J. Bradford DeLong's Blog, page 2075
March 4, 2011
IMF Monday-Tuesday Webcast
IMF:
March 7, 2011
8:45–9:00am Opening remarks: Dominique Strauss-Kahn
9:00–10:30am SESSION I: Monetary Policy. Chair: Adam Posen. Discussants: Olivier Blanchard, Guillermo Ortiz, Otmar Issing, Joseph Stiglitz
11:00–12:30pm SESSION II: Fiscal Policy. Chair: Kemal Dervis. Discussants: Partho Shome, David Romer, Sri Mulyani Indrawati, Robert Solow.
12:30–2:00pm Luncheon. Address by John Lipsky, First Deputy Managing Director, International Monetary Fund.
2:00–3:30pm SESSION III: Financial Intermediation and Regulation. Chair: Antonio Borges. Discussants: Jacob A. Frenkel, Y. Venugopal Reddy, Hyun Song Shin, Adair Turner
4:00–5:30pm SESSION IV: Capital Account Management. Chair: Zanny Minton-Beddoes. Discussants: Ricardo Caballero, Arminio Fraga, Rakesh Mohan, José Antonio Ocampo.
March 8, 2011
9:00–10:30am SESSION V: Growth Strategies. Chair: George Akerlof. Discussants: Dani Rodrik, Paul Romer, Andrew Sheng, Michael Spence.
11:00–12:30pm SESSION VI: The International Monetary System. Chair: John Williamson. Discussants: Már Guðmundsson, Olivier Jeanne, Lael Brainard, Maurice Obstfeld.
12:30–12:45pm Closing Remarks: Olivier Blanchard
Olivier Blanchard Rewrites the Macroeconomists Playbook
OB:
Rewriting the Macroeconomists’ Playbook in the Wake of the Crisis « iMFdirect – The IMF Blog: Before the global economic crisis, mainstream macroeconomists had largely converged on a framework for the conduct of macroeconomic policy. The framework was elegant, and conceptually simple.... The essential goal of monetary policy was low and stable inflation... an interest rate rule... setting the key policy rate that then affected the term structure of interest rates and asset prices, and then to aggregate demand. One could safely ignore most of the details of financial intermediation. Financial regulation was outside the macroeconomic policy framework.... [C]ountries could set an inflation target and float, or instead choose a hard currency peg or join common currency areas... attempting to control exchange rates through capital controls was undesirable. And multilateral coordination was not required. Fiscal policy had a limited role.... Automatic stabilizers... would kick in during downturns, but discretionary policy was more likely to be misused than used well. The focus had to be on the medium run, and on fiscal sustainability.
These were simple principles, and they seemed to work....
Then the crisis came. If nothing else, it forces us to do a wholesale reexamination of those principles. Here are some ideas to guide the conversation:
Economic imbalances: Achieving stable inflation is good, but we can now see it does not guarantee stable output.... Should we think of macroeconomic policy as having three legs—monetary, fiscal, and financial—each with separate authorities? Or should we think of extending both the mandate and the set of tools of monetary policy to cover both output and financial stability? And, if so, what tools do we have and how do we use them?
Interest rates: Early in the crisis, central banks decreased policy rates, until they reached their lower bound––namely zero. From then on... central banks turned to both credit and quantitative easing... would it have helped if nominal interest rates had been higher to start... should we revisit the low inflation targets... central banks had adopted pre crisis?
Fiscal policy: When interest rates reached the lower bound, fiscal policy came back to the fore.... Even though it will be a long time before debt levels are reduced sufficiently, what levels of public debt should countries aim for? Are old rules of thumb, such as trying to keep the debt to GDP ratio below 60 percent in advanced countries, still reliable?
Capital flows: The crisis triggered very large capital flows. Often, these flows had little to do with conditions in the country that they left, and more to do with the need by foreign financial institutions to repatriate funds in a hurry.... How should countries react to large capital inflows? If they want to mute their effect for example, when should they build up reserves and when should they use capital controls?...
