J. Bradford DeLong's Blog, page 1115
November 26, 2014
Wednesday Cognitive Science Blogging: What Are the Odds Princeton's David Lewis Understands Probability Properly?
I know this is fairly dense. But please bear with me:
David Lewis:
Sleeping Beauty: Reply to Elga:
"Researchers at the Experimental Philosophy Laboratory... Sleeping Beauty...
...On Sunday evening they will put her to sleep [P-]. On Monday they will awaken her briefly. At first they will not tell her what day it is [P], but later they will tell her that it is Monday [P+]. Then they will subject her to memory erasure. Perhaps they will again awaken her briefly on Tuesday... depend[ing] on the toss of a fair coin: if heads they will awaken her only on Monday, if tails they will awaken her on Tuesday as well.... We shall need to consider her credence functions at three different times.
Let P be her credence function just after she is awakened on Monday. Let P+ be her credence function just after she’s told that it’s Monday. Let P- be her credence function just before she’s put to sleep on Sunday.... Elga (2000) argues that P(HEADS) = 1/3.... I disagree, and argue that P(HEADS) =... 1/2.... Elga’s argument applies in the first instance to the case that it is tossed after; but he thinks, and I agree, that the answer to our question should be the same in both cases....
When Beauty awakens during the experiment, three centred epistemic possibilities are compatible with her total evidence: H1: HEADS and it’s Monday, T1: TAILS and it’s Monday, T2: TAILS and it’s Tuesday.... Beauty gains no new uncentred evidence, relevant to HEADS versus TAILS, between the time when she has credence function P- and the time when she has credence function P. The only evidence she gains is the centred evidence2 that she is presently undergoing either the Monday awakening or the Tuesday awakening: that is, (H1 or T1 or T2)....
My argument.... (L1) Only new relevant evidence, centred or uncentred, produces a change in credence; and the evidence (H1 or H2 or H3) is not relevant to HEADS versus TAILS (Premiss). (L2) P(HEADS) = 1/2 = P(TAILS). Quod erat demonstrandum....
Further consequences.... (L6) P+(HEADS) = 2/3....
At the time of P+.... Beauty knows that there will be a future toss of a fair coin. There is a well-known principle which says that credences about future chance events should equal the known chances.... [It]would seem to say also that P+(HEADS) = chance(HEADS) = 1/2.... [But] imagine that there is a prophet whose extraordinary record of success forces us to take seriously the hypothesis that he is getting news from the future by means of some sort of backward causation.... What should we do? If the prophet’s success record is good enough, I say we should take the prophet’s advice and disregard the known chances.... When Beauty is told during her Monday awakening that it’s Monday... she is getting evidence... about the future.... That’s new evidence: before she was told that it was Monday, she did not yet have it. To be sure, she is not getting this new evidence from a prophet or by way of backward causation, but neither is she getting it just by setting her credences equal to the known chances. The news is relevant to HEADS, since it raises her credence in it by 1/6.... Therefore... we cannot rely on... P+(HEADS) = chance(HEADS).... I admit that this is a novel and surprising application of the proviso, and I am most grateful to Elga for bringing it to my attention. Nevertheless I find it fairly convincing, independently of wishing to follow where my argument leads...
Let us be very clear where Lewis has gotten himself here on P+:
Sleeping Beauty has gone to sleep on Sunday.
Sleeping Beauty has been awakened on Monday.
When Sleeping Beauty woke, she thought that the experiment might be further along that that it might be Tuesday
Sleeping Beauty has just been told that it is, in fact, Monday, and that the memory-disruption part of the experiment has not yet been conducted.
The experimenters are about to flip their fair coin.
If the coin comes up tails, they will awaken her on Tuesday; if it comes up heads, they will let her sleep until Wednesday.
The experimenters are about to disrupt her short-term memory so that, if the coin comes up tails and she will be awakened on Tuesday, she will not then remember waking up on Monday.
