Left Outside

Cameron’s dreadful case for national pride

This is just wonderfully revealing from Cameron today:

Whatever the obstacles to growth today, we still boast some of the best universities in the world, the most favourable timezone in the world, and the world’s first language.

Hundreds of years ago we conquered and colonised a load of places and they and their trading partners now speak our language. Also, by historical fluke, we just so happen to sit in between populus Asia and wealthy North America.

So this is what national pride has come to. No celebration of the English Pub, the centre of the community, no longing for days of imperial grandeur, no ideological fervour for christ, cricket and capitalism. Nope, something more like this…

A cosy 25 million bedroom nation with excellent local amenities, a large secluded garden and great transport links. Comes complete with lovely views of France and neighbours who will begrudgingly speak your language.

Filed under: Economics, Foreign Affairs, History, Politics, , , , , , , , , , , ,

Migration as Technology

I was a little confused by this Robin Hanson post. He cites with approval the fact that since 1970 40% of all the extra consumption in the world has occurred in the United States. Below are the top 30 gainers in terms of tens of billions of dollars a year.

United States 583, Japan 183, China 103, United Kingdom 73, Germany 63, France 53, India 47, Brazil 47, Italy 39, Canada 37, Mexico 37, Spain 28, Indonesia 14, Netherlands 11, Greece 9, South Africa 8, Thailand 8, Switzerland 8, Belgium 8, Austria 7, Colombia 7, Sweden 7, Philippines 7, Norway 7, Malaysia 7, Portugal 6, Chile 6, Finland 5, Ireland 5, Denmark 4. (source)

Robin argues that this is argument against Tyler’s notion of a slow down in technological innovation. But the population of the US is 48% bigger in 2010 (310,000,000) than in 1970 (209,000,000). At first I couldn’t see why this would counts as evidence against some notion of a slow down in intensive growth. The US got more from more which is great for all those people involved, but it is not evidence we can get more from less, is it?

Well, in a way it is, although you have to denationalise your perspective. The US does have an overwhelming lead in one “technology”; that of receiving and assimilating migrants. The factors behind this are geographical, historical and cultural, but it still as a really important technology in terms of increasing “our” productive and consumptive capacity.

The productivity of millions of people has been hugely increased simply by them moving across a border. Allowing more migration is an innovation that can make many people better off by improving their productivity. But it is a technology which cannot be excercised by a single firm, it is better thought of as a society-wide innovation akin to germ theory or corporation law.

Filed under: Blogging, Economics, History, Migration, , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , ,

ATOS, Actually TOSsers

This beggars belief…

From the local press, so usual caveats apply, but this story really is astonishing. I’ll quote the important parts below.

Wheelchair users have to climb a flight of chairs to prove they are disabled enough to get benefits at a centre in Croydon.

Although there are lifts in the disability benefits assessment centre, anyone in a wheelchair or who cannot climb stairs is banned from using them due to health and safety requirements.

Anyone who cannot tackle the 42-step staircase is instead forces to make a 14 mile round trip to Balham because the centre in Cherry Orchard Road is not disabled friendly.

The local Tory MP called it “ridiculous” in a letter to Chris Grayling.

This is grist to the mill for those who think that the Tories are 1) evil and 2) not actually any good at running a government any more.

Filed under: Politics, Society, , , , , , , ,

Laban Tall, fancy earning £20 for your favourite cause?

Laban, understandably, is rather annoyed with the Bank of England’s apparent inability to hit its 2% inflation target. Lets remind ourselves, the Retail Price Index is at 5.6% and the Consumer Price Index is at 5.2%. Laban scoffs at the idea that inflation will fall significantly in 2012 whereas I think it is incredibly likely that it will, even with the bank printing up another £75bn in freshly minted electronic cash. Only one way to settle this, I propose a bet.

I reckon inflation won’t average above 2.5% and I’ll donate £20 to anyone Laban wants if it does. If Laban will take the mirror of this bet we have ourselves a deal.

