The entire political and economic universe revolves around the question of whether or not Scott Sumner's policy will be adopted. The author of the blog The Money Illusion has the answer to our economic problems and, just as in the case of Frederick Kagan when he first advocated the strategy that would later be called 'The Surge', the silence in response to his arguments is deafening.
Sumner's main argument is that this recession was caused by excessively tight money supply. (Not the financial crisis, but the recession.)This argument would likely strike many as some form of uber-Keynsianism, where inflation is always good. (William Greiderism possibly). However, he is an Hayekian.
Sumner's proposed solution is a mechanism by which we will have more inflation during recessions, but tighter money during recoveries. It is automatic and removes discretion from the Federal Reserve because, like most of us, the Federal Reserve thinks it's better at doing its job than it actually is. The mechanism is that the Federal Reserve targets nominal gross domestic product growth at 5%.
It's possible that, as Dems face electoral doom this fall, NGDP targeting will gain credibility. Without the adoption of this policy, I believe Desmond Lachman and Nouriel Roubini when they predict that the recovery will yield to a second recession later this year.
Alternatively, the Dems could introduce major protectionist legislation aimed at China. If Obama publicly favored a bill imposing a 40% tariff on all imports from China, Dems could tap anti-China sentiment, find a scapegoat for the economy, purport a solution, and drive the debate into favorable territory for the entire election season.
Friday, February 26, 2010
Monday, February 22, 2010
Why Blog?
It just dawned on me that, aside from the time cost, career-wise there's almost no downside to blogging. I used to worry that if I just blogged about what I was doing, it would be considered boring and nobody would read it. Well, even in the case of well-read blogs, hardly anyone is paying attention, so that's really irrelevant. Best case scenario is a few people actually consider some of your ideas, they leave comments, discussion ensues, and your better off for it. Perhaps they are a future employer, investor, or customer. Worst case scenario is that it still functions like an extremely long resume.
I also used to worry that blogging needed to be profitable, cool, or therapeutic to be worthwhile. Alternatively, posts had to have a hard-hitting argument, or in depth research and analysis like 538, thus the large quantity of never published drafts stored in this blogger account. But, I now believe, poor writing and all, that blogging is it's own justification. The 99.9% of people that ask me 'what have you been up to?' but don't really care to know will not read this blog. And putting my thoughts online is the only practical way the other .01% could ever know.
I take great inspiration from the blog 'The Money Illusion' by Scott Sumner. Thanks to Ryan for bringing my attention to it, as it had been in my feed reader but I had previously always ignored it.
I also used to worry that blogging needed to be profitable, cool, or therapeutic to be worthwhile. Alternatively, posts had to have a hard-hitting argument, or in depth research and analysis like 538, thus the large quantity of never published drafts stored in this blogger account. But, I now believe, poor writing and all, that blogging is it's own justification. The 99.9% of people that ask me 'what have you been up to?' but don't really care to know will not read this blog. And putting my thoughts online is the only practical way the other .01% could ever know.
I take great inspiration from the blog 'The Money Illusion' by Scott Sumner. Thanks to Ryan for bringing my attention to it, as it had been in my feed reader but I had previously always ignored it.
Friday, February 19, 2010
The Iraq War and The Great Recession
The political universe is now aligned almost exactly as it had been in fall 2006. At that time, the defining fact of American political life was the war in Iraq. It was going badly, American soldiers were dying. An election was coming and the American electorate was deeply disturbed. Democrats interpreted that unhappiness as resentment over the lead up to the war and as a call to withdraw troops. It wasn't that the people wanted to withdraw, they wanted to win. But, Republicans didn't seem to have a feasible plan for winning, and there were daily new revelations of the administration's incompetency in the initial phases of the war. If nothing changed, the GOP would lose power and the war simultaneously. The president's popularity had plummeted while he fruitlessly spent all of his political capital on his domestic agenda. As far as the war went, he seemed to be simultaneously agreeing with Republican calls for more troops and Democratic calls for less troops.
One wonk knew how to solve the problem. The answer came from a deep understanding of another similar trauma in our nations past. It was a simple plan, not requiring extra troops or funds. So simple, that he seemed to be driven semi-mad by the fact that it was not obvious to everyone. He could have been excused for interrupting a presidential address to congress to stand on a soap box and yell through a blow-horn "WE ARE NOT USING COUNTER-INSURGENCY TACTICS TO FIGHT AN INSURGENCY!!!!! ABSOLUTELY NOTHING YOU SAY OR DO IS RELEVANT UNTIL YOU CONSIDER THIS FACT!!!!! (or I am bat-shit crazy, one of the two.)
Frederick Kagan had spent a great deal of time thinking about what had gone wrong in Vietnam and it was all too clear to him that we were making the same exact mistakes. In both cases, we just needed to fight the war as it was. It was an insurgency, therefore we needed a counter-insurgency strategy. Luckily, his arguments were given a platform by The Weekly Standard, the Heritage Institue, and AEI, but, it could almost be said they did him and the nation a disservice by not suspending all other activities until his policies were given an up or down vote by the president.
