these benefits have a certain arbitrary feel to them, and I thought it would be useful to consider the information decay aspect - the semiotics of the money supply - as a separate line of inquiry. My background is in insurance, so I am sensitive to the aging of underwriting data, how it becomes less and less reliable as an indicator of risk over time. Since the acceptance of money is an "investment" in the quality of that money, the information imparted by the age of the money just naturally strikes me as relevant.
The idea is original with me only in the sense that I have not encountered it anywhere else. I have long stopped thinking that I am the first person to propound any good idea publicly, but I have never assumed that an argument is not good just because I cannot FIND someone with credentials who made it first. What would be the fun in that? I find the idea provocative, so I have offered it for others to consider.
How The Fed Directly Subsidizes Corporate Profits And Why The Game Is Over [View article]
The US runs deficits because taxes suck and there is no reason to balance a budget absent unacceptable inflation.
"If Uncle Sam hadn't had any deficits in the last 30 years, then all the T-Bonds would have matured, and we'd have no T-bonds outstanding."
And the world's dollar reserves would be invested in what? Excess reserves at the Fed, earning what T-bills would be paying if there were T-bills. Dollars ARE government securities. The only question is how they are accounted for, and it really does not matter.
The US Treasury wouldn't issue new T-Bonds just because someone wanted to buy one. That's not how it works."
That's EXACTLY how it works, if you consider the Fed and the Treasury to be the same thing and recognize that a bank's excess reserves are just government securities.
"I think what you are trying to say is that people will always buy T-Bonds for one reason or another. That I can agree with ... but not forever."
How long is forever? How far in the distant future does a problem become someone else's and not yours?
How The Fed Directly Subsidizes Corporate Profits And Why The Game Is Over [View article]
Do you know anyone who put his money in a drawer in 1900 and is now suffering from this horrible inflation? How about 1940? You are reciting what happens to money put in a mattress. Why would that concern anyone with the brains to do otherwise?
Money is a medium of EXCHANGE. If you don't EXCHANGE it, it loses value, as it should. I say "should" because the money you get represents the value of something you did at the time you did it. Over time, that value becomes less reliable. Maybe you provided a horse and buggy in 1900. If you were to provide one now, you wouldn't get much for it. Whereas you clearly earned the money when you did what you did, participants in the economy need to know that the amount of money in circulation correlates well with the ability of people to produce outputs for which it can be exchanged. Money earned 100 years ago carries no such message and must be disrespected accordingly.
In general, you can probably do on Tuesday whatever it is that you did to earn money on Monday, and you can provide thereby the same value as you provided to earn it. Such "new" money carries a message, then, about the productive capacity of the economy. So long as money keeps moving into the hands of people who are currently productive, that relationship holds. But if you sit on money, it becomes less likely that you can actually provide today the value you provided to earn it. If too much money is hoarded, the sum of money stops representing the productive capacity of its holders. That is a sort of tragedy of the commons, and it is punished by inflation.
I am not saying that money must be spent on consumables. Quite the contrary. Saving is fine, so long as it becomes investment. Investment puts the money in the hands of the productive entrepreneur, where it represents productive capacity. Money so invested earns a return that offsets the inflation inflicted on those whose money sits idle. But money in a mattress decays with the quality of the information it imparts. (I won't say the Second Law of Thermodynamics literally applies to money, but I will say that it provides an excellent template for thinking about it.)
How The Fed Directly Subsidizes Corporate Profits And Why The Game Is Over [View article]
This claim totally misconstrues how we pay for the things the government buys.
Suppose the government buys a battleship with newly printed money. How do we "pay" for that? Building the battleship requires labor and materials. The resources used are not available to anyone else. If someone has to do without those resources because the government is using them, or if someone has to pay more to get replacement resources, then those people are "paying" for the battleship to the extent that their economic position is worsened by the shortage. But if there is no shortage created, there is no "payment" to be made, as no one is economically disadvantaged by the expenditure (and we all may sleep a bit more soundly). It's easy to see what a subjective, contingent, and squishy concept such payment presents. But that's not the fault of the analysis; it's just how things are.
Hard as it may be to measure this "cost," we do know that it varies from time to time, depending on whether resources are in short supply. That's why Keynes argued that governments should run deficits in slack times and surpluses in good times. The surpluses are not supposed to "pay for" the deficits. Each period simply stands on its own. When the resources are sitting idle, no one is deprived of their use when the government uses them. When the resources are busy, government spending impairs private activity. There is no a priori reason why the periods of deficit and surplus should match, or cancel out. They should be what they should be.
One would think that Keynes's prescription would produce a state of surplus in a prosperous nation, i.e., there would be more good years than bad years, and more surpluses than deficits. But that's not the way things work. First, the amount of surplus needed to offset excess activity may be less than the amount of deficit that can safely be run in slack times. The numbers do not need to match. Second, and more important, we are constantly looking for ways to improve the output engine. Our entrepreneurs strive daily to create excess capacity, or, more precisely, to render their competitors' capacity excess. At least some of that resulting excess capacity is perfectly serviceable. The government should take advantage of that capacity, at its marginal cost - virtually zero - to achieve its mission Accordingly, we should expect the government to run deficits in most years as technology accelerates, and we should expect the cumulative record of those deficits (sovereign "debt," especially to the central bank) to grow steadily.
And what is the government's "mission." It's right there in the Preamble to the Constitution, and it includes providing for the general welfare. I don't mean to be cute by suggesting that the Preamble somehow gives "welfare" payments a privileged status. I mean, rather, that one way in which the government can tap excess capacity FOR the general welfare is to give its less successful citizens access to some of it. Such programs are fraught with danger, including vote-buying and moral hazard. But we seem to have solved that problem to some extent by focusing payments on the elderly, whose motivation to work we need not preserve so assiduously, and by limiting what we pay to others to a level that, for the most part, encourages those who can work to seek the opportunity to do so.