As far as why I’m so confident, this morning’s post explained why QE is a good idea when an economy is depressed and Luis‘s explains why QE isn’t really too different from your common and garden interest rate cut. I’ve already covered why temporary factors are what is to blame for elevated inflation, factors which are unlikely to be repeated:

One major source of inflation has been successive increases in VAT. In the last two years it has increased from 15% to 20%, adding at least a percentage point to inflation. A lot of inflation is also still working through import prices since sterling devalued. Lastly, crisis in Europe and continued depression in the US means the UK’s economy can expect little external support.

And finally Paul explains why inflation is unlikely to rise next year; nobody has enough money to keep it going…

Here’s the key graph, from the Office of National Statistics:

Like the US, Britain has no wage-price spiral — wages are going nowhere.

Plus we have continued contraction of the state sector which will cause people to be unemployed, to lose their services, and will have various knock on effects through the rest of the economy. Unlike Hopi I am not worried that we will soon need to battle inflation, inflation will splutter down on its own to a more comfortable rate.

So, Laban, that is why I am not worried about inflation. Would you like to take me up on my bet?

Filed under: Blogging, Economics, , , , , , , , ,

Money gets printed, get over it

Guest post by Luis Enrique (edited from an e-mail by LO)

Something I find particularly striking is how few people seem to recognise how similar QE is to standard monetary policy. QE is often called something like a bank bailout by the back door, or corporate welfare, or a harbinger of hyperinflation, but that doesn’t make much sense in the context of actually existing monetary policy.

In standard macro theory, if people want to hold more money they will sell interest bearing bonds for cash, which would increase interest rates. But if the BoE is targeting say a 2% rate, it will create money and buy bonds to keep they rate at 2%. So changed in money demand are accommodated.

If the BoE wants to cut the rate from 2% to 1% it announce it is doing so and will print money and buy bonds to get it there. This will cause bond prices to rise, creating a “windfall” for bond holders and banks that charge fees for trading bonds. The money it creates thus doing is every bit as inflationary as the money created by QE. Probably more so, in fact, because the money is less likely just to sit in reserve.

Many people object vociferously to QE yet yet wouldn’t blink at a decision to cut interest rates from 2% to 1% despite their similarities.

Filed under: Economics, , , , ,

Why we should support QE in language an undergrad student can understand

Here’s a piece on QE I wrote for the LSE student rag (with some help from Luis Enrique).

Printing £75bn does not sound like a plan to make us all richer. It sounds like a plan to turn us into Zimbabwe. But last week Mervyn King, Governor of the Bank of England, announced that is exactly what he will be doing. When complete, the Bank’s Quantitative Easing, or QE, programme will have seen £275bn leave the printing presses, nearly £5000 for every person living in the UK. Informing the Bank’s decision is the news that more than two and half million people are now unemployed, including nearly a million young people. In fact, many students reading this will have chosen to come to LSE because finding employment has been difficult. Urgent action is obviously needed to tackle this, but printing money appears a method of dubious merit. Of course, there is a logic to the Bank of England’s action that may mean students graduating this time next year will find it easier to get a job than they expect.

The Bank’s actions appear odd, even dangerous, only because of the rarity and extremity of our situation. In normal times the Bank doesn’t announce how much money it will be printing, it just changes the interest rate at which it will lend. To keep growth steady, when the economy is decelerating they cut interest rates to encourage spending and when the economy is accelerating they raise interest rates to discourage spending. You can raise interest rates as high as you like, but can only cut them to zero, and that is where they’ve been since March 2009. This means they have to try to encourage spending through other methods.

Over the last nine months the economy has seen no growth when normally it would be almost two per cent larger. If an economy stops growing it may be because bad policies prevent new companies from setting up shop and creating and employing new technologies. Alternatively, an economy may falter because there is too little demand for those new industries and technologies. Whether the Bank’s actions are wise will depend very much on which describes our current situation.

The idea that firms and people may be lying idle because nobody wants their produce is a strange idea at first. If people are willing to work that must mean they want to consume. If they didn’t people would be happy to stay at home and relax. But there is one good people want to buy which won’t put others to work. You buy a car to get from A to B and you employ a mechanic. You buy a sheep because you want mutton or wool and you employ a shepherd. You “buy” money to swap it for something else by working or saving, but you don’t employ anyone because money can be created for free.