International monetary system.... Should benign neglect determine the coordination of monetary policies across countries? Should there be international rules not only with respect to capital controls, but with respect to reserve management, and monetary policy in general?... [D]oes export-led growth remain an acceptable strategy for a multilateral point of view?
Safety net: In a different dimension, the great recession has showed that not only emerging countries, but also advanced countries, can suffer sudden stops. During the crisis, foreign liquidity was provided mostly through swap lines offered by the major central banks. Since then, the IMF has created two new liquidity windows. Is the problem solved, or is more needed?
These questions, and many more, will keep us busy for years to come...
Median Male Earnings
David Leonhardt tells us to listen to Michael Greenstone:
The red line is the usual picture of median earnings for full-time men. The problem with this line is that the percentage of men working over time has been declining over time. This attrition or dropping out of the labor force is not random, though, as the decline in full-time work it is disproportionately concentrated among low-skill men. This means that the red line is being propped up by the fact that it is increasingly comprised of higher skilled men.
One sensible correction for this is to calculate the median wage for all men (not just the full-time workers). This is the blue line in the below graph.
Why is this important? The full-time sample (red line) suggests that median wages have been stagnant since 1969.
I would raise the slope of the blue line back to zero: TV and video technologies are a lot better than they were in 1969. And there is the internet. But these improvements do not contribute very much to measured real earnings because we do not spend much money on them--even though we spend a huge amount of our recreational time on them.
Paul Krugman Watches the Republicans Try to Kill the Economic Recovery
PK:
How to Kill a Recovery : We’re still near the bottom of a very deep hole, but at least we’re climbing. It’s too bad that so many people, mainly on the political right, want to send us sliding right back down again....
The clear and present danger to recovery... comes from politics — specifically, the demand from House Republicans that the government immediately slash spending on infant nutrition, disease control, clean water and more. Quite aside from their negative long-run consequences, these cuts would lead, directly and indirectly, to the elimination of hundreds of thousands of jobs — and this could short-circuit the virtuous circle of rising incomes and improving finances. Of course, Republicans believe, or at least pretend to believe, that the direct job-destroying effects of their proposals would be more than offset by a rise in business confidence. As I like to put it, they believe that the Confidence Fairy will make everything all right.
But there’s no reason for the rest of us to share that belief. For one thing, it’s hard to see how such an obviously irresponsible plan — since when does starving the I.R.S. for funds help reduce the deficit? — can improve confidence.
Beyond that, we have a lot of evidence from other countries about the prospects for “expansionary austerity” — and that evidence is all negative. Last October, a comprehensive study by the International Monetary Fund concluded that “the idea that fiscal austerity stimulates economic activity in the short term finds little support in the data.” And do you remember the lavish praise heaped on Britain’s conservative government, which announced harsh austerity measures after it took office last May? How’s that going? Well, business confidence did not, in fact, rise when the plan was announced; it plunged, and has yet to recover. And recent surveys suggest that confidence has fallen even further among both businesses and consumers, indicating, as one report put it, that the private sector is “unprepared to fill the hole left by public sector cuts.”
Which brings us back to the U.S. budget debate.
Over the next few weeks, House Republicans will try to blackmail the Obama administration into accepting their proposed spending cuts, using the threat of a government shutdown. They’ll claim that those cuts would be good for America in both the short term and the long term.
But the truth is exactly the reverse: Republicans have managed to come up with spending cuts that would do double duty, both undermining America’s future and threatening to abort a nascent economic recovery.
Ezra Klein: John Taylor Jumps the Shark
Ezra Klein:
What do John Taylor and Mark Zandi disagree about?: Mark Zandi says the GOP's proposed spending cuts will cost about 700,000 jobs. John Taylor says they will "increase economic growth and employment."... Taylor's argument is that Zandi's model -- which you can read more about here -- doesn't account for the upside of deficit reduction -- namely, that when the government spends less, the private sector will spend more. Taylor thinks individuals and businesses are hoarding their money because they're afraid of the high taxes, sharp spending cuts and assorted other nastiness that deficit reduction will eventually require. "The high unemployment we are experiencing now is due to low private investment rather than low government spending," he writes. "By reducing some uncertainty and the threats of exploding debt, the House spending proposal will encourage private investment."
