Krugman et al

[Zel]

sao as opinioes de um comprovado incompetente

Ben Bernanke didn't see a housing bubble in 2006

Bernanke Was Wrong

[Zel]

http://www.zerohedge.com/news/2015-04-01/iceland-stuns-banks-plans-take-back-power-create-money
a lawmaker from the ruling Progress Party, issued a report today that suggests taking the power to create money away from commercial banks, and hand it to the central bank and, ultimately, Parliament.

eh um debate interessante de se ter, ha demasiada flexibilidade na criacao de dinheiro e isso origina bolhas, excesso de divida e desigualdades

[Dilath Larath]

Power and Paychecks

On Wednesday, McDonald’s — which has been facing demonstrations denouncing its low wages — announced that it would give workers a raise. The pay increase won’t, in itself, be a very big deal: the new wage floor is just $1 above the local minimum wage, and even that policy only applies to outlets McDonald’s owns directly, not the many outlets owned by people who bought franchises. But it’s at least possible that this latest announcement, like Walmart’s much bigger pay-raise announcement a couple of months ago, is a harbinger of an important change in U.S. labor relations.

Maybe it’s not that hard to give American workers a raise, after all.

Most people would surely agree that stagnant wages, and more broadly the shrinking number of jobs that can support middle-class status, are big problems for this country. But the general attitude to the decline in good jobs is fatalistic. Isn’t it just supply and demand? Haven’t labor-saving technology and global competition made it impossible to pay decent wages to workers unless they have a lot of education?

Strange to say, however, the more you know about labor economics the less likely you are to share this fatalism. For one thing, global competition is overrated as a factor in labor markets; yes, manufacturing faces a lot more competition than it did in the past, but the great majority of American workers are employed in service industries that aren’t exposed to international trade. And the evidence that technology is pushing down wages is a lot less clear than all the harrumphing about a “skills gap” might suggest.

Even more important is the fact that the market for labor isn’t like the markets for soybeans or pork bellies. Workers are people; relations between employers and employees are more complicated than simple supply and demand. And this complexity means that there’s a lot more wiggle room in wage determination than conventional wisdom would have you believe. We can, in fact, raise wages significantly if we want to.

How do we know that labor markets are different? Start with the effects of minimum wages. There’s a lot of evidence on those effects: Every time a state raises its minimum wage while neighboring states don’t, it, in effect, performs a controlled experiment. And the overwhelming conclusion from all that evidence is that the effect you might expect to see — higher minimum wages leading to fewer jobs — is weak to nonexistent. Raising the minimum wage makes jobs better; it doesn’t seem to make them scarcer.

How is that possible? At least part of the answer is that workers are not, in fact, commodities. A bushel of soybeans doesn’t care how much you paid for it; but decently paid workers tend to do a better job, not to mention being less likely to quit and require replacement, than workers paid the absolute minimum an employer can get away with. As a result, raising the minimum wage, while it makes labor more expensive, has offsetting benefits that tend to lower costs, limiting any adverse effect on jobs.

Similar factors explain another puzzle about labor markets: the way different firms in what looks like the same business can pay very different wages. The classic comparison is between Walmart (with its low wages, low morale, and very high turnover) and Costco (which offers higher wages and better benefits, and makes up the difference with better productivity and worker loyalty). True, the two retailers serve different markets; Costco’s merchandise is higher-end and its customers more affluent. But the comparison nonetheless suggests that paying higher wages costs employers a lot less than you might think.

And this, in turn, suggests that it shouldn’t be all that hard to raise wages across the board. Suppose that we were to give workers some bargaining power by raising minimum wages, making it easier for them to organize, and, crucially, aiming for full employment rather than finding reasons to choke off recovery despite low inflation. Given what we now know about labor markets, the results might be surprisingly big — because a moderate push might be all it takes to persuade much of American business to turn away from the low-wage strategy that has dominated our society for so many years.

There’s historical precedent for this kind of wage push. The middle-class society now dwindling in our rearview mirrors didn’t emerge spontaneously; it was largely created by the “great compression” of wages that took place during World War II, with effects that lasted for more than a generation.

So can we repeat this achievement? The pay raises at Walmart and McDonald’s — brought on by a tightening job market plus activist pressure — offer a small taste of what could happen on a vastly larger scale. There’s no excuse for wage fatalism. We can give American workers a raise if we want to.

krugman

[Incognitus]

Os EUA devem ter uma boa margem para subir o salário mínimo. Usando o mínimo horário dá o equivalente a cerca de 1186 EUR/mês, versus quase 800 em Portugal para um custo equivalente. A diferença é demasiado pequena.

E subidas relativamente pequenas no salário mínimo devem ter um impacto pouco observável como o Krugman diz, já que estas subidas só se aplicam a uma pequena parte da força de trabalho. Tipo uma subida de 5% no salário mínimo aplicada a 10% dos trabalhadores vai alterar os custos do trabalho globais em 0.5%.

Mas quando a diferença é grande o suficiente, como se tornou na Grécia, o impacto sobre o desemprego pode ser substancial. E possivelmente até Portugal já está suficientemente longe do equilíbrio para que parte da nossa taxa de desemprego se deva a um SMN demasiado elevado (por incrível que pareça).

[Dilath Larath]

The resemblance between America’s right and a doomsday cult is something quite a few people have noticed: when various prophecies of disaster, from hyperinflation to an Obamacare death spiral, failed to materialize, the people predicting those disasters simply found new ways to maintain their faith. So Jonathan Chait’s detailed takedown of denialism about Obamacare’s success is well done, but not all that distinctive.

What he does put his finger on, however, is another aspect of the “debate” (it doesn’t really deserve to be dignified with that term): reliance not on substantive arguments about policy, but on public perceptions. In the case of health reform, this amounts to the assertion that it has failed because many Americans continue to believe the opponents’ lies.

This is a cheap, dishonest way to argue — but it’s also very widely used, and not just on the U.S. right. I’m doing some work on the UK austerity debate, and what’s striking to me is how crucial a role this kind of argument from perception plays in Simon Wren-Lewis’s “mediamacro”.