In nervous times, we all would like to improve our balance sheets, we all want to build up buffers of savings, and that often involves wanting to hold more money in our current accounts. When one person does this it causes no problems, but when we all become more nervous we all end up wanting to build up a safety buffer. Now with only so much money in circulation this can only happen if we each spend less than we earn. But this is impossible because everyone’s spending is someone else’s earnings. Unless extra money is put into circulation we get slowly poorer until people decide they have the right amount of money relative to their earning and spending. We have a recession. We have our current stagnation. QE is designed to put more money into circulation and to create more safe places to invest that money. That should lead to healthier balance sheets and more demand to employ people and will bring the economy back to life.

In an economy held back by bad policy, printing money does exactly what you would expect it to and makes everything more expensive. At a time of stagnant wages and austerity budgeting this would be a terrible result. Some people have pointed to high inflation as proof the bank has already printed too much money. In one story growth falters because people start demanding relatively more money than goods and services. In that world, printing money -whether through changing interest rates, QE or targeting total cash spending – will make us richer. In the other it makes us poorer.

Looking at the UK and global economy, three things imply the Bank’s actions will help more than hinder. One major source of inflation has been successive increases in VAT. In the last two years it has increased from 15% to 20%, adding at least a percentage point to inflation. A lot of inflation is also still working through import prices since sterling devalued. Lastly, crisis in Europe and continued depression in the US means the UK’s economy can expect little external support. The Bank of England has little influence over any of these and has ignored them to focus on what it can influence in the domestic economy.

In the last three years a lot has changed. Whether more QE is a good idea or not depends on whether the economy has been damaged to the point where we can employ a million fewer people than we used to. If the financial crisis or government policy has wrought such damage upon us then QE will merely produce ever higher prices. If there is still some slack in the economy then we will see more people employed and better living conditions for everyone. Simplistic comparisons with Zimbabwe may be attention grabbing, but in reality QE may be the best hope we have to get the UK back on track.

Filed under: Economics, Politics, , , , , , , , , ,

UK NGDP makes me go “epp!”

Graph and commentary courtesy of Chris Giles.

There is a rule of thumb that says you want nominal gross domestic product to grow by around 5 per cent a year. It is a pretty good guide, because it roughly accounts for the sum of Britain’s long-run productivity growth and a stable inflation rate close to the Bank of England’s 2 per cent CPI target.. Strip out the VAT rise and underlying nominal GDP (at basic prices) grew by 1.9 per cent – split into 1.4 per cent inflation and 0.5 per cent growth. Worrying about inflation in this climate is crackers…

You will notice that declines and slowdowns in NGDP growth are associated with bad things, and that steady 5% growth is associated with good things. This graph is a reason Hopi is wrong to see a fight with inflation looming, deflation remains our enemy.

Two questions, where will inflation come from with nominal growth so weak and were will real growth come from with nominal growth so weak?

Filed under: Politics

Scott Sumner’s victory is total…

Phewee

“Market monetarists” like Scott Sumner and David Beckworth are crowing about the new respectability of nominal GDP targeting. And they have a right to be happy…. And now that we’re almost four years into the Lesser Depression, I’m willing, out of a combination of a sense that support is building for a Fed regime shift and sheer desperation, to support the use of expectations-based monetary policy as our best hope.

I for one welcome our new NGDP targeting, level targeting overlords, but in the UK it sounds like we may have had something similar for a while.

Scott’s having a good week, and good for him, it sounds like he’s sacrificed a fair amount of time with his daughter (during the years when a child actually wants to spend time with its parents) to push for market monetarism. I’d certainly buy him a beer were he to ever visit LSE.

Filed under: Economics, , , , , , ,

The American Right really, really, really Hates Poor People and Loves the Rich

In graph form, Republican presidential candidate Herman Cain’s latest tax plan and its impact on the after tax income of various Americans.