Zandi doesn't buy it. "That kind of thinking does probably play some role," he says, "but I don't think it's broadly applicable to most of the population. And even for higher-income, wealthy households who would be particularly likely to respond like that, I'm having trouble seeing it. Most of the improvement in spending in recent years has come among those high-income groups."
For Zandi -- and others, such as Goldman Sachs, who agree with his basic model -- businesses aren't holding back because of deficits. They're holding back because sales are weak.... And there's no reason to hire a new employee if sales aren't going to go up....
As readers might guess, I come down on Zandi's side of the argument. I've had a lot of trouble finding evidence -- or even a consistent articulation -- of the argument that policy or short-term deficit uncertainty has restrained private investment. At the same time, the spending cuts being pushed by the House GOP do much less to improve the deficit than the tax cuts being pushed by the House GOP do to worsen it -- but those are tax cuts that Taylor has long supported. Finally, we know what it looks like when public borrowing is crowding out private spending. And we're just not seeing it...
Heh. Indeed.
If you are going to argue that there is crowding out, you have to point to one of the signs of crowding out--high expected inflation or high expected real interest rates.
If people are confident that inflation will be low and that capital will remain cheap to credit-worthy firms, there is no crowding-out. The channels through which it operates are simply not working.
Liveblogging World War II: March 4, 1941
Operation Claymore:
Britain launches Operation Claymore — History.com This Day in History — 3/4/1941: The British navy raids a German position off the coast of Norway and inside the Arctic Circle—the Lofoten Islands. The raid, code name Operation Claymore, proved highly destructive of its target—an armed German trawler—but ultimately a failure in achieving its objective, the capture of an Enigma decoding machine. The Brits severely damaged the trawler, called the Krebs, and killed 14 German sailors, took another 25 prisoner, and destroyed the Germans' local stockpile of oil. While the attack boosted British public morale temporarily, the Enigma machine still eluded the British military. The commander of the Krebs, Lieutenant Hans Kupfinger, threw it overboard before he was killed in the raid, but the Brits were able to recover documents that gave clues to the Enigma's workings. British intelligence was able to piece together enough of the German coding system to track German naval activity for about five weeks
The Decoupling of the Unemployment Rate and the Employment-to-Population Ratio
Greg Ip:
Free exchange | The Economist: THE phrase “new normal” is usually used to explain the persistence of underwhelming economic data.... Over the [past] two months employment advanced an average of 127,500, in line with the last five months. Many economists will say that 127,500 is just a neutral number, only enough to keep up with population growth. This, then, is the new normal: an economy that grows only fast enough to keep unemployment from rising, not strong enough to create the jobs needed to bring unemployment down.... The only problem with this story is... [t]he unemployment rate is falling: to 8.9% in February from 9.0% in January and 9.8% last November. For some reason, we seem to be able to get unemployment down with far lower rates of job creation than in the past. Why?...
The labour force, the share of the working-age population that either works or wants to work is growing at a strangely subdued rate. Participation (the share of the working age population in the labour force) is supposed to rise during recoveries as previously discouraged workers return to the job hunt. Instead, it’s fallen, to 64.2%, unchanged from January and down from 64.9% last March. Perhaps employers are reluctant to hire given their ability to squeeze more out of their existing work force.... But if lack of hiring were the problem we should see it show up in either the actual or hidden unemployed....
[T]he unemployment decouples from the overall health of the economy. Why? Perhaps the Great Recession has permanently diminished work opportunities for big swathes of the work force, in particular prime-age men. Perhaps America is now experiencing an echo of what older Europe and Japan already have: a demographically driven slowdown in potential growth. Or perhaps it’s one of those temporary statistical mysteries that will disappear soon...
I think that each jobless recovery produces an extra tranche of discouraged workers--albeit discouraged workers who don't call themselves discouraged workers, but if the labor market were stronger the labor force would be growing at a faster rate and changes in the employment-to-population ratio would be tracking changes in the unemployment rate as it is supposed to.
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