Consider, as a prominent example, the FT’s editorial from 2013 declaring austerity vindicated. At no point does the editorial actually take on the economics. Instead, it declares that “Mr. Osborne has won the political argument”, and dismisses actual economic analysis — a resumption of growth when fiscal consolidation pauses is exactly what you should expect — as too complicated for the voters, bless their pretty little heads.

Let’s be clear about the bad faith this involves. It’s perfectly OK to point out that elections seem to turn on the recent rate of growth rather than a true assessment of economic performance. What’s not OK is blurring the distinction between that kind of political analysis and a real analysis of how policy worked. And when people do that kind of blurring to make the case for policies they prefer, it’s deeply sleazy, no matter who they are.

krugman

[Dilath Larath]

The Obamacare Doomsday Cult Struggles to Adapt to World That Did Not End
By Jonathan Chait  Follow @jonathanchait

As Obamacare continues to operate successfully, conservative elites have renewed their pleas for the party to develop an alternative beyond demanding the law’s repeal. The trouble is that anti-Obamacare dogma sits so deeply at the GOP’s core that any discussion of health care must pay fealty to their belief that the law has failed utterly. The Republican Party in the Obamacare era is a doomsday cult after the world failed to end. Its entire analysis of the issue is built upon a foundation of falsehoods.

Michael Tanner, a health-care analyst at the Cato Institute, has a column for National Review usefully summarizing the most current iteration of anti-Obamacare talking points. Most of Tanner’s piece is devoted to arguing for alternative proposals, but he begins with the ritual incantation of Obamacare doomsaying. Tanner does not argue that Obamacare is wrong because conservatives philosophically object to using taxation and regulation to transfer resources from the rich and healthy to the poor and sick. Instead he makes eight substantive claims about the law’s impact on health-care access. Every single one of them is overblown or demonstrably wrong.

Here’s Tanner’s litany of failure:

Millions of Americans were forced to change insurance plans, and others found themselves pushed into smaller networks with few choices of providers. Premiums rose. Businesses, laboring under the higher costs imposed by the law, have slowed growth; many have delayed hiring, or shifted workers from full- to part-time. The potential impact on the quality of care remains troubling.
Let’s take these claims in order.

1.“Millions of Americans were forced to change insurance plans.” The specter of mass dislocation was a major anti-Obamacare talking point at the end of 2013 and 2014. The new health-care regulations banned a lot of unpopular practices, like lifetime limits on how much an insurer would pay, or discriminating against preexisting conditions. So it is true that many people who held insurers in the old, barely regulated insurance market needed to find new plans. On the other hand, that market had enormous year-to-year churn anyway. The main way for insurers to make money was to exclude customers who were likely to get sick, so they threw people off their insurance all the time.

We now know that the new churn created by Obamacare was much smaller than conservatives insisted at the time. A recent study by the Urban Institute found that policy cancellations were not “millions,” but under a million. As the authors explain:

These estimates suggest that policy cancellations caused by noncompliance with the ACA were uncommon in 2014 in both the nongroup and ESI markets, and the number and rate of cancellations in the nongroup market in 2014 was far smaller than in 2013. The nongroup market has historically been characterized by high volatility: an analysis of pre-ACA nongroup coverage patterns from 2008–11 shows that only 42 percent of nongroup enrollees retained their coverage after 12 months.
2. “ ... and others found themselves pushed into smaller networks with few choices of providers.” It is true that many people who enrolled in the new exchanges have insurance plans that limit their choice of doctors and hospitals, which is called “narrow networks.” There is no evidence that Obamacare caused this. The law overwhelmingly covers people who had no insurance to begin with. You can’t be “pushed” into a “smaller” network when your previous network was nonexistent.

As Jonathan Cohn laid out in an excellent and balanced explainer on this issue, insurers have been using narrow networks to control costs for decades. “That’s been the case for decades,” Larry Levitt told him, “The only real connection to the Affordable Care Act is that the health reform law is making insurers compete for customers more aggressively.”

If narrow networks are spreading, it is because the Obamacare exchanges are bringing consumer choice into the system. Overwhelmingly, the customers enrolling in plans with narrow networks are not being “pushed” so much as they are choosing them. As a McKinsey study from last year found, 90 percent of eligible customers have access to broader networks of doctors and hospitals. But most customers choose plans with narrow networks because they would rather not pay the higher premiums required to access broader networks. If we think narrow networks are inadequate, one response would be to require insurers to include more doctors and hospitals in their plans, but this would add to costs — an odd argument for a conservative to make.

3. “Premiums rose.” It is true that some people will pay higher premiums. If you previously held a catastrophic plan that covered little to none of your medical expenses, you may now be paying higher premiums in return for having insurance that covers the cost of medical care. Likewise, if you were uninsured and now have coverage, your new premiums are now higher than your old premiums, which were zero. This is exactly what the law intended to do.

The argument between the law’s supporters and critics centered on whether it would succeed or fail at its goal of restraining health care inflation. Historically, the cost of health care has grown at a much faster rate than the cost of other goods. Since Obamacare has taken effect, that trend has sharply reversed itself. Analysts debate the degree to which this enormous success is the result of the new law’s reforms versus outside factors. But the cost of Obamacare insurance premiums has come in well under official projections.

Tanner himself asserted that Obamacare would absolutely increase the cost of health care. “While we were once told that health-care reform would “bend the cost curve down,” we now know that Obamacare will actually increase U.S. health-care spending,” he wrote in 2012. This has been proven false. The federal government is spending less, even with the coverage expansions provided by Obamacare, than it was projected to spending before Obamacare became law:

 
4. “Businesses, laboring under the higher costs imposed by the law ... ” This is the opposite of the truth. The cost of providing health care to employees for business, after years of rapid growth, has stayed unusually flat:

 
5. “ ... have slowed growth.” Actually, 2014, the first year of Obamacare’s implementation coincided with the fastest growth in GDP since the start of the recession.

6. “many have delayed hiring … ” In fact, 2014 was also the best year for job creation, not only since the recession but since 1999.


7. “or shifted workers from full- to part-time.” Nope, the share of part-time workers has also fallen since Obamacare took effect.

8. “The potential impact on the quality of care remains troubling.” This is a really vague statement. Measuring the quality of health care is nearly impossible in general. What’s more, tanner’s formulation has not one but two weasel words (“potential,” “troubling”) that distance him from any verifiable claim.