Now Lewis asks: what are Sleeping Beauty's odds--her "credence" P+--that the coin flip will come up heads?
What Sleeping Beauty knows is that:
They are about to flip a fair coin.
They are about to disrupt her short-term memory, so that if they do wake her up on Tuesday she will not remember waking up on Monday.
And Lewis says that Sleeping Beauty's odds that the coin flip will be heads are not 1/2 but 2/3--that somehow the fact that if the coin falls tails and she wakes up tomorrow she will be confused exercises a mysterious force on the coin that raises the odds that the coin will fall heads by 1/6 to 2/3.
What if Lewis's argument? I read it, and all I see is incoherent word-salad:
There is a well-known principle which says that credences about future chance events should equal the known chances.... I reply that the principle requires a proviso.... Imagine that there is a prophet whose extraordinary record of success forces us to take seriously the hypothesis that he is getting news from the future by means of some sort of backward causation. Seldom does the prophet tell us outright what will happen, but often he advises us what our credences about the outcome should be, and sometimes his advice disagrees with what we would get by setting our credences equal to the known chances. What should we do? If the prophet’s success record is good enough, I say we should take the prophet’s advice and disregard the known chances.
Now when Beauty is told during her Monday awakening that it’s Monday, or equivalently not-T2, she is getting evidence--centred evidence--about the future: namely that she is not now in it. That’s new evidence: before she was told that it was Monday, she did not yet have it. To be sure, she is not getting this new evidence from a prophet or by way of backward causation, but neither is she getting it just by setting her credences equal to the known chances. The news is relevant to HEADS, since it raises her credence in it by 1/6; see my (L7). Elga agrees; see his (E6). Therefore the proviso applies, and we cannot rely on it that P+(HEADS) = chance(HEADS) and P+(TAILS) = chance(TAILS).
Can anybody present me with a possible world in which Lewis's argument that P+(HEADS)=2/3 is not incoherent, and wrong?
Liveblogging World War II: November 26, 1944: Eleanor Roosevelt
Eleanor Roosevelt:
My Day:
Today is a peaceful day in the country. The usual occupations, a walk in the woods, much writing and reading, are all that I can report.
As we read our newspapers today, I pray that the valor of our men in their determined attacks will finally discourage the enemy. These attacks are costing much in the way of ammunition, planes, guns, tanks, etc., as well as our boys' lives. It is for that reason that General Eisenhower begs the people at home not to let up in their production. Those of us who have sons on the fighting fronts realize what the work of the people at home means to them. They are grateful for what the people at home have done in the past and hope that they will find the strength to continue to the end.
It is hard to think of another Christmas approaching with hate and bloodshed intensified all over the world. If only the teachings of Christ were accepted as the actual code by which we lived, how different our world would be! There would be no labor-management problems in industry, no racial or religious hatreds, no wars to bring sorrow to men, women and children throughout the world. I wonder if it is too much to expect that Christ's ethics will someday govern the actions of human beings.
There is a symposium called 'Shall We Have Compulsory Military Training After the War?', in one of the November magazines; which I read with considerable interest. I am particularly glad whenever I see that this question is widely discussed. I do not, myself, want purely military training, but I think it is a subject that we need to discuss from many angles. It will do no harm for our enemies to know that we are thinking about building up our future strength in many different ways.
Some people say that if we really believed we could build up lasting peace, we would not trouble about building up the strength of individual nations. But since we have not yet proved that we can build a lasting peace without the physical strength to enforce it, the need to remain strong is apparent. That does not mean that moral and spiritual strength will not have great value. It simply means that as yet we cannot quite do away with the old custom, with which we have lived so long, of expecting physical strength to back up moral and spiritual strength.
Besides, we need sound minds and bodies for many other purposes in our daily lives. We can begin to give our children these from their earliest days. They certainly would benefit by a checkup in the adolescent years. The training should not be a wasted year if skills and aptitudes are studied and attention given to the building of character and the development of cooperative attitudes in the young people.
