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EK1949

EK1949
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  • The Perils Of Pauline And The Power Of Monetary Policy [View article]
    "Each political party stands for one prescription and not the other and they'll most assuredly flip flop if one party embraces the opposite prescription. How did we get to this point? I believe it's mostly a combination of ignorance and incessant propaganda by a small segment of our population that wants to create the impression that we are running out of money and only a select few can determine the flow of this capital."

    Yes, that's it, and as a result we get half-assed policy from both sides. Whichever side want to expand, the other side frustrates with wholly bogus arguments about how contraction is goooood for us, we need to save dollars or the rich have all of them so we can't have any.

    I got news for liberals: Taxing the rich may be good policy but that's not where dollars come from. Dollars come from spending that is not taxed. Believing that the rich have hoarded all the dollars isn't much better than believing that welfare cheats damage the economy by consuming from a limited dollar supply. It's phoney, all of it, all versions of it. We are not dollar limited, we are resource and production and labor limited, that is by real and not abstract factors. The dollars are used to facilitate the exchange of goods, they are not quantity limited goods themselves.

    Giving old people a Social Security raise could at some point mean we wouldn't have enough food or medical care or housing for them, but right now we are very far from our production and therefore consumption limits. We are not running out of anything, though our stupid fantasy that we are running out means less is available in the marketplace than would be the case if the dollar shortage fantasy wasn't operating. We are, in fact, suffering from living below our means, running the economy in low gear.
    Apr 18 02:11 PM | 5 Likes Like |Link to Comment
  • The Perils Of Pauline And The Power Of Monetary Policy [View article]
    Sorry for the extended comment, but I get wound up on this subject.

    One more thought on confidence, though, that it actually tends to follow from policy and shouldn't be seen as causal itself, so that genuine improvements do boost confidence while policies designed to invoke what Krugman calls the "confidence fairy", that is contractionary policy, cause business confidence to fall. That shouldn't surprise anyone, as the business community, whatever its ideological predispositions may be, is entirely aware of what falling demand means for their prospects. How they reconcile what they know with what they believe is somewhat mysterious to me.
    Apr 18 12:37 PM | 1 Like Like |Link to Comment
  • The Perils Of Pauline And The Power Of Monetary Policy [View article]
    "In an economy with fiat money and with a relatively high level of self-sufficiency so that exchange rate issues are secondary to internal macroeconomic concerns, a central bank can adopt whatever expansive policies are necessary to forestall a deflationary recession. Put more basically, we do not have to worry that lower interest rates will weaken our currency, make it impossible to import food, and lead to bread riots. The Fed should have the tools to prevent a repeat of the kind of catastrophe my parents suffered through in the 1930s. The fact that we have survived some nasty "cliffhangers" may have also - paradoxically - given markets sufficient confidence in the Fed so that markets will right themselves before those tools have to be used."

    I'm wary of attributing to confidence what might be more purely mechanical causes, but I'd add that while the Fed has considerable power to prevent the economy from bottoming out and staying there for many years, and therefore permitting the recovery to continue almost without interruption for five years and possibly a few years more, there are limits to its efficacy so long as fiscal policy stays where it is.

    We should remember that TARP and the ARA prevented the decline from hitting GD levels and helped us recover from a much higher base than we otherwise would. The subsequent weakness in the recovery from 2010 to the present has been the result of an extraordinarily negative fiscal policy. It's only been quite recently that policy has gone to approximately neutral. This is unusual behavior in a post recession environment.

    "Morning in America" in the '80s was built on tax cuts and spending increases as government employment rose, particularly federal employment. That's pretty orthodox from a Keynesian perspective, and its effectiveness explains how it came to be orthodox. It's odd how in hindsight we see Reaganomics as anti-Keynesian. It was at the level of rhetoric, but as actual policy it was as orthodox as can be. We didn't shrink, we expanded government, and the economy returned the favor by expanding, too!

    I don't know how we ended up with a "shrink to grow" policy in spite of its dreadful track record. Remember "expansionary austerity"? What was once considered pure wingnuttery somehow got entrenched in policy circles on both sides of the Atlantic, with the crucial exception of the U.S. Federal Reserve. Instead of doing what Reagan DID, Europe and the U.S. Congress since 2010 did what Reagan SAID.....a terrible blunder we have yet to correct. Only the Fed stood against the tide and prevented IMO a monumental world-wide depression on the scale of the last one, if not worse.