That said, there’s plenty of evidence that the Affordable Care Act is improving the quality of care. The percentage of Americans delaying medical care for financial reasons has dropped sharply. The rate of hospital-acquired infections (a key target of the law, which changed hospitals’ financial incentive in order to drive down infections) has fallen. Customers who bought insurance through the exchanges report high levels of satisfaction with the quality of their care. One study found that Obamacare is saving around 50,000 lives a year; after President Obama cited the figure, Washington Post fact-checker Glenn Kessler set out to debunk the claim, only to determine that it checked out.

**

This is the reality that the entire Republican Party has failed to come to grips with. The American health-care system before Obamacare was an utter disaster — the most expensive in the world and also the only one that denied access to millions of its own citizens. Obamacare set out to change those things, and it has worked.

There is one remaining indictment of the law that Tanner makes, and it’s true. “The law remains extraordinarily unpopular, with opponents topping supporters by nearly 11 percentage points, according to the latest Real Clear Politics average,” he argues. It is notable that opponents of Obamacare have fixated on the law’s poor polling. In a recent column, Reason’s Peter Suderman quibbles halfheartedly with the law’s demonstrable success in carrying out its goals — suggesting that the astonishing drop in medical inflation may be owed to outside forces — before reveling for six paragraphs in his major point, which is continued lack of public approval. “Obamacare is simply not well liked,” he concludes, “This is the political reality — and President Obama still refuses to embrace it.”

It is telling that, having lost every substantive argument about the law’s operation, their sole remaining refuge is an argument about its perception. It’s true: Their lies got halfway around the world before the truth could get its pants on. Indeed, if you google most of the factual disputes I discuss above, you’ll get a lot more hits from conservatives making hysterical and false predictions than you will find from reports showing those predictions failed to come true. Those myths still hold enormous sway over public opinion. Far more Americans believe Obamacare has death panels, which is false, than believe its costs have come in under projections, which is true. Conservatives have won the propaganda war over Obamacare. The trouble is that they think this is an indictment of Obamacare, when in fact it’s an indictment of them.

jonathan chait

[Dilath Larath]

Larry Summers and Ben Bernanke are having the most important blog fight ever

Why the heck are interest rates so low?

That's the question former Treasury Secretary Larry Summers and former Federal Reserve Chair Ben Bernanke have been debating in what might be the world's most important, but also most respectful, blog fight. Are rates low because not enough people want to invest or because too many people want to save? The answer tells us why the economy seems stuck and what we can do to un-stuck it.

Now, part of it is that the Federal Reserve has cut short-term rates to zero and bought enough long-term bonds to push their rates down, too. But that's not the real story. After all, it's not like the Fed can keep rates lower than they "should" be without fueling inflation—which there isn't any now. So rates are so low not because that's where the Fed wants them to be, but rather because that's where the economy needs them to be. If it weren't for the fact that rates can't go—well, at least not that far—below zero, they'd probably have fallen even further on their own, and the recovery would have been better. Everything the Fed has done has just been trying to make up for this, to get rates closer to where they would be if they could be negative.

Okay, but why does the economy still need such low rates? Good question. Summers worries it's a new old problem called "secular stagnation." That's the idea that, absent a bubble, the economy will be stuck in a never-ending slump, because inflation-adjusted interest rates can't go low enough to get people to borrow and invest. Economist Alvin Hansen first proposed this in 1938, when it looked like slower population growth would mean slower investment growth—why build new houses or offices if there aren't new people for them?—and make the Depression go on for, well, close enough to forever.

Now the baby boom thankfully proved him wrong, but what if, Summers wonders, their retirement proves him right? Once again, there isn't as much population growth, this time because the Boomers are starting to collect Social Security, and that means there isn't as much demand for new investments. Not only that, but in the internet age, companies don't even need to spend as much as they used to on the investments they do make. Computers, in other words, cost a lot less than factories. Add it all up, and it could be that only way for the economy to get enough investment spending would either be for the government to do it directly or to try to get the private sector to do it by increasing inflation so that real rates come down.


But Bernanke thinks this is overly pessimistic. The U.S. economy looks like it's picking up speed now, and it was going plenty fast in the 1990s even before the tech bubble turned the Pets.com sock puppet into the avatar of irrational exuberance. Besides, it isn't easy to tell a story about why people would need negative real rates to get them to invest. "Almost any investment would be profitable," Bernanke says, if rates were that low for that long, to the point that it would even "pay to level the Rocky Mountains to save the small amount of fuel expended by trains and cars that must currently climb steep grades." That sure doesn't seem like the world we live in. And even if it were—this is the most important part—we could still export our way to health as long as other countries were doing alright.

So why does Bernanke think the economy needs low rates? Well, he doesn't really. Or at least he thinks it won't soon. Now, there are still, he says, "economic headwinds" left over from the crisis that justify low rates today. But rates should rise tomorrow—or maybe six months from now—if the recovery keeps chugging along. "Should" is a funny word, though. If history is any guide, long-term rates probably won't go up that much because of what Bernanke calls the "global saving glut."

Bernanke first talked about this back in 2005, when, as a Fed Governor, he tried to explain the puzzle of long-term rates not rising much despite short-term rates doing so. The answer, Bernanke said, was that after the East Asian Financial Crisis in 1998, emerging markets like China and Saudi Arabia had seen how much trouble they could get into if they didn't build up a war chest of dollars, so they started saving much, much more. Specifically, they took the money they made selling things to the U.S. and put it into U.S. bonds. All that incoming money pushed down long-term rates in the U.S., which, even though it sounds good, actually wasn't, because it also pushed up the dollar and made the trade deficit worse. Things aren't as bad today, but they still aren't good. Sure, Asia's emerging markets aren't hoarding dollars like before, but Germany, as Paul Krugman puts it, is the new China when it comes to turning saving into a vice. So once again, interest rates are down, the dollar is up, and a widening trade deficit is weighing down the recovery.