November 25, 2014
Legacy vs. Internet Media Once More: Live from La Farine
With respect to:
Zumb:
I've been thinking about what:
"I don't doubt Shane's encounter with her former colleagues...
...but I still found the story a little bit off from what I've personally experienced.... Shane mentions that she thinks the pendulum is about to swing the other direction and she envisions talking to people at legacy organizations in a few years and saying 'You're still there? Really?!?!' I'd say 'You're still there? Really?!?!' has already probably been the single most common question anyone at a legacy news organization has gotten over the previous decade. The past decade has been a relentless drumbeat of departures....
It's not a pendulum. It's a wrecking ball and it's been swinging ferociously into legacy media and carrying away the rubble for more than a decade. I frankly know nobody in the rank-and-file who isn't taking it seriously. Even within the walls of legacy organizations, the legacy skills of reporting have lost their value compared to internet skills. Maybe it comes across as dismissive--that's one way humans cope with a wide range of existential threats--but make no mistake: the emotion is fear.
The question I have is: just what are these "legacy skills of reporting" that have lost their value, and just what are the "internet skills" that are now valued? The abilities to judge a source, to tell a story, to find a topic, to possess and convey genuine expertise do not seem to have lost value relative to the "internet skills" of writing in html or having a twitter account.
So what is going on?
As best as I can see, the legacy skills of reporting that have lost their value are the "skills" of having a big Rolodex containing a lot of people who are confident that if they talk to you the story will show them or their cause in a better light. This is a valuable skill in the pre-internet age because trading pieces of beat-sweetening for information is unethical but efficient: with it, you can write a story in a day in a world in which actually finding, assembling, digesting, and processing the paper trail to write the story would take a week or more.
But now the internet allows you to find, assemble, digest, and process the electron trail in an afternoon. Now the internet allows you to find the person who knows and cares and let them tell their story the way they want to. In this new world, trading pieces of beat-sweetening for information is as inefficient as John Henry's hammer in a world of laser drills.
At least, that is how I see it.
Am I missing something somewhere? If so, what?
Noted for Your Evening Procrastination for November 25, 2014
Over at Equitable Growth--The Equitablog
European Economic Integration: The Rebalancing Challenge in Europe: Monday Focus
A Question for Richard Koo: Daily Focus
Over at Project Syndicate: Economic Growth and the Information Age: Daily Focus
Lars E. O. Svensson: Monetary Policy and Financial Stability
Jonathan Cohn: Obama's Immigration Order: A Vote for American Exceptionalism
Nicholas Bagley: Three Words and the Future of the Affordable Care Act
Nick Bunker: Are big businesses slowing wage growth?
Nick Bunker: An appreciation of Robert Solow
Carter Price: What’s the link between corporate profits, investments, and economic growth?
Plus:
Things to Read on the Evening of November 25, 2014*
Must- and Shall-Reads:
Lars Svensson: Monetary policy tradeoffs in CESEE
Grégory Claeys et al.: Measuring Europe’s investment problem
Izabella Kaminska: Lies, damned lies, and liquidity expectations
Simon Wren-Lewis: Left, Right and Macroeconomic Competence
Nicholas Bagley: Three Words and the Future of the Affordable Care Act
Jonathan Cohn: Obama's Immigration Order: A Vote for American Exceptionalism
Lars E.O. Svensson http://larseosvensson.se: Monetary policy's best contribution to financial stability?