Taxation is theft! So make sure you only steal most from poor people…

[UPDATE, and here's the link]

Filed under: Economics, Foreign Affairs, Politics, , , , , , ,

Economics is not the study of choice

Turns out I actually do have something to write about. A propos of Yglesias and Rodrik, I think people really need to stop thinking about Economics as some sort of study of choice, which is how it is traditionally conceived. Yglesias quotes Rodrik…

The Friedmanite perspective greatly underestimates the institutional prerequisites of markets. Let the government simply enforce property rights and contracts, and – presto! – markets can work their magic. In fact, the kind of markets that modern economies need are not self-creating, self-regulating, self-stabilizing, or self-legitimizing. Governments must invest in transport and communication networks; counteract asymmetric information, externalities, and unequal bargaining power; moderate financial panics and recessions; and respond to popular demands for safety nets and social insurance.

…and notes that non-interventionist environments don’t really exist. The market doesn’t appear ex nihilo and it isn’t really helpfully conceived of as a way of aggregating individual choices.

For a long time individual choice involved fighting and then using brute force and intimidation to get what you want. The key innovation of modern states wat to turn brute force and intimidation towards the realm of enforcement of contracts.

I think economics is much better thought of a study of contracts, expectations and choices last. The contractual elements of live take up most of your expenditure, housing, healthcare and saving for retirement and all of those things depend far more on your (and our collective) expectation of the future.

Choice comes into the picture only later on. Rational Choice theory is useful for estimating how people make certain choices, but it is the imposition of brute force strengthening contract enforcement and making the future more predictable that may be better routes for thinking about economics.

For example, Scott Sumner‘s proposal for central banks to adopt NGDP targeting, level targeting. This isn’t economics about choice, this is economics which is intended to make contracts easier to create ex ante and enforce ex post because it is about aligning expectations with what the future will actually be like in a stable way. Contracts and expectations form the core of economics, they are just very complicated in real world and difficult to model in the theoretical.

Filed under: Economics, , , , , , , , , , ,

A Safer Way to Save the Eurozone

Cross published from my Uni paper, not sure if I’m allowed. But hey, I’ve nothing else written.

For the fourth or fifth time in as many years Europe needs a rescue plan. A group of academics from all around Europe, including LSEs Professor Luis Garicano and Professor Dimitri Vayanose now have a proposal which may be part of the last rescue plan necessary.

The problem is simple. Many countries, from Greece to Portugal, Italy, Spain and Ireland, carry debts they may not be able to pay back in full. Failure to pay back these debts would return Europe to recession because much of this debt is held by European banks who once considered it safe.

There is enough money in Europe to pay these countries debts, it is just that it is earned and spent in Germany by Germans, and the Germans are understandably keen to keep it this way. Previous plans have fallen short because the citizens of northern Europe are unwilling to commit to a bailout of southern Europe.

A rescue plan is not elusive because the economics are hard, politics is the fundamental problem. A successful plan to save Europe from renewed crisis will need to leverage Europes economic clout to shore up confidence in its riskier members in a way which does not put German taxpayers money in harm’s way. Eurobonds, once mooted as a potential solution to Europes woes were rejected for just this reason. They would have left Germany and other safe European countries on the line for the risky borrowing of other European countries.

Their rescue plan, published at the Euro-nomics website, is gaining traction with many of institutions at the heart of Europe. They propose to bundle up a portion of the debts of all Eurozone members and split it into a safe senior tranche and a risky junior tranche. Complex financial products got us into this mess and it is hoped that they may well get us out.

The senior tranche of debt would be known as European Safe Bonds (or ESBies, if you like your financial derivatives to have cute names) and would be amongst the safest financial assets in the world. They would be backed by the first 70% of debt payments from all European countries. Were things to go badly wrong through the Eurozone and many countries were to default ESBies would remain safe.

By their calculations, this means ESBies would only suffer losses every 600 years or so. They would be dull and their rewards would be meagre, just what Europe needs in these troubled times. Those who wanted higher returns, hedge fund and private equity investors, could gamble on the junior tranche without the problems caused by risky bonds being held by large banks.