Now, George Bush didn't spend half a career studying US mistakes in Vietnam (he spent it studying how to get elected president), nor was he an expert in military strategy. But, the guy he had in charge, Rumsfeld, reputedly had grand theories about just this type of non-traditional war. And this expert seemed to be saying that the president, the military, and the public were being too pessimistic, which basically sounded like he thought we needed to get used to the current rate of casualties. This was how it was gonna be. But, he will vigilantly protect against the possibility that this war will cause us to let down our guard for the next war.
So that's where things stood: the reality of the war, the discontentment of the public, the president's inaction, Rumsfeld's stubbornness, the rise of anti-war Obama, the decline of John McCain, the inevitable outcome of the election. All tied together by congress and the administration's complete obliviousness to the man on the soapbox with the blow-horn -forced against his will by circumstances- to scream repeatedly 'the sky is blue'. I stared open-mouthed, thinking 'is anybody gonna listen to him?' Something had to give.
See the parallels?
Today, the defining fact of American political life is that we are in the worst economic recession most of us have ever seen. A full year after the bailouts and the stimulus, Americans are going busto left and right. We've lost our retirement savings, the entirety of the equity we had in our houses, our jobs, and there aren't any profitable entrepreneurship activities in sight. We are still saddled with debt accumulated during the boom, we're going bankrupt, defaulting on our mortgages, getting locked out of the credit system, and, most importantly, things aren't getting any better. China's smooth handling of the economic crisis has dealt as big a blow to American economic leadership as the blow to our military leadership would have been had we exited Iraq and seen an Iranian proxy government established. The American public is deeply disturbed. The Republicans are interpreting this to mean they were not happy with the stimulus, the new build up of public debt, an the ominous tax raises it portends. It's not that people want the government to withdraw from the economy. They just want jobs and growth. But Democrats don't seem to have a feasible plan to turn around the economy, and there are daily new revelations about the administration's incompetency during the bailouts and the enactment of the stimulus package. If nothing changes, the Dems will lose control of congress, Obama will be a one term president and we will all live through a deflationary economy for years to come. The president's popularity has plummeted while he has fruitlessly squandered all his political capital on healthcare legislation. As far as the economy goes, he seems to be simultaneously supporting Democratic calls for more government spending and Republican calls for less government spending.
One wonk knows how to solve the problem. The answer comes from a deep understanding of another similar trauma in our nations past. It is a simple plan, not requiring extra regulation or funds. So simple, that he seemed to be driven semi-mad by the fact that it was not obvious to everyone. He could have been excused for interrupting a presidential address to congress to stand on a soap box and yell through a blow-horn "WE ARE NOT TARGETING TREND-LINE NOMINAL GROWTH!!!!! ABSOLUTELY NOTHING YOU SAY OR DO IS RELEVANT UNTIL YOU CONSIDER THIS FACT!!!!! (or I am bat-shit crazy, one of the two.)
Scott Sumner had spent a great deal of time thinking about what had gone wrong in the Great Depression and it was all too clear to him that we were making the same exact mistakes. In both cases, we just needed to respond to a drop in real growth by maintaining nominal growth. It was a deflation, therefore we needed an inflation strategy. Luckily, his arguments were given a platform by the academic blogosphere, but, it could almost be said they did him and the nation a disservice by not suspending all other activities until his policies were given an up or down vote by the president.
Now, Barack Obama didn't spend half a career studying the mistakes made in the Great Depression (he spent it studying how to get elected president), nor was he an expert in economics, but the guy he had in charge, Bernanke, supposedly had grand theories about the exact sort of deflationary trap we now find ourselves in. And this expert seems to be saying that the president and the public are being too pessimistic, which basically sounds like he thinks we need to get used to the current levels of employment and growth. But, he will vigilantly guard against the possibility that the current and previous efforts to improve the economy will result in inflation.
So that's where things stand: We face sovereign debt crises, a commercial real estate crash, the stimulus is wearing off, quantitative easing is winding up, our only real growth has come from finally working through pre-crash inventories of some goods, the dollar is now strengthening again, the public intends to vote anti-incumbent straight down the ballot, fringe right wingers are gaining credibility everyday, Obama's inaction, Bernanke being stubborn - all tied together by congress and the administration's complete obliviousness to the man on the soapbox with the blow-horn -forced against his will by circumstances- to scream repeatedly 'money is too tight.'
One wonk knew how to solve the problem. The answer came from a deep understanding of another similar trauma in our nations past. It was a simple plan, not requiring extra troops or funds. So simple, that he seemed to be driven semi-mad by the fact that it was not obvious to everyone. He could have been excused for interrupting a presidential address to congress to stand on a soap box and yell through a blow-horn "WE ARE NOT USING COUNTER-INSURGENCY TACTICS TO FIGHT AN INSURGENCY!!!!! ABSOLUTELY NOTHING YOU SAY OR DO IS RELEVANT UNTIL YOU CONSIDER THIS FACT!!!!! (or I am bat-shit crazy, one of the two.)