Barry Eichengreen: The bond market’s dance over European debt will not last forever
And Over Here:
Over at Project Syndicate: Economic Growth and the Information Age: Daily Focus
The Most Remarkable Sentence I Have Read Today Comes from Scott Winship of the Manhattan Institute: Live from La Farine
Liveblogging World War II: November 25, 1944: V2 Attack on Woolworths
Over at Equitable Growth: A Question I Want to Ask Richard Koo: Daily Focus
The Rebalancing Challenge in Europe: Perspectives for CESEE
Over at Equitable Growth: European Economic Integration: The Rebalancing Challenge in Europe: Monday Focus
Nicholas Bagley: Three Words and the Future of the Affordable Care Act:
"To help people like my kids’ piano teacher, the ACA extends tax credits to anyone earning between one and four times the poverty level who buys a qualified health plan so long as the individual is ineligible for Medicaid and doesn’t have access to employer-sponsored coverage.... As Michael Cannon and Jonathan Adler read the ACA, however, my kids’ piano teacher can’t get tax credits at all. Nor should roughly 9.5 million other people... Yet... the government’s alternative reading makes much better sense of the statute as a whole and avoids assigning a meaning to the ACA that is blatantly at odds with what the statute aims to accomplish.... To make out their case, however, it’s not enough for Adler and Cannon to show that it’s possible to read the ACA to withdraw tax credits from refusal states. If the statute is ambiguous on that point, it’s black-letter law that the courts must defer to the IRS’s authoritative interpretation (Chevron U.S.A. v. Natural Res. Def. Council, 467 U.S. 837 [1984]). Adler and Cannon... have to demonstrate that the statute unambiguously withdraws tax credits.... They haven’t come close to making such a demonstration..."
Jonathan Cohn: Obama's Immigration Order: A Vote for American Exceptionalism: "American exceptionalism, you’ll remember, is something Obama’s critics claim he doesn’t believe in. ‘Our president doesn’t have the same feelings about American exceptionalism that we do,’ Mitt Romney said during the 2012 presidential campaign. In a 2010 cover story in National Review, Rich Lowry and Ramesh Ponnuru declared, ‘At the heart of the debate over Obama’s program is the survival of American exceptionalism.’... One consistent feature of exceptionalist discourse has been the idea that America permits greater upward mobility than does the Old World.... In recent decades, sadly, the reality of American mobility has diverged sharply from the myth.... America, Marco Rubio said a few years back, ‘is the only economy in the world where poor people with a better idea and a strong work ethic can compete and succeed against rich people in the marketplace.’ That’s not actually true. But it’s truer today than it was last week because the president who supposedly wants to make America more like Europe has instead made America more like its best vision of itself."
Lars E.O. Svensson http://larseosvensson.se: Monetary policy's best contribution to financial stability?: "Inflation on target and resource utilization at long-run sustainable rate. Suppose 2% inflation and 3% real growth, nominal growth 5% of asset prices and disposable income, doubling every 14 years. For any given nominal debt, LTV and DTI ratios halved in 14 years. Pretty good for repair of balance sheets. Monetary policy should only be the very last line of defense of financial stability, normally not to be used..."
Barry Eichengreen: The bond market’s dance over European debt will not last forever: "Are the circumstances confronting Europe’s heavily indebted governments today at all similar? To be sure, those governments face strong external pressures from the bond market. But they also face strong internal pressures from voters, who are unlikely to sit patiently for 10 to 15 years while 5 per cent of national income goes to pay off the debt of previous generations. The countries in question clearly lack the strong fiscal institutions needed for this task. The implication is that Europe’s official strategy for resolving its debt crisis will not work. Fortunately, there are feasible alternatives... grow the denominator of the debt/GDP ratio.... But sadly growth cannot be conjured up out of thin air. European policy makers have shown an inability to conjure it up any other way. The other alternative is debt restructuring. European officials continue to dance around the idea of writing down public debt, promising Greece lower interest rates and longer maturities but denying the need for more fundamental restructuring and for applying such measures more widely. The events of recent weeks make clear that they will not be able to dance much longer."