Allowing, then, for the risks of transfer payments as opposed to payments for hard assets, the economic principle remains the same: unless a government expenditure results in a shortage of some resource, the expenditure need never be paid for, or, if we insist that it be deemed "paid for," the government can be said to have picked it up really cheaply at the outlet mall.
The Bernanke Agenda - It Isn't What You Think It Is [View article]
In 1937, the powers that be decided that the economy was recovering too quickly and so applied the monetary and fiscal brakes. The economy tanked. Bernanke does not want to tighten lest that happen again. The risk is that the world will stop wanting dollars because we are printing so many of them. That risk seems less troubling to BB than the risk of repeating the errors of 1937.
The "pressure" thing is my pet peeve. It's a bad metaphor, and BB shouldn't use it either. The Fed cannot STIMULATE. All it can do is prevent the engine from running at full throttle, which (running at full throttle, that is) is almost always dangerous. When the headwinds get severe enough, and full throttle is appropriate, the Fed can release the restraints. But it cannot push, and I think we lead our wonking in the wrong direction if we entertain the notion that it can, or thinks it can, or is trying to but failing.
The Bernanke Agenda - It Isn't What You Think It Is [View article]
What pressure? The Fed does not apply pressure. It has reins that it can tighen or loosen, but it has no whip. Ben also said that things would be a lot worse if the Fed weren't accommodating, so it makes no sense, under his view of things, for the Fed to join the headwinds by allowing interest rates to rise, further suppressing activity.
"will the market start to react to all the underlying issues soon anyway?"
Who knows what the market will do? But Bernanke's obviously more worried about replaying 1937 than causing a loss of faith in the dollar.
The Bernanke Agenda - It Isn't What You Think It Is [View article]
It costs money to run a bank. Electric bills, employees, lawyers, etc. It costs money to hold a deposit uninvested. That's what vaults are for, and the bank charges people to hold their money in a vault. If there are no good borrowers, taking deposits is a SERVICE to the owner of the money. If that money exists because the Fed has bought Treasuries from the owner of the money, and the owner of the money has to stash it somewhere, it's not unreasonable for the Fed to pay the banks for accepting deposits it does not need. That's why these are called "excess" reserves: the bank does not want them, has to service them, and damn well needs to be paid by SOMEONE for holding them.
Would you have the banks make dumb loans with these deposits? Didn't we see that movie in 2009? I'm sure you can get it on cable.(And that wouldn't solve the problem anyway. Banks don't LEND deposits; they CREATE deposits by lending, at least enough to make lending a poor way to reduce "excess" reserves.)
Ben wants to be able to increase IoER to suppress lending when the time comes. That's why he says that barring IoER would be inflationary. A reserve at the Fed is, functionally, a Federal security. As such, it absorbs money that would otherwise be spent in the private sector. So, instead of selling Treasuries to raise rates, the Fed can raise the opportunity cost of lending by "selling" reserve accounts to banks at an increasingly attractive price. That, he hinted, is how he plans to exit QE without selling bonds. If he cannot do that, then the money will be lent as the economy recovers, demand will soar, and inflation will become a real problem.
"Wasn't the Fed's charge not only to control inflation but to promote full employment?"
Ben answered that question (whether or not it was actually asked) by asserting that he was out of bullets, that monetary policy was doing all it could for employment, but the headwinds of globalization, Europe's woes, and fiscal restraint were more than monetary policy can overcome.
At the end of the day, though, I think you need to think long and hard about any step that would "force" banks to lend to stay afloat without regard to the quality of credit available to serve. That is a prescription for disaster.
Many Conservatives Don't See A Reason To Celebrate The Shrinking Deficit: Here's Why [View article]
I believe your reading of "absolute" is uncharitable. The word "absolute" is a brain fart, nothing more. If you think "cumulative" would be redundant, then you wouldn't use it; I think it would focus the reader's mind on the fact that the ratio of debt/GDP is increasing, whatever the consequences may be, but either way, it's just a matter of style about which you are making too much. (Likewise, CR's anatomical analogy would have been better if he had used an increasing BMI instead of weight, but I'm prepared to accuse him ON THAT ACCOUNT only of imprecision, not incoherence.)
At the same time, I agree that CR's argument is not clear. He does not connect the dots between a debt that is growing (relative to the economy) to a government that "reduces the productive base" of the economy. Although CR dismisses hyperinflation as a concern, he does not dismiss excessive "ordinary" inflation, something that can best be prevented by steps that will shrink the economy (higher taxes or higher interest rates). He does not dismiss it, but he doesn't mention it either, which is odd. I believe that the MMT-approvable, conservative case against excessive debt arises from the fear that we will have to print "too much" money, i.e., if the debt becomes large enough in relation to the economy, we will have to choose between inflation or suppression of private activity.
All in all, I think this article is a pretty weak effort. I just wish that people would read it with less antipathy so that the real issues, and not insignificant errors in style, might emerge.
Many Conservatives Don't See A Reason To Celebrate The Shrinking Deficit: Here's Why [View article]
No, you should have read "absolute" as "cumulative" - as the context made clear - and gone about your business.
Why The Fed May Increase QE Asset Purchases Before Pursuing Exit Strategies [View article]
Unfortunately, it's not a very well written treatise. If you have any questions, please ask, on-line or off.
Volatility can come from so many places that I would not rule it out. You would be right to surmise, however, that I am not planning on it.
Many Conservatives Don't See A Reason To Celebrate The Shrinking Deficit: Here's Why [View article]
If he said it, you should be able to quote it. Can you?
Well?