Even though secular stagnation and the global saving glut are distinct economic stories, it's easy to confuse them since they look the same. Output is below potential and interest rates are low in both, which is just another way of saying that people want to save more than they want to invest. Secular stagnation says it's because there isn't enough demand for investment, while the global saving glut says, yes, it's because there's too much supply of savings. Now why does it matter which it is? Well, as Bernanke points out, different problems have different solutions. Secular stagnation means the economy is broken and the government needs to fix it by giving us more inflation and more infrastructure spending. But the global saving glut means the economy wouldn't need any fixing if governments would stop breaking it by manipulating their currencies down to run bigger and bigger surpluses and amass bigger and bigger piles of dollars.

But enough suspense. Is secular stagnation or the global saving glut to blame for our economic woes? Yes. See, despite the fact that it's hard to imagine a world where real rates aren't negative enough to get people to invest, we can't write off secular stagnation just yet. That's because it's not hard to imagine a world where central banks get stuck in a self-induced paralysis. Just open your eyes. Japan, as Paul Krugman points out, let prices fall so much that its inflation-adjusted rates never fell to zero even though its nominal rates did. So its real rates weren't that much less than the rest of the world's even as its economy fell behind—and, as Brad DeLong reminds us, it did fall behind—which, in turn, meant that its currency never fell enough to be a real escape hatch from its slump. The same has happened to Europe the past few years. Now, it's true that both are doing what they should now—buying bonds, like the Fed did, until inflation goes back up—but both are in such deep holes and have such bad demographics that they're going to be stuck in something that looks an awful lot like secular stagnation for awhile. Maybe not a long a run where we're all dead, but at least one where we're all middle-aged.


And that creates all kinds of problems for us. Europe's slump, for example, means that there's, well, a glut of money leaving the continent looking for better returns abroad, in the process, pushing the dollar up and the euro down. That'd be good news if it was enough to get Europe back to normal anytime soon, but markets don't seem to think it will. If they did, the dollar probably wouldn't be rising as much as it has. So what exactly are we saying here? Well, the easiest way to think about it is this. We used to have a global saving glut caused by other country's policy decisions, but now we have a global saving glut caused by other country's secular stagnation.

If that's right, then it's not going to be enough to browbeat countries that aren't spending a lot into spending more. They can't. Instead, we're going to have to fight the global saving glut by pushing the dollar down—maybe by raising the Fed's inflation target from 2 to 4 percent. The funny thing is that's also the way to fight secular stagnation here at home, so no matter what you think the economy's problem is, this might be the solution. Indeed, back in January 2009, none other than Bernanke himself was surprised that there wasn't "slightly more interest" at the Fed "in moving [inflation] up from our so-called comfort zones, given our recent experience with deflation risk and zero lower bound." It's still surprising that there isn't. The global saving glut hasn't gone away and the fact that interest rates can't go much below zero means there's a risk that with worse policy and worse demographics, we could get dragged down into secular-ish stagnation too.

The real mystery, in other words, is why we're accepting a world where interest rates are staying so low.

wapo

[Dilath Larath]

Paul Krugman - New York Times Blog
 

John Galt Hates Ben Bernanke

Ah: I see that there was a Twitter exchange among Brad DeLong, James Pethokoukis, and others over why Republicans don’t acknowledge that Ben Bernanke helped the economy, and claim credit. Pethokoukis — who presumably gets to talk to quite a few Republicans from his perch at AEI — offers a fairly amazing explanation:

'B/c many view BB as enabling Obama’s spending and artificially propping up debt-heavy economy in need of Mellon-esque liquidation'

Yep: that dastardly Bernanke was preventing us from having a financial crisis, curse him.

Actually, there’s a lot of evidence that this was an important part of the story. As I pointed out a couple of months ago, Paul Ryan and John Taylor went all-out conspiracy theory on the Bernanke Fed, claiming that its efforts were not about trying to fulfill its mandate, but rather that 'This looks an awful lot like an attempt to bail out fiscal policy, and such attempts call the Fed’s independence into question'

Basically, leading Republicans didn’t just expect a disaster, they wanted one — and they were furious at Bernanke for, as they saw it, heading off the crisis they hoped to see. It’s a pretty awesome position to take. But it makes a lot of sense when you consider where these people were coming from.

After all, what is Atlas Shrugged really about? Leave aside the endless speeches and bad sex scenes. What you’re left with is the tale of how a group of plutocrats overthrow a democratically elected government with a campaign of economic sabotage.

Look, I know it sounds harsh to say that Republicans opposed QE in large part out of fear that it would work, and deliver a success to a president they hated. I mean, the next thing you know I’ll be accusing them of crazy things they would never do, like deliberately trying to undermine delicate nuclear negotiations. Oh, wait.

krugman

[Dilath Larath]

Germany's trade surplus is a problem
 
In a few weeks, the International Monetary Fund and other international groups, such as the G20, will meet in Washington. When I attended such international meetings as Fed chairman, delegates discussed at length the issue of “global imbalances”—the fact that some countries had large trade surpluses (exports much greater than imports) and others (the United States in particular) had large trade deficits. (My recent post discusses the implications of global imbalances from a savings and investment perspective.) China, which kept its exchange rate undervalued to promote exports, came in for particular criticism for its large and persistent trade surpluses.

However, in recent years China has been working to reduce its dependence on exports and its trade surplus has declined accordingly. The distinction of having the largest trade surplus, both in absolute terms and relative to GDP, is shifting to Germany. In 2014, Germany’s trade surplus was about $250 billion (in dollar terms), or almost 7 percent of the country’s GDP. That continues an upward trend that’s been going on at least since 2000 (see below).

Why is Germany’s trade surplus so large? Undoubtedly, Germany makes good products that foreigners want to buy. For that reason, many point to the trade surplus as a sign of economic success. But other countries make good products without running such large surpluses. There are two more important reasons for Germany’s trade surplus.

First, although the euro—the currency that Germany shares with 18 other countries—may (or may not) be at the right level for all 19 euro-zone countries as a group, it is too weak (given German wages and production costs) to be consistent with balanced German trade. In July 2014, the IMF estimated that Germany’s inflation-adjusted exchange rate was undervalued by 5-15 percent (see IMF, p. 20). Since then, the euro has fallen by an additional 20 percent relative to the dollar. The comparatively weak euro is an underappreciated benefit to Germany of its participation in the currency union. If Germany were still using the deutschemark, presumably the DM would be much stronger than the euro is today, reducing the cost advantage of German exports substantially.