Should Be Aware of:
Waldo Heinrichs: [Threshold of War: Franklin D. Roosevelt and American Entry into World War II](http://books.google.at/books?id=JLmwS... of war&f=false)
George Packer: The Astonishing Rise of Angela Merkel, the Most Powerful Woman in the World
Jonathan Cohn: Ferguson Grand Jury: No Indictment for Darren Wilson in Brown's Death
Dahlia Lithwick: The University of Virginia Finally Confronts Its Rape Problem
Alex Parent:
Come On, Feel the Buzz - The Baffler:
"Joe Williams, a reporter for the political newspaper and web news site Politico, said... Republican presidential nominee Mitt Romney appeared comfortable only around white people.... Williams was quickly and rather publicly fired.... In August, Politico reporter David Catanese defended GOP Rep. Todd Akin’s bizarre lecture on where babies come from. Akin, running for U.S. Senate from Missouri, revealed that he believed a common conservative myth: that in the event of ‘legitimate rape,’ the female body somehow prevents pregnancy from taking place, thus negating the need for a rape exemption from a prospective abortion ban. Catanese tweeted that the negative response to Akin’s comments was overblown, because ‘we all know what he was trying to say.’ He continued digging, suggesting that Akin might have a point about this legitimate rape thing. After all, Catanese wrote, some unknown number of ‘reported’ rapes are surely fake (though it’s not ‘PC’ to admit as much), and it is certainly possible (not that he had checked out ‘the science’) that actual rapes are unlikely to lead to pregnancy. ‘The left is often 1st to shut down debate as ‘off limits’ when it deems so,’ he finally tweeted. ‘Aren’t these moments supposed to open up a larger debate?’ Catanese was reprimanded and taken off the Akin beat, but he kept his job. The difference between these two episodes speaks volumes about D.C.-based access journalism and the highly toxic, incestuous variant of it that Politico has perfected. Or to put things a bit more baldly: in all likelihood, David Catanese and Joe Williams suffered divergent professional fates because the leaders of Politico are more concerned about losing access to the Romney campaign than they are about losing access to victims of rape. How deep does this craving for access run?..."
Heather Boushey: On Presidential Medal of Freedom Recipient Robert Solow: "We applaud President Barack Obama’s selection of Robert Solow as a Presidential Medal of Freedom recipient. Solow’s transformative research in the field of economics and ongoing contributions to our understanding of long-term economic growth, productivity and inequality cannot be overstated.... Solow remains a scholar ahead of his time. Few intellectuals can effectively communicate the real-world implications of theoretical economic research, but Professor Solow’s brilliance is his ability to engage with diverse audiences and at the same time influence how generations of emerging scholars participate in empirical debates. Our nation is without a doubt better equipped to deal with tough economic challenges because of Professor Solow’s theoretical contributions to the field, but above all else because of his influence as a teacher to generations of scholars and policymakers."
Alex Parent: Deal Me Out : "The modern finance industry is at a loss when it comes to justifying its own existence. Its finest minds can’t explain why we wouldn’t be better off with a much simpler and more heavily circumscribed model of capital formation. Sorkin likewise can’t make his readers fully grasp why the current system—which turns large amounts of other people’s money and even more people’s debt into huge paper fortunes for a small super-elite, and in such a way as to regularly imperil the entire worldwide economic order—is beneficial or necessary. But the New York Times and Wall Street each need him to try. Like a bloated and overleveraged global financial company, he’s far too crucial to be held to a regular standard of conduct. Our subprime lenders proved, in the final analysis, too big too fail; and now, certain of our name-brand financial writers are too big to practice journalism."
Comments:
Noted for Your Morning Procrastination for November 27, 2014
Evening Must-Read: Nicholas Bagley: Three Words and the Future of the Affordable Care Act
Nicholas Bagley:
Three Words and the Future of the Affordable Care Act:
"To help people like my kids’ piano teacher...