This is important, rescue Europe and you rescue the employment opportunities of everyone who graduates from LSE next year. It would take a few months to get up and running but even moving towards this solution would calm markets and help return Europe and the world to stability.

Filed under: Economics, History, Politics, , , , , , ,

You’re only as wealthy as you feel, but as poor as I say you are

One of the fun things with Libertarians is that they are very fond of dispersed tacit knowledge. I happen to think this is an excellent idea. What we know is limited, but what we all know should be used to the furthest extent. It is why markets are useful, they amass knowledge.

This fine idea, that knowledge is finite and that wisdom is dispersed among many people, often runs up against the ideals of Libertarianism. For example, a great many people feel themselves poor, but compared to most who have ever lived nobody is poor. David Henderson expands:

106 billion humans have been born since Homo sapiens appeared about 50,000 years ago. That means that the richest one percent in history includes 1.06 billion people. There are currently 6.2 billion humans alive, leaving approximately 100 billion who have died. Who among the dead was rich by today’s standards? Not many. Royalty, popes, presidents, dictators, large landholders, and the occasional wealthy industrialist, such as Andrew Carnegie and Leland Stanford, were certainly rich. All told, it is difficult to imagine more than 20 million of these people since ancient Egyptian times. This leaves 1.04 billion wealthy alive today, or 17% of the world’s population.

When discussing something as palpable as poverty this relativism vanishes. Tacit knowledge is useless, wisdom is concentrated. You, me, all of us, are very lucky. We are all very rich people because someone we were once related to once suffered terribly.

Nevermind if one another’s specialist knowledge of suffering says otherwise. Nevermind if some of us feel like we are in poverty compared to all we can observe, a nice academic assures we aren’t in suc ha bad state.

I find this terribly funny. Because it just goes to show that people align their ideology with their prejudices, not vice versa.

(UPDATE 13.46pm 17th October. Just to clear up my meaning a little, I was rambling.)

Filed under: Economics, History, Politics, Society, , , , , ,

Stop blinding people with maths you bastard!

I’m not a big fan of Niall Ferguson, he did a lecture series at my uni that consisted of a preview of a television series he just made on a book he’d already written. He added a Q & A session, sure, but he was more evasive than illuminating.

Cost £1 million a year, value added… well hundred odd students didn’t have to buy his book at £12.62, so about £12,000? So, on top of his odious politics and his occasionally arguing in bad faith, he has annoyed me personally by sucking at the teat of the incompetent bureaucracy I employ. Hence, bastard. (UPDATE: £1,200, actually, plus, he didn’t even teach me rudimentary maths! And in a post discussing maths that really is embarrassing.)

John Holbo points me to Niall‘s (we’ve met, I’m allowed to call him that) latest screed is on how the Occupy Wall Street people have got it all wrong. Wall Street are just lovely, it is old, poor people who are the enemy, or something.

He concludes that they’re all smelly hippies (hippy punching? Check!) and that they should really join forces with the Tea Party to gut the welfare state (contrarianism? Check!) if only they realised that their futures are screwed and very impartial people think so too (appeal to mythical centre? Check! Ding Ding Ding! We have a winner!).

I’ll let Niall take it from here…

Let’s just remind ourselves of the report of the Trustees of the Social Security and Medicare trust funds back in 2007, which projected a rise in the cost of these two programs from 7.3 percent of gross domestic product to 17.5 percent by 2030. The trustees warned that to achieve actuarial balance—in other words, solvency—for these two programs would require (for Social Security) an increase of 16 percent in payroll tax revenues or an immediate reduction in benefits of 13 percent. For Medicare we are talking a 122 percent increase in payroll taxes or a 51 percent cut in spending.

This really gets on my nerves. In an advanced economy can a reasonably large productive economy support a significant, but not huge, inactive population? Yes, it is called taxing things and then giving the money to the poor and old people. What about an economy with a history of immigration and rapid productivity growth which is likely to see more immigration and rapid productivity growth in the future? Guess what, double yes.

These things aren’t too hard. Appealing to strange panels of experts to discuss exactly how much one particular service or charge must be altered sounds weird. That is because it is weird. Can we tax people then spend the money on other people? Yes. It really can be that simple.