    The Fed's resistance to the trend has subjected it to a torrent of abuse, but not much in the way of alternative policy, for which we may thank our lucky stars I suppose. Mostly the critics seem to have a strange case of "Europe envy", suggesting we should make the economy worse so it can heal. It's hard to imagine how this would work, given how badly it's worked where it's been tried.

    My view is we should learn as much as we can from what has proven to be effective and what has not, and that should cause us to avoid like the plague any policy prescription involving growth killing measures.

    Verily I say unto thee:

    Until taking money out of the private sector actually becomes good policy, we shouldn't do it.

    We should not take more money out of the private sector when it's still not recovered fully from the crash, and we should stay this course forever if need be.

    Instead we should cut taxes and increase spending.

    Growth is a thousand times better than cutting deficits.

    If we grow we get jobs and more income, and we even get reduced deficits eventually if we're not careful.

    :-)
    Apr 18 12:17 PM | 3 Likes Like |Link to Comment
  • More To Economic Slowdown Than Weather [View article]
    "There is a difference between "routing for failure" and pointing out the facts of "what is" "

    Yes, there is, and I'm keenly aware of the difference.
    Apr 18 10:38 AM | Likes Like |Link to Comment
  • More To Economic Slowdown Than Weather [View article]
    But if conditions warrant low rates to keep the recovery going, does it really matter whether it helps one political party? I don't see it as Yellen's job to make the President look good, but I don't think she should undermine the economy in the name of "fairness", either. Imagine if the fire dept had to observe an "equal time" provision, hosing down the flames with water, then switching to gasoline at halftime. No, I don't think the Fed should consider fairness at all. Just because one side roots for failure doesn't means trying to succeed is evidence of bias.
    Apr 17 10:39 PM | 1 Like Like |Link to Comment
  • Economy Knocking At Recession's Door [View article]
    "The Fed has to have low interest to finance the debt but high inflation to grow out of debt- see Japan- and the road kill will be savers who are outstripped by force fed stagflation (10 dollar minimum wage ?)."

    Federal debt finances, it isn't financed. The taxed part is financed, the untaxed part is unfinanced by definition. It finances the private sector. Higher interest rates that widen the deficit, unless they are "paid for", are a good thing if the higher rates accompany expansion, which they will if rates are kept low until expansion accelerates. The problem then is to achieve acceleration, not keep deficits low, which prevents acceleration, as the Japanese are finding out for the umpteenth time as they try to "pay for" Abenomics with a consumption tax!
    Apr 16 01:14 PM | Likes Like |Link to Comment
  • A Case For Passive Income From Stock Dividends [View article]
    This is a good introduction to one form of goal investing. There are articles on the subject of process investing, which is about beating the market indices or Warren Buffet or vindicating an academic thesis on how all investors are fools unless they pay money to someone. My view is a concrete goal is easy to reach and reaching it makes all forms of theorizing about what's best or "efficient" irrelevant. Follow the money, all the way into your own pocket.
    Apr 16 10:26 AM | Likes Like |Link to Comment
  • Great Graphic - Case Study: San Jose Hiked Minimum Wage [View article]
    "Again, you are assuming that government somehow knows better than the market what wage rates should be- which is absurd. "

    The market doesn't know anything. We know something about the market and what we know is available to the government. When the government lowers taxes how does it know what will result? How does it know where to set taxes and spending? The problem is not knowledge, the problem is what set of assumptions are driving the decisions. Bad decisions from bad assumptions (distorted by disguised interests) are more a problem than lack of knowledge.

    Interests can be more transparent, like my interest in raising the living standards of ordinary people. That's not just an idea, it's an interest. But it's different than the disguised interest represented by the "idea" that a higher minimum wage will hurt poor people.
    Apr 15 01:18 PM | 3 Likes Like |Link to Comment
  • Great Graphic - Case Study: San Jose Hiked Minimum Wage [View article]
    "Wealth is created by economic growth, not by creatively bankrupt government fiat."

    Conclusion is assumed in the premise.
    Apr 15 12:12 PM | 3 Likes Like |Link to Comment
  • Great Graphic - Case Study: San Jose Hiked Minimum Wage [View article]
    "At what level is the minimum wage appropriate? At what point do the increases stop?"