...the ACA extends tax credits to anyone earning between one and four times the poverty level who buys a qualified health plan so long as the individual is ineligible for Medicaid and doesn’t have access to employer-sponsored coverage.... As Michael Cannon and Jonathan Adler read the ACA, however, my kids’ piano teacher can’t get tax credits at all. Nor should roughly 9.5 million other people... Yet... the government’s alternative reading makes much better sense of the statute as a whole and avoids assigning a meaning to the ACA that is blatantly at odds with what the statute aims to accomplish.... To make out their case, however, it’s not enough for Adler and Cannon to show that it’s possible to read the ACA to withdraw tax credits from refusal states. If the statute is ambiguous on that point, it’s black-letter law that the courts must defer to the IRS’s authoritative interpretation (Chevron U.S.A. v. Natural Res. Def. Council, 467 U.S. 837 [1984]). Adler and Cannon... have to demonstrate that the statute unambiguously withdraws tax credits.... They haven’t come close to making such a demonstration...
The Most Remarkable Sentence I Have Read Today Comes from Scott Winship of the Manhattan Institute: Live from La Farine
It comes from Scott Winship of the Manhattan Institute:
Scott Winship: What's Worse than Being Wrong? Being Uncivil. An Apology: "People who know me...
...even those who regularly disagree with me and who don’t like me, I think–know that I value integrity above nearly all else...
It is remarkable because of the context, which includes things like:
Miles Corak: How to Think About “Think” Tanks: "Here’s one example...
It deals with the descriptive relationship across countries between inequality and the degree to which individual adult income is related to parental income during childhood, the so-called Great Gatsby Curve about which I, among others, have written. Scott Winship of the Manhattan Institute has been a persistent critic of this relationship. I bring this up, in part, because I also want to go on the record and note that when he says my:
most recent paper highlights serious problems [with the Great Gatsby Curve and my] previous research...
it should be clear that this is Mr. Winship’s interpretation of my research, and not my understanding of my own research.
Grateful as I am to have a reader, I don’t feel my more recent work involving a three country comparison contradicts previous papers I have written. I certainly don’t have any reason to question Mr. Winship’s sincerity, he must believe what he says. But he’s never checked with me before he has written or spoken on the subject, we’ve never had a conversation about the issue, not even on one occasion when we sat across the very same dinner table together...
And:
Ashok Rao: Has Rising Inequality Really Been a Problem Over the Past Generation?: "This completes my tour of [Winship's] best arguments...
...against the belief that rising inequality has been a serious problem over the past generation, and is a serious problem now. I conclude that the arguments are statistically self-serving--have to work hard to cherry-pick the data--and possess a ridiculous double standard in their allocation of the burden of proof. Good evidence linking equality and mobility, backed by unimpeachable theory, is thrown out with little more than Latin quotes. And we are asked to accept contrived links between household wealth effects and consumption of the rich as solid...
I am prone to agree with Corak and Rao: In my reading of Winship's work I have found him to consistently engage in what we now call Sealioning--a long series of quibbles, rarely on central points, often simply wrong.
Integrity is working hard to make sure that your intellectual adversaries' arguments are accurately summarized in your descriptions of them, and in a willingness to mark your beliefs to market and let the evidence speak.
Afternoon Must-Read: Jonathan Cohn: Obama's Immigration Order: A Vote for American Exceptionalism
Jonathan Cohn: Obama's Immigration Order: A Vote for American Exceptionalism: "American exceptionalism, you’ll remember...
is something Obama’s critics claim he doesn’t believe in. ‘Our president doesn’t have the same feelings about American exceptionalism that we do,’ Mitt Romney said during the 2012 presidential campaign. In a 2010 cover story in National Review, Rich Lowry and Ramesh Ponnuru declared, ‘At the heart of the debate over Obama’s program is the survival of American exceptionalism.’... One consistent feature of exceptionalist discourse has been the idea that America permits greater upward mobility than does the Old World.... In recent decades, sadly, the reality of American mobility has diverged sharply from the myth.... America, Marco Rubio said a few years back, ‘is the only economy in the world where poor people with a better idea and a strong work ethic can compete and succeed against rich people in the marketplace.’ That’s not actually true. But it’s truer today than it was last week because the president who supposedly wants to make America more like Europe has instead made America more like its best vision of itself.
