Left Outside

Young Earth Creationism: I can’t believe some people believe this crap

Via Krugthulu, Marco Rubio’s isn’t sure how old the planet is:

GQ: How old do you think the Earth is?

Marco Rubio: I’m not a scientist, man. I can tell you what recorded history says, I can tell you what the Bible says, but I think that’s a dispute amongst theologians and I think it has nothing to do with the gross domestic product or economic growth of the United States. I think the age of the universe has zero to do with how our economy is going to grow. I’m not a scientist. I don’t think I’m qualified to answer a question like that. At the end of the day, I think there are multiple theories out there on how the universe was created and I think this is a country where people should have the opportunity to teach them all. I think parents should be able to teach their kids what their faith says, what science says. Whether the Earth was created in 7 days, or 7 actual eras, I’m not sure we’ll ever be able to answer that. It’s one of the great mysteries.

At one level, this shows the Republican’s anti-science at its worse. The Christian right doesn’t see science as a path to knowledge, merely as another hermetic cult with its own competing creation myths. This is the key to why this young eartherism is a problem.

On another level, it shows the chutzpah of the Republicans. Of course being scientifically illiterate has an impact on the economy! The economy is more or less science in action, or at least the application of things that haven’t failed yet, which is more or less what science is.

This should be worrying for everyone involved (which sadly is everyone) because we’re already 13 days into the 2016 campaign, and this guy is in the front of the Republican pack.

Filed under: Politics, Society, ,

Competitive Devaluation #ftw to save the Eurozone

Monetary policy is confusing, but one thing most people understand is currency devaluation: Make your currency cheaper and foreigners will buy lots of stuff from you generating jobs and growth. The two are largely synonymous but not a lot of people understand that.

One person who I thought would understood that is renowned macroeconomist and economic geographer Paul Krugman. So even though I’m on his turf, and this post brings me directly into conflict with rule one, I’m going to plough on regardless. Today he expresses some disbelief towards the idea that a devaluation of the Euro would be feasible:

Jeremy Siegel echoes a lot of what some of us have been saying for years about the infeasibility of internal devaluation, but then argues that the answer is devaluation of the euro as a whole. Um, against whom?

He goes on to argue that neither Japan, America nor the developing world can provide the stimulus Europe needs as each suffers from various degrees of a depressionary malaise. But elsewhere he has called for more monetary stimulus to help resolve the Eurozone crisis:

I’d still like to imagine that next week Mario Draghi, newly installed as ECB president, will suddenly reveal himself as a supporter of quantitative easing and a 4 percent inflation target, not to mention open-ended lending to crisis countries.

Think of it this way: Krugman may be correct that Japan, US, UK etc. could not tolerate a cheaper euro, but this is logically seperate from saying the ECB shouldn’t try and devalue. This is because there are steps other Central Banks could take to prevent a cheaper Euro from negatively impacting them. Imagine the ECB buys lots of American, Japanese and British bonds in an attempt to devalue the Euro to boost growth. In that case, the Fed, BoJ and BoE could do the opposite and buy the bonds of Eurozone countries.

Sound familiar? It should. Because you would have just instigated an international quantitative easing programme, with each country buying debt from another; more QE is just what Krugman suggests is needed of Mario Draghi in the above quote. It is an odd way to organise it, but the mechanism behind it would be very similar. The currencies wouldn’t exactly devalue against one another, but they would devalue against everything else.

The ECB is a monetary superpower, much like the Fed. If it tried to devalue by encouraging a devaluation other countries would have to react with more expansionary policies of their own. When the Fed was too inflationary through the 1970s it exported it around the world, much as its tight policy was exported in 2008. All the main thing an attempted ECB devaluation would acheive would be to export more expansionary policy around the world, something sorely needed.

Still not convinced? Lets look at some history. Below is a graph I cribbed from Brad DeLong which shows the dates at which countries left the Gold Standard and the dates at which they began their recoveries.

The abandonment of the Gold Standard allowed for a country to revalue its currency.  One of the thing which prompted countries to abandon the Gold Standard was that other countries had done so first, expansionary policy was exported just as contractionary policy was exported prior to 1930. In a sense every country tried to devalue against all the others (the sequence of events and mentality of the Gold Standard is discussed here further).

Since every country cannot actually devalue against all the others what instead happened is that each national currency devalued against most other goods, in other words each country’s price level and real production began to converge (and eventually surpass) pre-depression levels. The same would probably occur were the ECB to seriously try to devalue the Euro today.

Bringing us back to the start, Krugman thinks that the EU, UK, US, Japan, and much of the rest of the world need more demand and yet pooh poohed a policy which would deliver it both directly within the Eurozone and indirectly through prompting policy changes abroad. To be honest, Krugman’s incredulity leaves me a little confused. Even if exchange rates changed not one iota, so long as each country maintains the policy described above demand would increase across the world, which is exactly what he wants.