Second, the German trade surplus is further increased by policies (tight fiscal policies, for example) that suppress the country’s domestic spending, including spending on imports.

In a slow-growing world that is short aggregate demand, Germany’s trade surplus is a problem. Several other members of the euro zone are in deep recession, with high unemployment and with no “fiscal space” (meaning that their fiscal situations don’t allow them to raise spending or cut taxes as a way of stimulating domestic demand). Despite signs of recovery in the United States, growth is also generally slow outside the euro zone. The fact that Germany is selling so much more than it is buying redirects demand from its neighbors (as well as from other countries around the world), reducing output and employment outside Germany at a time at which monetary policy in many countries is reaching its limits.

Persistent imbalances within the euro zone are also unhealthy, as they lead to financial imbalances as well as to unbalanced growth. Ideally, declines in wages in other euro-zone countries, relative to German wages, would reduce relative production costs and increase competitiveness. And progress has been made on that front. But with euro-zone inflation well under the European Central Bank’s target of “below but close to 2 percent,” achieving the necessary reduction in relative costs would probably require sustained deflation in nominal wages outside Germany—likely a long and painful process involving extended high unemployment.

Systems of fixed exchange rates, like the euro union or the gold standard, have historically suffered from the fact that countries with balance of payments deficits come under severe pressure to adjust, while countries with surpluses face no corresponding pressure. The gold standard of the 1920s was brought down by the failure of surplus countries to participate equally in the adjustment process. As the IMF also recommended in its July 2014 report, Germany could help shorten the period of adjustment in the euro zone and support economic recovery by taking steps to reduce its trade surplus, even as other euro-area countries continue to reduce their deficits.

Germany has little control over the value of the common currency, but it has several policy tools at its disposal to reduce its surplus—tools that, rather than involving sacrifice, would make most Germans better off. Here are three examples.

Investment in public infrastructure. Studies show that the quality of Germany’s infrastructure—roads, bridges, airports—is declining, and that investment in improving the infrastructure would increase Germany’s growth potential. Meanwhile, Germany can borrow for ten years at less than one-fifth of one percentage point, which, inflation-adjusted, corresponds to a negative real rate of interest. Infrastructure investment would reduce Germany’s surplus by increasing domestic income and spending, while also raising employment and wages.

Raising the wages of German workers.

German workers deserve a substantial raise, and the cooperation of the government, employers, and unions could give them one. Higher German wages would both speed the adjustment of relative production costs and increase domestic income and consumption. Both would tend to reduce the trade surplus.

Germany could increase domestic spending through targeted reforms, including for example increased tax incentives for private domestic investment; the removal of barriers to new housing construction; reforms in the retail and services sectors; and a review of financial regulations that may bias German banks to invest abroad rather than at home.

Seeking a better balance of trade should not prevent Germany from supporting the European Central Bank’s efforts to hit its inflation target, for example, through its recently begun quantitative easing program. It’s true that easier monetary policy will weaken the euro, which by itself would tend to increase rather than reduce Germany’s trade surplus.

But more accommodative monetary policy has two offsetting advantages: First, higher inflation throughout the euro zone makes the adjustment in relative wages needed to restore competitiveness easier to achieve, since the adjustment can occur through slower growth rather than actual declines in nominal wages; and, second, supportive monetary policies should increase economic activity throughout the euro zone, including in Germany.

I hope participants in the Washington meetings this spring will recognize that global imbalances are not only a Chinese and American issue.

bernanke

[vbm]

Liquidity Traps, Local and Global (Somewhat Wonkish)
APRIL 1, 2015 6:12 PM April 1, 2015 6:12 pm
[ ]
Sure enough, if we try to figure out the market’s implied prediction for the euro, it seems to imply persistent weakness. The euro/dollar rate is down around 30 percent from its level before Europe began running such large surpluses. Meanwhile, German 10-year real interest rates are around -1, while U.S. real rates are slightly positive; this implies that markets expect the euro to recover only a third or so of its recent decline over the next decade.

[ ]
 

Tentei compreender aritmeticamente o enunciado acima;
fiz o cálculo seguinte, não sei se o raciocínio é certo:

O euro desvalorizou 30% em relação ao dólar.
A revalorização inversa  para anular tal depreciação será:

(1)   (1-0.3)^-1 = 0.7^-1 = 1.42857

Krugman diz que a taxa de valorização implícita do euro (*)
que equiparará as taxas de juro a 10 anos na Alemanha -
a qual é de -1% - e as da América é a que só alcança a
recuperação de 1/3 do valor do euro. Assim,

(2)      0.42857 /3 = 0.142851;

Que equivale a uma taxa anual de valorização para
o prazo a que se reportam as taxas de juro a 10 anos:

(3)     1.142851^1/10 = 1.01344,

i.e., uma taxa anual de valorização cambial de 1.344% ao ano.

Se a capitalização desta taxa com a do juro negativo alemão
é a que iguala a taxa de juro americana para empréstimos
de igual prazo, teremos que esta será de:

(4)    (1-0.01)*1.01344 = 1.0033

Ou seja, 0.33% de taxa de juro positiva n' América
rende tanto como -1% n'Alemanha desde que o euro
revalorize à taxa anual de 1.344%, que representa
a expectativa de atenuação de 1/3 da recente queda cambial.


(*) Chamar 'euro' a uma 'coisa' de valorização só pilotada
pela Alemanha, com o empobrecimento e ruína das demais
economias da eurolândia, é abusivo! Proporia antes que
se designasse tal moeda de "markeuro" porque para
nós é só bolsos vazios e cofres cheios de dívida!

[D. Antunes]

Parecem aproximadamente corretas as tuas contas.



Estive a ver as taxas de juro a 10 anos:

Alemanha: 0,19%  (inflação = 0,3% em Março 2015; real -0,11%).

USA: 1,84 (inflação = 0,0% em Fev 2015%: real 1,84%)

Diferença = 1,95%/ano.


Será que fez as contas logo dos 10 anos. Em 10 anos, na Alemanha será aproximadamente -1%, mantendo-se a inflação. Mas nos EUA estão muito positivas. Será que teve em conta expectativas de inflação?