Afternoon Must-Read: Lars E. O. Svennson: Monetary Policy and Financial Stability
Lars E.O. Svensson
http://larseosvensson.se
Department of Economics, Stockholm School of Economics, P.O. Box 6501, SE-113 83 Stockholm, Sweden, www.sse.edu
Conference on European Economic Integration (CEEI) 2014 Vienna, November 24, 2014
Monetary policy's best contribution to financial stability?
* Inflation on target and resource utilization at long-run sustainable rate
* Suppose 2% inflation and 3% real growth, nominal growth 5% of asset prices and disposable income, doubling every 14 years
* For any given nominal debt, LTV and DTI ratios halved in 14 years. Pretty good for repair of balance sheets.
* Monetary policy should only be the very last line of defense of financial stability, normally not to be used
Outline
* What can monetary policy achieve?
* Do not ask to much from monetary policy
* What is the relation between monetary policy and financial stability?
* Monetary policy and financial-stability policy are very different
* In normal times: Best conducted separately, also when conducted by the same institution
* But each policy should be fully informed about and take into account the conduct of the other policy
* In crisis times: Full cooperation between the relevant authorities
* Monetary policy should be the very last line of defense of financial stability, not to be used in normal times

What can – and cannot - monetary policy achieve?
* MP can stabilize inflation around a given inflation target
* MP can stabilize overall resource utilization around a long-run sustainable rate
* But the latter is determined by nonmonetary, structural factors
* MP cannot affect the long-run sustainable rate of resource utilization
* This requires structural policies
* MP cannot solve structural problems
* This requires structural policies
What can – and cannot - monetary policy achieve?
* MP cannot achieve financial stability
* This requires financial-stability policy (macroprudential policy)
* Leaning against the wind cannot solve debt problems
* See Riksbank bad example (FT Big Read Nov 20)
* In Swedish case, benefits of leaning are just around 0.4% of costs (should have be more than 100% of costs to justify policy)
* Inherent flaw in leaning
* Running inflation below a credible inflation target increases
households’ and other agents’ real debt burden
* It also increases unemployment
What can – and cannot - monetary policy achieve?
* Do not ask too much of monetary policy

What is the relation between monetary policy and financial stability?
* Distinguish economic policies according to:
* (1) objectives,
* (2) suitable instruments, and
* (3) responsible authorities
* MP and financial-stability policy (FSP) are clearly separate policies, with different objectives and different suitable instruments, regardless of whether they have the same or different responsible authorities
Monetary policy
* Objective
* Flexible inflation targeting: Price stability and real stability
* Instruments
* Normal times: Policy rate, communication
* Crisis times: Also unconventional measures, balance sheet policies, FX policy, ...
* Responsible authority
* Centralbank

Financial-stability policy
* Objective
* Financial stability: Financial system fulfilling 3 main functions w/ sufficient resilience to disturbances that threaten those functions
* Instruments
* Normaltimes:Regulation,supervision,macroprudentialpolicy, buffers, capital requirements, LTV caps, LCRs, NSFRs, taxes, deposit insurance, ...
* Crisis times: Lending of last resort, liquidity support, capital injections, guarantees, banking resolution, ...
* Authority(ies)
* Varies across countries
* FSA, CB, banking-resolution authority, MoF, ...

What is the relation between monetary policy and financial-stability policy?
* Very different policies
* In normal times: Conduct independently, also when conducted by the same authority
* Each policy should be fully informed about and take into account the conduct of the other’s policy
* Similar to MP and fiscal policy (Nash equilibrium rather than coordinated equilibrium (joint optimization)
* In crisis times: Full cooperation and joint policies by FSA, CB, MoF, banking-resolution authority...