Filed under: Economics, Politics, , , , , , , , , , , , ,

Alcohol doesn’t turn people into dickheads, dickheads turn to alcohol

I’ve always wondered why some people become such violent sods when drinking. My theory has long been that alcohol just brings out the more “authentic” you. So if you were violent when drunk, you were a violent person and used alcohol as an excuse. If you were promiscuous when drunk, you were a promiscuous person and used alcohol as an excuse.

Kate Fox (author of Watching the English, which should be required reading for everyone) has an interesting piece over at BBC offering a more subtle and more correct reading of why alcohol makes us act as we act.

To put it very simply, the experiments show that when people think they are drinking alcohol, they behave according to their cultural beliefs about the behavioural effects of alcohol… We become more outspoken, more physically demonstrative, more flirtatious, and, given enough provocation, some (young males in particular) become aggressive. Quite specifically, those who most strongly believe that alcohol causes aggression are the most likely to become aggressive when they think that they have consumed alcohol.

Our beliefs about the effects of alcohol act as self-fulfilling prophecies – if you firmly believe and expect that booze will make you aggressive, then it will do exactly that. In fact, you will be able to get roaring drunk on a non-alcoholic placebo.

Filed under: Society, , , , , ,

The Financial Times was once a paper of record – Elizabeth Rigby and Helen Warrell seem unhappy with that

So we have a profile of Theresa May, Home Secretary…

Theresa May is the head girl of David Cameron’s coalition. Famed for never putting a kitten-heeled foot wrong, the home secretary barely batted an eyelid this week when Ken Clarke rounded on her for claiming an illegal immigrant had avoided deportation because of his pet cat Maya.

It was a cat fight that the liberal justice secretary was doomed to lose, against a woman who has always done her homework and has the prime minister’s full backing to bear down on migrant numbers. Within hours, Downing Street had rallied to her defence, delighted at her crowd-pleasing attack on perceived abuses of the Human Rights Act. Mr Clarke had the backing of the Lord Chief Justice’s office, but he was still told to pipe down [my emphasis].

This spat is not interesting because two politicians had a difference of opinion, as is presented here by Elizabeth Rigby and Helen Warrell. This spat is interesting because one politician told the truth and one politicians made things up (or copied things made up by others) and the politician that made things up (or copied things made up by others) won the power struggle.

Ken Clarke was right to criticise Theresa May because she said something that was demonstrably untrue. It was, in fact, demonstrated to be untrue by her own department. The cat was “immaterial” to the reasons a certain Bolivian student was given leave to remain rather than reported.

Rigby and Warrell do not see fit to include this detail in their hagiography of Mrs May. They actually make light of the situation by closing with a pun that this is “just the sort of cat fight the party needs to keep the grassroots content.”

Real journalists would have pointed out that if the grassroots need falsehoods to keep the content then something is amiss at the Tory party conference. But it seems the Financial Times has decided it doesn’t need to employ real journalists anymore.

Filed under: Migration, Politics, The Media, , , , , , , , , ,

The top 1% is the right target #ows

Reflecting on the Occupy Wall Street Protests and the we are the 99% campaign, Matt Yglesias thinks that the top 10% of American’s represent a more salient target that the top 1%. The top 10% of Americans have certainly done well in the last 30 years of America’s age of inequality but I think it would be wrong to specifically target them.

Not only for ease of capturing a universalist rhetoric, but because the top 10% of wage earners aren’t necessarily incredibly wealthy. Here’s the chart Matt uses from Menzie Chinn’s Lost Decades charts:

The top 10% have certainly done significantly better than the bottom half of the income scale, but they haven’t reached anything like the dizzy heights of the top 1%. Inequality at the top is even more steep that inequality in the bottom 90%. Look at this graph from The New York Times to see what I mean.

I think it is easy to confuse income and wealth. Someone can be wealthy and not earn very much, and they can be poor and have just landed a lucrative job. In large part this is a wash, wealthy people tend to earn a lot and people who are not wealthy tend to earn meagre wages.