[vbm]

Julgo que sim, a recuperação de 1/3 da desvalorização do euro esperada em 10 anos assim como as taxas de juro são para prazos a 10 anos, uma e outras anualizadas a que se compõem o juro e  a valoração cambial a 10anos

[Zenith]

Parece-me que ele fez um raciocinio simples: se há um diferencial de 1% entre yels alemãs e americanas em 10 anos dá cerca de 10%, portanto um investidor racional para investir eom obg alemãs espera que a perda relativa de 10% em juros seja compensada por um valorização do Euro em 10% ou seja u 1/3 da queda de 30%.
Não entendo como chega aos -1%. Deve incluir a inflação. Mas para um americano que tem de decidir entre bunds e bonds  inflação na alemanha é irrelevante só interessam as taxas de juro e  câmbio e vice-versa para um investidor alemão.

[vbm]

Não entendo como chega aos -1%. Deve incluir a inflação. Mas para um americano que tem de decidir entre bunds e bonds  inflação na alemanha é irrelevante só interessam as taxas de juro e  câmbio e vice-versa para um investidor alemão.

Eu creio, justamente, que ele comparou directamente as taxas (reais) a 10 anos, alemã e americana, -1% e +0.33%, e apurou qual a valorização do euro implícita para o respectivo juro real se igualar:

(5)  .99*(1+v) =  1.0033, com v= taxa de valorização cambial do euro. De onde,

(6)  1+v = 1.0033 /.99 = 1.0101... e, v= 1.01%

O que equivale à expectativa implícita de uma revalorização do euro a 10 anos de

(7)   1.01^10 = 1.104, ou seja 10.4% = aprox. 1/3 * 30% da desvalorização ocorrida.

No meu cálculo, tinha era de apurar qual a 'U.S. real rate slightly positive' - que eu ignorava - e partir da afirmação que fez de a recuperação cambial implícita na equiparação das taxas ser de 1/3 da queda cambial ocorrida.

[Dilath Larath]

The Fiscal Future I: The Hyperbolic Case for Bigger Government
 APRIL 6, 2015 1:54 PM April 6, 2015 1:54 pm

Brad DeLong has posted a draft statement on fiscal policy for the IMF conference on “rethinking macroeconomics” — and I’m shocked, in a good way. As regular readers may have noticed, Brad and I share many views, so I expected something along lines I have also been thinking. Instead, however, Brad has come up with what I believe are seriously new ideas — enough so that I want to do two posts, following different lines of thought he suggests.

What Brad argues are two propositions that run very much counter to the prevailing wisdom, especially among Very Serious People. First, he argues that we should not only expect but want government to be substantially bigger in the future than it was in the past. Second, he suggests that public debt levels have historically been too low, not too high. In this post I consider only the first point.

So, how big should the government be? The answer, broadly speaking, is surely that government should do those things it does better than the private sector. But what are these things?

The standard, textbook answer is that we should look at public goods — goods that are non rival and non excludable, so that the private sector won’t provide them. National defense, weather satellites, disease control, etc.. And in the 19th century that was arguably what governments mainly did.

Nowadays, however, governments are involved in a lot more — education, retirement, health care. You can make the case that there are some aspects of education that are a public good, but that’s not really why we rely on the government to provide most education, and not at all why the government is so involved in retirement and health. Instead, experience shows that these are all areas where the government does a (much) better job than the private sector. And Brad argues that the changing structure of the economy will mean that we want more of these goods, hence bigger government.

He also suggests — or at least that’s how I read him — the common thread among these activities that makes the government a better provider than the market; namely, they all involve individuals making very-long-term decisions. Your decision to stay in school or go out and work will shape your lifetime career; your ability to afford medical treatment or food and rent at age 75 has a lot to do with decisions you made when that stage of life was decades ahead, and impossible to imagine.

Now, the fact is that people make decisions like these badly. Bad choices in education are the norm where choice is free; voluntary, self-invested retirement savings are a disaster. Human beings just don’t handle the very long run well — call it hyperbolic discounting, call it bounded rationality, whatever, our brains are designed to cope with the ancestral savannah and not late-stage capitalist finance.

When you say things like this, libertarians tend to retort that if people mess up on such decisions, it’s their own fault. But the usual argument for free markets is that they lead to good results — not that they would lead to good results if people were more virtuous than they are, so we should rely on them despite the bad results they yield in practice. And the truth is that paternalism in these areas has led to pretty good results — mandatory K-12 education, Social Security, and Medicare make our lives more productive as well as more secure.

Now, Brad argues that we’re going to need even more of this kind of paternalism. An aging population and the demand for a more highly educated work force certainly push in that direction. It’s less clear, I’d say, that health care will be a big driver, since the rate of growth of health spending seems to have slowed.

But he certainly has the principle right. To think about the growth of government, we need to look at the range of things government does well, a range that goes well beyond the narrow concept of public goods.

krugman

[Haroun Al Poussah]

Rand Paul and the Empty Box

Nate Cohn tells us that Rand Paul can’t win as a libertarian, because there basically aren’t any libertarians. And that’s true. I wish I could say that Rand Paul can’t win because he believes in crank monetary economics, etc. But the truth is that these things matter much less than the fact that not many Americans consider themselves libertarian, and even those who do are deluding themselves.

But why? Think of a stylized representation of issue space: (anexo)

You might be tempted to say that this is a vast oversimplification, that there’s much more to politics than just these two issues. But the reality is that even in this stripped-down representation, half the boxes are basically empty. There ought in principle, you might think, be people who are pro-gay-marriage and civil rights in general, but opposed to government retirement and health care programs — that is, libertarians — but there are actually very few.

There’s also a corresponding empty box on the other side, which is maybe even emptier; I don’t even know a good catchphrase for it. (Suggestions?) I’m putting in “hardhats” to show my age, because I remember the good old days when rampaging union workers — who presumably supported pro-labor policies, unemployment benefits, and Medicare — liked to beat up dirty hippies. But it’s hard to find anyone like that in today’s political scene.

So why are these boxes empty? Why is American politics essentially one-dimensional, so that supporters of gay marriage are also supporters of guaranteed health insurance and vice versa? (And positions on foreign affairs — bomb or talk? — are pretty much perfectly aligned too).