Monetary policy's best contribution to financial stability?
* Inflation on target and resource utilization at long-run sustainable rate
* Suppose 2% inflation and 3% real growth, nominal growth 5% of asset prices and disposable income, doubling every 14 years
* For any given nominal debt, LTV and DTI ratios halved in 14 years. Pretty good for repair of balance sheets.
* Monetary policy should only be the very last line of defense of financial stability, normally not to be used
Over at Project Syndicate: Economic Growth and the Information Age: Daily Focus
Over at Project Syndicate: Last month in this space we reviewed the pulling-apart of America as it has become a vastly more unequal place since 1979:
top 1% incomes grew at 3.6%/year,
rest of the top fifth grew at 1.6%/year,
middle three-fifths grew at 0.9%/year,
bottom fifth at 0.5%/year-—with the proviso that improved access to medical care was worth a good deal more than its market cost.
But the past generation has seen a third industrial revolution, a worthy information-age successor to the first of steam, iron, cotton, and machines and to the second of internal combustion, electricity, steel, and chemicals. Not everyone, but almost everyone in the North Atlantic and many and soon most in the world, can now if they wish have a smartphone--and so gain cheap access to the universe of human knowledge and entertainment to a degree that was far beyond the reach of all but the richest of a generation ago.
How much does this matter? How much does this mean that conventional measures of real income and real standard of living understate how much we, even the relatively poor of we, have progressed toward utopia?
The conventional economic growth accounting tells us that consumption expenditures on telecommunications, information processing, and audiovisual entertainment are 2% and net investment in information processing equipment and software 3% of output. That means that a price fall of 10%/year in that category of high-tech goods contributes 0.2%+0.3%=0.5%/year to economic growth in standards of living. The problem is that the bulk of that increase is already in the estimates. The share of spending has to signficantly underestimate the marginal salience of information-age goods and services in human well-being in order to make the argument that this third industrial revolution is a boost above rather than an important component of measured modern economic growth.
Now it is plausible that this is the case. Human well-being requires not just the expenditure of money purchasing goods and services but the use of the time that is the stuff of our lives to utilize those goods and services properly, and time is along with money a very scarce resource. And information-age goods and services, because they require our attention, are time-intensive. Suppose—a reasonable guess--the coming of the broadband internet since 1999 has doubled the utility that humans get out of the two hours a day that those of us in the North Atlantic typically spend interacting with our audio-visual technologies. Those two hours are one-fifth of the time we spend awake that is our own, and not our bosses’. That’s an extra 0.6%/year in growth of standards of living since 1990—much bigger than the 0.2%/year that the growth-accounting cost-based literature leads us to.
However, such a calculation requires that we be or become the type of people whose lives are truly enriched by our kindles and our tablets and our computers and our smartphones—that we value Netflix and Youtube and Google’s window into the online library of humanity and Facebook and the rest as massively superior to the ways we previously learned, gossiped, listened, and watched. It is certainly true that we today have information-age capabilities that are literally those of kings in the past: if in the seventeenth century you wanted to watch “MacBeth” in your house, you had better be named James Stuart, have William Shakespeare and his acting company on retainer, and be King of England and Scotland so that you could have a full-sized theater in your palace of Whitehall. And ever since Homer chanted his “Iliad” around the campfire after dark we have been willing to pay through the nose for our culture of stories and information.
Yet not all of us are all that devoted to our FaceBook friends. And much of what many of us desire goods and services for is as indicia of relative status. Perhaps the right way to view the situation is that before the information age began our estimates of economic growth overstated true reality by perhaps 0.5%/year as the extra well-being we got from increased real wealth and income was offset by our noticing that the Jones’s next door had more, better, and newer than we did? Perhaps the right way to view the situation is that those parts of the information age that escape conventional growth-accounting calculations simply neutralize those forces of envy and spite that were never included in the calculations in the first place? That is my tentative judgment--or rather guess--today.
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