    Let's find out. We know a lot about the effect of decreases as the minimum declines. At what point would raising the minimum lose its effectiveness at raising additional demand and costs outrun benefits? No one can say for sure, I'd guess around $15/hr.
    Apr 15 12:10 PM | 2 Likes Like |Link to Comment
  • Great Graphic - Case Study: San Jose Hiked Minimum Wage [View article]
    An effective minimum wage increase would be one that reduces employment. Otherwise it hasn't reached the desired level of benefit. Below that level employees have little value, like ants for anteaters, an employer wants some "employee", bodies that fill slots. No training and no prospects are required or offered. Low minimums are a way of teaching employers not to value who they hire.

    The minimum should be set where it hurts just a little to hire an extra employee, so an employer will want to get more from the new hire, and will therefore give more attention to the person doing the job. Now the employee is not a mass phenomenon, but an individual. The incentive has moved in a positive direction.

    The initial job loss from a higher minimum will soon disappear in the general rise in employment and wages as demand feeds through the system. If the low percentage of GDP going to labor is responsible for long term stagnation, and I'm pretty sure they are different names for the same thing, then reversing the process should be our focus. If we know how to drive the economy down, we sure as hell know how to stop and even reverse the process.

    Contrary to opinions often expressed, I think intervening at the bottom with the minimum wage hike is one of the best ways to go. That and a big tax cut, a bigger EITC and more infrastructure spending could produce a good old fashioned boom complete with real inflation, even (gasp!) a wage/price spiral!
    Apr 15 10:27 AM | 1 Like Like |Link to Comment
  • Stocks More Overvalued Than At 10 Of Last 18 Market Peaks [View article]
    Look at employment, output and inflation. Does it look like a peak?

    We're going up, there's room to go up more, rates will stay low for years, we're not at a peak, we may not get there for years. That's not a prediction, I don't know what will happen, but it looks like the path of least resistance.

    New peaks are above old, which is what makes them peaks, new troughs are above old ones. So, why is this different? The odds are it isn't, the general pattern holds unless something says it doesn't.
    Apr 13 10:24 AM | Likes Like |Link to Comment
  • Current Outlook For Stocks [View article]
    It's tough to have a recession without a recession policy. Central banks don't want one and inflation will not make them want one soon. These are the patterns I look for in the domestic situation, which by far matters most:

    1) Positive monetary/negative-neutral fiscal = disinflation, slow growth (present)

    2) Negative monetary/negative-neutral fiscal = recession

    3) Positive monetary/positive fiscal = robust expansion, rising inflation

    4) Negative monetary/positive fiscal = short recession, rapid recovery

    I don't factor in an external shock. Russia and China are the wild cards, at least the ones big enough to possibly push us off course, worst case.
    Apr 10 05:51 PM | Likes Like |Link to Comment
  • At the close [View news story]
    "We" don't need hand holding statements though "we" understanding some people might find them useful, and others might be confused by them. It's all part of the vast pageant of life on this planet.

    The stock market rise looks like "collateral damage" to me, from targeting home price recovery, a worthy goal, and providing some relief to debtors, a no brainer in the circumstances. It's what I'd do. I'd want a higher inflation target, but can the Fed hit a higher target? Could it be persuaded to try, given how the Fed seems mired in the 2% "timidity trap"?
    Apr 10 02:38 AM | Likes Like |Link to Comment
  • As Demand Improves, Time To Focus More On Supply [View article]
    "First, potential growth in many advanced economies is very low. This is bad on its own, but it also makes fiscal adjustment more difficult. In this context, measures to increase potential growth are becoming more important—from rethinking the shape of some labor market institutions, to increasing competition and productivity in a number of non-tradable sectors, to rethinking the size of the government, to reexamining the role of public investment."

    The patient is still sick so we won't be able to poison him as much as we'd like. Yeah I got that, but what about:

    "rethinking the size of the government"

    I guess its a red pill/blue pill kind of thing. And then:

    "reexamining the role of public investment"

    Mom! He said a bad word!

    What are these people afraid of? Is it really so unacceptable to come out and say austerity has been a disaster of the first magnitude? What purpose is served by obfuscation? It's not that the IMF doesn't know, it's that they feel they can't actually utter the words, so they must surround the real message with a fog blanket to make it palatable. I guess the audience for these pronouncements is happy they don't read as an out and out indictment, which is what they would be if honest and succinct language was used instead of.......this.
    Apr 9 12:34 AM | Likes Like |Link to Comment
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