Well, the best story I have is Corey Robin’s: It’s fundamentally about challenging or sustaining traditional hierarchy. The actual lineup of positions on social and economic issues doesn’t make sense if you assume that conservatives are, as they claim, defenders of personal liberty on all fronts. But it makes perfect sense if you suppose that conservatism is instead about preserving traditional forms of authority: employers over workers, patriarchs over families. A strong social safety net undermines the first, because it empowers workers to demand more or quit; permissive social policy undermines the second in obvious ways.

And I suppose that you have to say that modern liberalism is in some sense the obverse — it is about creating a society that is more fluid as well as fairer. We all like to laugh at the war-on-Christmas types, right-wing blowhards who fulminate about the liberal plot to destroy family values. We like to point out that a country like France, with maternity leave, aid to new mothers, and more, is a lot more family-friendly than rat-race America. But if “family values” actually means traditional structures of authority, then there’s a grain of truth in the accusation. Both social insurance and civil rights are solvents that dissolve some of the restraints that hold people in place, be they unhappy workers or unhappy spouses. And that’s part of why people like me support them.

In any case, bear this in mind whenever you read some pontificating about a libertarian moment, or whatever. There are almost no genuine libertarians in America — and the people who like to use that name for themselves do not, in reality, love liberty.

Krugman

[Lark]

Should monetary policy take into account risks to financial stability?
 
In response to the Great Recession, the Federal Reserve has kept the short-term interest rate (the federal funds rate) near zero since December 2008 and taken other steps (like purchasing longer-term Treasury securities) to strengthen the recovery and avoid deflation of wages and prices. Although the recovery has not been as fast as hoped—in part because of "headwinds" arising from fiscal policy, the after-effects of the financial crisis, and other factors—today the jobs situation in the United States is much better than a few years ago, and the risk of deflation is very low. Fed policies have had a lot to do with that.

Despite the substantial improvement in the economy, the Fed's easy-money policies have been controversial. Initially, detractors focused on the supposed inflation risks of such policies. As time has passed with no sign of inflation, that critique now looks rather threadbare. More recently, opposition to accommodative monetary policy has mostly coalesced around the argument that persistently low nominal interest rates create risks to financial stability, for example, by promoting bubbles in asset prices or stimulating excessive credit creation.

Let there be no mistake: In light of our recent experience, threats to financial stability must be taken extremely seriously. However, as a means of addressing those threats, monetary policy is far from ideal. First, it is a blunt tool. Because monetary policy has a broad impact on the economy and financial markets, attempts to use it to "pop" an asset price bubble, for example, would likely have many unintended side effects. Second, monetary policy can only do so much. To the extent that it is diverted to the task of reducing risks to financial stability, monetary policy is not available to help the Fed attain its near-term objectives of full employment and price stability.

For these reasons, I have argued that it's better to rely on targeted measures to promote financial stability, such as financial regulation and supervision, rather than on monetary policy. Or, as I put it in my very first speech as a Fed governor, "use the right tool for the job." In that spirit, during my time leading the Fed, policymakers and staff worked to develop a “macroprudential,” or systemic approach to financial oversight and regulation. In particular, we began to regularly monitor and evaluate developments in the financial system as a whole—even parts that the Fed is not assigned to regulate. My colleagues at the Fed and I also supported measures to make the financial system more resilient, such as requiring large banks to hold more capital and to keep more cash on hand. And we began making regular use of "stress tests" to see if banks were strong enough to withstand very severe economic and financial shocks.

However, the macroprudential approach remains unproven, and we know that, for a variety of reasons, financial regulators did not do enough to avoid the crisis of 2007-2009. So, even if we agree that regulation and supervision should be the first line of defense, we can't rule out of hand the possibility that monetary policy decisions should also take into account risks to financial stability. To do that in a sensible way, however, requires some weighing of benefits and cost. Even if keeping monetary policy tighter than it otherwise would be has the benefit of lowering the risk of a future crisis (although not everyone agrees with this premise), doing so also has the cost of driving employment and inflation away from the Fed's near-term targets. Before we make major changes in the conduct of monetary policy, it's essential to understand the tradeoffs involved.

A new paper by Andrea Ajello, Thomas Laubach, David López-Salido, and Taisuke Nakata, recently presented at a conference at the San Francisco Fed, is among the first to evaluate this policy tradeoff quantitatively. The paper makes use of a model of the economy similar to those regularly employed for policy analysis at the Fed. In this model, monetary policy not only influences near-term job creation and inflation, but it also affects the probability of a future, job-destroying financial crisis. (Specifically, in the model, low interest rates are assumed to stimulate rapid credit growth, which makes a crisis more likely.) For a variety of alternative assumptions about the parameters of the model and the objectives of policymakers, the authors assess whether the benefit of keeping rates meaningfully higher than they otherwise would be (thereby reducing the risk of a future financial crisis and the associated damage to the economy) exceeds the cost of higher rates (lower near-term job growth and inflation below target).

Although, in principle, the authors' framework could justify giving a substantial role to monetary policy in fostering financial stability, they generally find that, when costs and benefits are fully taken into account, there is little case for doing so. In their baseline analysis, they find that incorporating financial stability concerns might justify the Fed holding the short-term interest rate 3 basis points higher than it otherwise would be, a tiny amount (a basis point is one-hundredth of a percentage point). They show that a larger response would not meet the cost-benefit test in their estimated model. The intuition is that, based on historical relationships, higher rates do not much reduce the already low probability of a financial crisis in the future, but they have considerable costs in terms of higher unemployment and dangerously low inflation in the near- to intermediate terms.

To check the robustness of the results, the authors consider what happens if the likelihood of a crisis is much more sensitive (for stats geeks: two standard deviations more sensitive) to monetary policy than is consistent with historical data. They find that, in this case, setting the short-term interest rate 25 to 45 basis points higher than it would otherwise be could be justified on cost-benefit grounds. They also analyze the effects of assuming that every financial crisis leads to output losses and deflation as catastrophic as in the Great Depression of the 1930s—again, a very strong assumption. In this case, a short-term interest rate 30 to 75 basis points higher than it otherwise would be could pass a cost-benefit test. Given the extreme assumptions, these are surprisingly small deviations from a policy that simply ignores financial stability concerns. Again, the bottom line is that large increases in the short-term rate based on financial stability considerations alone would involve costs that well exceed the benefits.