Social mobility is definitely stunted, both in the US and here in the UK, but people do tend to earn more the wealthier they are. So targeting the top 10% isn’t just about hitting the rich, it is also about hitting normal people in the 50s who have merely reached the top of their game.

When discussing who to campaign against you have to take into account part of a person’s identity will be defined by how much they earn over their lifetime, not how much they are earning at a particular moment.

So on one level it makes sense to target the wealthy top 10%, but not if it means taxing someone approaching retirement who will only earn that sort of wage for a few years. So that is why targeting the top 10% will fall down rhetorically, because a lot of those who will be targeted will be normal working class people who have just reached the top of their career ladder, a few years before stepping off.

The top 1% are less likely to be your average worker done well and are more likely to be plutocrats, financiers and those who have poisoned modern politics. That is where your red meat for riling protesters lies. Don’t target a District Manager for a Marks and Spencers, target Fred Goodwin and his flying chimp lackeys.

Filed under: Economics, Politics, , , , , , , ,

Curse you Luis Enrique!

Left under a post of mine at Liberal Conspiracy

I would love to her from someone who understands the theory better. Luis Enrique, are you there?

I can’t help but feel unwanted.

Filed under: Blogging, , , ,

So you fear printing money?

This is the sort of situation you’ll find yourself in. Low inflation and the possibility of (another) economic implosion of the scale not seen since (you guessed it) the 1930s.

Filed under: Economics, , , , , ,

Printing money is okay, we do it all the time!

A lot of people get very worried by printing money. We can trace this line of thought back to the great political economists of the nineteenth century like JS Mill, but it finds itself common on the left and right these days.

You can print yourself into hyperinflation, or even accelerating inflation which can eat into living standards and cloud relative prices. But you can find yourself in deflation by failing to print enough. It is this second problem we have been closer to.

It is sad that people need reminding that hyperinflation impoverished Germany but it was relatively mild reflation which pushed them towards fascism. It seems sensible to me to fear deflation more than inflation. Better yet to find the happy medium, where the economy operates at its potential without prices rising too quickly or people being left on the scrap heap of unemployment.

Unfortunately I don’t know where to get the data for the UK, the UK National Statistics website is a joke, but here is some data for the US showing the potential for disconnect between money and prices.

For two decades, money increases along with economic activity, prices increase more slowly (i.e. we got richer). We reach 2008 and the monetary base explodes but prices do not. In fact, prices fall slightly just as the monetary base grows at over 100% a year.

What does this tell us? It tells us that simplistic talk about “fake credit”, “titanic disasters” or “defy[ing] economic gravity” is very wide of the mark indeed.

Quantitative Easing causes a lot of confusion. Normally a central bank promises to print as much money as is necessary to pin short term interest rates at a level predicted to produce stable prices and full output.

Around the world, our last crisis was so severe that short term interest rates went to zero and stayed there. The central bank’s method for controlling prices and output was suddenly impotent.

QE is an extension of this normal promise to print and spend to long term debt because rates on short term debt have already been pushed as low as it is possible to go.

QE is far from ideal, in fact it is the least a central bank can do once rates hit zero. But it is the only option currently on the table because many people currently resist a central bank even doing this minimum because they seem not to care about unemployment.

If you support more active policy to help people then it has to be both through QE and after QE. Only by supporting a suboptimal policy will the space ever open up for something more efficient for boosting growth but that is less popular with central banking’s elite.

Filed under: Economics, Politics, , , , , , , , , , , , , , ,

No, no, no you fucking idiots

Dear Liberal Conspiracy,

We need more demand, of course it would be better if money was given to normal people but that isn’t on the cards. It would be better to target a nominal anchor like NGDP or a specific price level, but we have to work within the realms of reality.

QE is a politically feasible way to boost demand, which is flagging and will begin really suffering next year. Attacking Adam Posen, who cares about unemployment and siding with George Osborne, who doesn’t, is always the wrong position.

Yours sincerely,

LO

Filed under: Economics, , , , , ,

When NGDP is Depressed, Employment is Depressed

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