_____

UPDATE: Huh?! I’m having trouble parsing this. Brad DeLong links approvingly to the Krugman piece above saying that there’s no point trying to devalue, countries just need more expansionary policy, contra my point that devaluation is expansionary policy. But he also approvingly links to a paper on countries abandoning the Gold Standard (by Eichengreen again, as above) that says a more aggressive policy of competitive devaluation during the Great Depression would have been even more beneficial for the system as a whole compared with actual policy, because it would have been more expansionary in the way I described. [1]

A Euro devaluation which was met by totally passivity by the Fed, BoE and BoJ may have negative effects on net (although given the fragility of the Eurozone anything which helps stabilise it might be expansionary by whit of improving financial stability). Neither Brad nor Paul think the world’s central banks would be passive if faced with a policy of competitive devaluation from the ECB so the two arguments presented by Brad are mutually exclusive, not complementary, yet he uses one to support the other…

[1] Although I’d not read that 1986 paper before, I appear to have absorbed its lessons by osmosis, probably through reading Brad DeLong’s excellent blog come to think of it.

UPDATE the SECOND: Matthew Yglesias has written the exact same post as me, different words, but almost an identical structure. but with one difference, he’s gone soft on Krugman’s assumption of central bank passivity, which we know he thinks is a poor assumption in other situations.

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

Nota Banquero sounds a lot like Notenbanker

I’m very sympathetic to the idea that the peripheral Eurozone countries should cut loose and devalue their new currencies to regain competitiveness and aid recovery. Krugman here half-recommends a quick default and devalue solution for countries running a primary surplus (that is, only borrowing money to cover the interest payments of previous loans).

The basic logic is one which I adhere to. The European Central bank has caused a debt problem to be seriously exacerbated by an aggregate demand problem, a new national central bank in control of its own currency (Esnewdo etc.) could boost demand through an adequate devaluation.

But there is no guarantee that such a devaluation would be adequate, or that a new central bank would act aggressively enough. To a degree the newly empowered Central Bank would have no choice, markets would force it to devalue, but much commentary assumes they would also force the bank into the accommodative policy, this need not be so. Many countries have voluntarily maintained too tight monetary policy for too long.

The cult of the credible central banker would stay the hand of any newly independent central bank. The logical and sensible point that a central bank must not behave recklessly or unpredictably has been become a dogma. Modern central bankers have become overly concerned that any departures from fighting inflation could lead easily to inflation expectations becoming “unanchored“, potentially leading to hyperinflation.

The political pressure to boost demand for a periphery Central Bank with its own currency would be intense. But this would only intensify the professional and institutional pressure on Central Bankers to resist these calls to retain their “credibility”; Interest rates may remain too high, or the bank may signal its hawkishness at any sign of demand picking up.

Devaluation without a change in the culture and prescriptions of central banking could lead to the worst of all worlds for the peripheral countries of Europe. Their economy could remain depressed and uncompetitive due to central bank stubborness but their external burden would have increased because their national, or at least, private debts remain denominated in much more expensive Euros.

Many countries have the option of following the Swiss and Swedish in devaluing but so far the US, UK and Japan have all refused. Britain today ignores opportunities to increase demand using monetary stimulus just as we suffered all through the 1920s because we chose to overvalue our currency. I fear much of southern Europe could find itself in the same situation.

In addition to this cult of the central banker, it may be that Steve Randy Waldman is correct and that depression is a choice. He argues that because of demographic pressures interest rates are naturally quite low, and because there are lots of old people who live off fixed income there are institutional problems to getting enough stimulus because they fear their income will be inflated away.

The low interest rates make normal monetary policy hard and the political constituency make unconventional policy too difficult to employ. Hence nations, or currency zones, “choose” depression. Demographic pressures in Southern Europe are similar to those in Japan and the elderly are much more powerful in Italy than in the UK or the US where policy also remains too tight.

The combination of political constituencies who are threatened or think they are threatened by looser monetary policy and a cult which treats loose monetary policy as a dangerous barbiturate may mean that even an independent currency may not be enough to pull the periphery of Europe out of its doldrums. The institutional constraints which have helped create the current Eurozone crisis will outlive the euro and must be considered in any rescue plan.

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

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, , , , , , , , ,

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, , , , , , ,

Similarities abound between Meatloaf and Angela Merkel #gfc2

Apropos of Krugman and Wolf, here is some light entertainment on the prospect of saving the Eurozone.

Meatloaf would do a lot to help save love, but like Angela Merkel he draws the lines at that

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

When NGDP is Depressed, Employment is Depressed

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