Lars Svensson, who discussed the paper at the conference, explained, based on his own experience, why cost-benefit analysis of monetary policy decisions is important. Lars (who was also my colleague for a time at Princeton) served as a deputy governor of the Swedish central bank, the Sveriges Riksbank. In that role, Lars dissented against the Riksbank's decisions to raise its policy rate in 2010 and 2011, from 25 basis points ultimately to 2 percent, even though inflation was forecast to remain below the Riksbank's target and unemployment was forecast to remain well above the bank's estimate of its long-run sustainable rate. Supporters justified the interest-rate increases as a response to financial stability concerns, particularly increased household borrowing and rising house prices. Lars argued at the time that the likely benefits of such actions were far less than the costs. (More recently, using estimates of the effects of monetary policy on the economy published by the Riksbank itself, he showed that the expected benefits of the increases were less than 1 percent of the expected costs). But Lars found little support for his position at the Riksbank and ultimately resigned. In the event, however, the rate increases were followed by declines in inflation and growth in Sweden, as well as continued high unemployment, which forced the Riksbank to bring rates back down. Recently, deflationary pressures have led the Swedish central bank to cut its policy rate to minus 0.25 percent and to begin purchasing small amounts of securities (quantitative easing). Ironically, the policies of the Swedish central bank did not even achieve the goal of reducing real household debt burdens.

As academics (and former academics) like to say, more research on this issue is needed. But the early returns don't favor the idea that central banks should significantly change their rate-setting policies to mitigate risks to financial stability. Effective financial oversight is not perfect by any means, but it is probably the best tool we have for maintaining a stable financial system. In their efforts to promote financial stability, central banks should focus their efforts on improving their supervisory, regulatory, and macroprudential policy tools.

ben bernanke

[Lark]

Paul Krugman - New York Times Blog
 
Ben Bernanke comes down firmly against the idea that concerns about financial instability should lead central banks to raise interest rates even in a depressed economy. Good — and I was especially pleased to see him citing the Swedish example and the Ignoring of Lars Svensson as a case study.

One odd thing, however, is that I’m not at all sure that most people — even economists — would be able to figure out who, exactly, Bernanke is arguing with. And that is, I think, an important omission. We can and should have a pure economics debate about appropriate interest rate policy; but if we’re trying to understand the political economy — and we should, because this is about getting good decisions as well as good analysis — it is definitely relevant to note that the people making the financial stability argument for higher rates are permahawks, who keep coming up with new justifications for an unchanging policy demand.

Take, as possibly the most prominent advocate of the financials stability argument, the Bank for International Settlements. Originally (2011), the BIS demanded rate hikes to head off the alleged threat of inflation:

Central banks need to start raising interest rates to control inflation and may have to act faster than in the past, the Bank for International Settlements said.

“Tighter global monetary policy is needed in order to contain inflation pressures and ward off financial stability risks,” the BIS said in its annual report published yesterday in Basel, Switzerland. “Central banks may have to be prepared to raise policy rates at a faster pace than in previous tightening episodes.”

…

“The world economy is growing at a historically respectable rate of around 4 percent,” Caruana said. “The resurgence of demand has put concerns about deflation behind us. Accordingly, the need for continued extraordinary monetary accommodation has faded.”

Hmm:

Since the inflation warning proved wrong, and deflation risks turned out to be far from over, you might expect some reconsideration of the policy demand. Instead, however, you get new reasons for the same policy:

Note that suggestion that easy money reduces the incentive for “reform”, which in Europe as in America tends to take the form of cuts in social spending. This is quite close to the position of conservatives in the US, who seem annoyed that the Fed’s policies have prevented the crisis they were sure was imminent as a result of liberal big spending.

Anyway, I think Ben Bernanke did us a bit of a disservice by not linking to whoever it is he’s arguing with. It would help to know that John Taylor and the BIS are on the other side, because this would let readers place their position here in context with their other positions.

krugman

[Zel]

qd um banqueiro rebenta com um banco eh um criminoso ou incompetente, qd um banqueiro central cria uma bolha gigante, uma mega recessao e nem percebe o que esta a fazer continua um guru magico que sabe tudo

ha profissoes imunes aos resultados

[Lark]

The biggest debate in the economics world—whether advanced economies like the United States or the European Union are doomed to stagnation—has pitted former US Treasury secretary Larry Summers against former Federal Reserve chairman Ben Bernanke. One Nobel prize-winning economist already has weighed in to take Summers’ side over Bernanke’s. Now, the IMF is piling on.
Summers has proposed “secular stagnation” (pdf) as the explanation for economic weakness since the 2008 recession: Private investment is falling because firms see slow population growth and innovation as a sign that future returns aren’t likely, creating a self-fulfilling prophecy of slow growth. His answer is more government investment—to jump-start demand, and the economy.
Bernanke, meanwhile, thinks recent slowdowns in private investment are merely a result of the recession’s economic hangover, and that the big, structural problem for advanced economies is a “global savings glut” that is forcing US interest rates lower than they otherwise would be—so in essence, blame Germany. In the former Fed chair’s view, better government policies on global capital flows and trade could solve this problem. Otherwise, efforts to keep interest rates low enough to maintain full employment will lead to more financial bubbles.
It can be hard to tell which case is right, since both manifest the same problem: Too much savings, not enough investment, and low growth. For the International Monetary Fund’s economists, the solution seems clear: Governments need to do more to stimulate demand.
Two chapters of the IMF’s World Economic Outlook, released today, deal with this question, one focusing on economic growth overall and one focusing on the fall in private investment. The reports conclude, first, that the reason for slower growth isn’t the lingering effects of the crisis but the pressure from slowing population growth and innovation; and second, that private investment is falling because companies don’t see enough demand from their customers, not because of diminished returns from low interest rates.
To be sure, the IMF—an multilateral organization overseeing global financial flows—isn’t likely to say that some of its member countries’ policies, particularly Germany’s beloved current account surplus or China’s more blatant currency manipulation efforts at the beginning of this century, are leading to financial imbalances and thus slow growth.
Only time (and further blogging) will tell: If Summers is right, slow growth and low interest rates will dominate the future unless major spending efforts come to bear, but Bernanke remains hopeful that trade and investment will return to balance internationally, allowing interest rates to rise.

qz