Frederick Kagan had spent a great deal of time thinking about what had gone wrong in Vietnam and it was all too clear to him that we were making the same exact mistakes. In both cases, we just needed to fight the war as it was. It was an insurgency, therefore we needed a counter-insurgency strategy. Luckily, his arguments were given a platform by The Weekly Standard, the Heritage Institue, and AEI, but, it could almost be said they did him and the nation a disservice by not suspending all other activities until his policies were given an up or down vote by the president.
Now, George Bush didn't spend half a career studying US mistakes in Vietnam (he spent it studying how to get elected president), nor was he an expert in military strategy. But, the guy he had in charge, Rumsfeld, reputedly had grand theories about just this type of non-traditional war. And this expert seemed to be saying that the president, the military, and the public were being too pessimistic, which basically sounded like he thought we needed to get used to the current rate of casualties. This was how it was gonna be. But, he will vigilantly protect against the possibility that this war will cause us to let down our guard for the next war.
So that's where things stood: the reality of the war, the discontentment of the public, the president's inaction, Rumsfeld's stubbornness, the rise of anti-war Obama, the decline of John McCain, the inevitable outcome of the election. All tied together by congress and the administration's complete obliviousness to the man on the soapbox with the blow-horn -forced against his will by circumstances- to scream repeatedly 'the sky is blue'. I stared open-mouthed, thinking 'is anybody gonna listen to him?' Something had to give.
See the parallels?
Today, the defining fact of American political life is that we are in the worst economic recession most of us have ever seen. A full year after the bailouts and the stimulus, Americans are going busto left and right. We've lost our retirement savings, the entirety of the equity we had in our houses, our jobs, and there aren't any profitable entrepreneurship activities in sight. We are still saddled with debt accumulated during the boom, we're going bankrupt, defaulting on our mortgages, getting locked out of the credit system, and, most importantly, things aren't getting any better. China's smooth handling of the economic crisis has dealt as big a blow to American economic leadership as the blow to our military leadership would have been had we exited Iraq and seen an Iranian proxy government established. The American public is deeply disturbed. The Republicans are interpreting this to mean they were not happy with the stimulus, the new build up of public debt, an the ominous tax raises it portends. It's not that people want the government to withdraw from the economy. They just want jobs and growth. But Democrats don't seem to have a feasible plan to turn around the economy, and there are daily new revelations about the administration's incompetency during the bailouts and the enactment of the stimulus package. If nothing changes, the Dems will lose control of congress, Obama will be a one term president and we will all live through a deflationary economy for years to come. The president's popularity has plummeted while he has fruitlessly squandered all his political capital on healthcare legislation. As far as the economy goes, he seems to be simultaneously supporting Democratic calls for more government spending and Republican calls for less government spending.
One wonk knows how to solve the problem. The answer comes from a deep understanding of another similar trauma in our nations past. It is a simple plan, not requiring extra regulation or funds. So simple, that he seemed to be driven semi-mad by the fact that it was not obvious to everyone. He could have been excused for interrupting a presidential address to congress to stand on a soap box and yell through a blow-horn "WE ARE NOT TARGETING TREND-LINE NOMINAL GROWTH!!!!! ABSOLUTELY NOTHING YOU SAY OR DO IS RELEVANT UNTIL YOU CONSIDER THIS FACT!!!!! (or I am bat-shit crazy, one of the two.)
Scott Sumner had spent a great deal of time thinking about what had gone wrong in the Great Depression and it was all too clear to him that we were making the same exact mistakes. In both cases, we just needed to respond to a drop in real growth by maintaining nominal growth. It was a deflation, therefore we needed an inflation strategy. Luckily, his arguments were given a platform by the academic blogosphere, but, it could almost be said they did him and the nation a disservice by not suspending all other activities until his policies were given an up or down vote by the president.
Now, Barack Obama didn't spend half a career studying the mistakes made in the Great Depression (he spent it studying how to get elected president), nor was he an expert in economics, but the guy he had in charge, Bernanke, supposedly had grand theories about the exact sort of deflationary trap we now find ourselves in. And this expert seems to be saying that the president and the public are being too pessimistic, which basically sounds like he thinks we need to get used to the current levels of employment and growth. But, he will vigilantly guard against the possibility that the current and previous efforts to improve the economy will result in inflation.
So that's where things stand: We face sovereign debt crises, a commercial real estate crash, the stimulus is wearing off, quantitative easing is winding up, our only real growth has come from finally working through pre-crash inventories of some goods, the dollar is now strengthening again, the public intends to vote anti-incumbent straight down the ballot, fringe right wingers are gaining credibility everyday, Obama's inaction, Bernanke being stubborn - all tied together by congress and the administration's complete obliviousness to the man on the soapbox with the blow-horn -forced against his will by circumstances- to scream repeatedly 'money is too tight.'
Subscribe to:
Posts (Atom)
Posts
