I believe that James Tobin suggested something similar many years ago.So where do we go from here? The only actor large enough to restore confidence in the US market is the US government. The current policy of quantitative easing by the Fed is a move in the right direction but it does not, as yet, go nearly far enough.
It is time for a greatly increased role for monetary policy through direct intervention of central banks in world stock markets to prevent bubbles and crashes. Central banks control interest rates by buying and selling securities on the open market.
A logical extension of this idea is to pick an indexed basket of securities: one candidate in the US might be the S&P 500, and to control its price by buying and selling blocks of shares on the open market.
Even the credible announcement that a policy of this kind was being considered should be enough to boost the markets and restore consumer and investor confidence in the real economy.
Critics will argue that this policy is dangerous socialist meddling. But I am not arguing that the government should pick winners and losers: only that it should stabilise a broad
basket of stocks. This policy would still allow poorly run firms to fail but it would not allow all firms to fail at the same time.
Wednesday, December 31, 2008
Open Market Operations in Equities
Tuesday, December 30, 2008
Elmendorf to CBO
Congressional leaders have named my long-time friend Doug Elmendorf to be the new head of the Congressional Budget Office. Congratulations to Doug, and kudos to Congress for the fine choice!Here is something about Doug that you won't see reported in most of the news stories: Many years ago, Doug was head section leader for Ec 10. Because of his broad experience teaching introductory economics, I once hired him and his wife Karen Dynan (now an economist at the Fed) to draft some of the end-of-chapter questions for the first edition of my favorite textbook. Many of those questions remain, sometimes in updated form, in the current edition. (Students may recall having to calculate the money supply in the imaginary economy of Elmendyn.)
Humor Session
The (first-ever!) American Economic Association humor session will take place Saturday Jan 3rd from 8-9 pm in the Hilton San Francisco (333 O'Farrell Street), rooms Golden Gate 1 and 2. The event is free and open to the public; Preston McAfee (CalTech) will be presiding, with speakers including Peter Orazem (Iowa State), Rob Oxoby (Univ of Calgary), and Yoram Bauman. There will also be an award for the funniest paper of 2008.
Monday, December 29, 2008
Sunday, December 28, 2008
Pigou in Congress
Congressman Bob Inglis joins the Pigou Club.A most welcome addition to the membership. The club is chock full of nerdy policy wonks. We could use a few more elected officials.
Update: An oil executive joins as well.
Saturday, December 27, 2008
FACE HUNTING ROUND THE WORLD
London, December 2008
Lindsey on Stimulus
Sounds good to me.Permanent tax cuts offer a much better option. The incoming chairman of the Council of Economic Advisers, Christina Romer, has estimated that the macroeconomic benefits of tax cuts can be two to three times larger than common estimates of the benefits related to spending increases. The relative advantage of tax cuts over spending is even clearer when the recession is centered on the household balance sheet. Some relatively minor changes, like making the current 15 percent tax rate on dividends and capital gains permanent, would not only help household cash flow, but also put a floor under equity prices much as their introduction did in 2003. This would help protect against further wealth destruction and balance sheet deterioration.
But the centerpiece of any tax cut should be employment taxes: in particular, a permanent halving of the current 12.4 percent Social Security payroll tax on the first $106,800 of wages, split evenly between workers and employers. The direct revenue effect of that would be a bit under $400 billion per year, roughly in line with the present quantitative needs of the economy. It also meets our three tests of effective stimulus.
First, the funds would flow directly to households through higher take-home pay and indirectly through a reduction in the cost of employment. Economic studies conclude that the benefits of a reduction in the employer portion of the payroll tax are ultimately received by employees. But the immediate effect would be an improvement in the cash flow of credit-starved businesses (as well as being a marginal incentive to keep
employment up).Second, the funds would be extremely timely, with the benefits hitting the economy with the first paycheck after the plan was implemented.
Third, by lowering the taxation of labor, the plan would help produce a higher-employment recovery than would otherwise be the case. Since the tax cut should be permanent to have maximum effect, the biggest challenge would be how to make up for the lost revenue once the macroeconomic need for fiscal stimulus had passed. In the short run, effective fiscal stimulus requires that government revenue drop, thereby enriching the private sector, and with the Treasury making the Social Security trust fund whole by way of intergovernmental bookkeeping. Longer term, however, spending cuts or a new source of revenue would be needed.
Given the agenda of the incoming administration, the best source of such funds would be a greenhouse emissions tax. It would be a much more efficient way of achieving the desired environmental objectives of the administration than any of the regulatory or "cap and trade" ideas now being considered. Such programs have failed in Europe since they are so easily gamed. Unlike regulations or cap and trade, moreover, an emissions tax can be phased in and calibrated as macroeconomic conditions permitted, specifically as the unemployment rate declined.
Update: More Pigou Club endorsements here and here.
Friday, December 26, 2008
Backus on Spending Stimulus
Thanks, Dave, for sharing your views.Greg,
I was surprised to see you mentioned as the only stimulus skeptic the Obama team could find. If you'd like company, let me add my name to the list.
I'd label myself, if not a skeptic, then at least ambivalent. It's not that I'm convinced stimulus is a bad idea, but that economics isn't a precise science: we don't know for sure that a stimulus package will cure what ails us. Here are some reasons for doubt, and I'm sure you and your readers have others:
- Hard to do. It's not easy to spend large amounts of new money quickly. Harder still to do it in a way that creates good value for society and doesn't bring out the worst in our politicians. (I can hear Jon Stewart on the Daily Show: "Where's Ted Stevens when we need him?")
- Bad timing. Right now, most forecasts call for continued shrinkage in the first half of 2009, modest growth in the second half, when the stimulus starts to come online, and faster growth in 2010, when spending hits high gear. This is, of course, the classic argument against countercyclical fiscal policy: it's hard to get the timing right.
- Small multiplier. Let us say that for every dollar of extra government spending, GDP goes up m dollars, where "m" is the multiplier. Undergraduate textbooks, including your favorite, sometimes suggest m is large. The evidence is fuzzy, to be sure, but to me it suggests a multiplier around one, maybe smaller. Even stimulus cheerleader Paul Krugman only claims 1.1. If that's the case, the impact of government spending (say 700b over two years) is barely enough to reverse the decline in GDP we expect to see over the next two quarters.
- Long-term budget issues. I don't spend much time in Washington, but I thought the mainstream view among government economists was that our retirement and health-care programs were likely to bust the budget over the next 2-3 decades. Recent directors of the CBO under both Republican and Democratic Congresses have made this point, and I hope I wasn't the only one listening. The US is not Argentina, but it still seems a little incongruous to advocate massive increases in spending when the long-term problem is paying for spending already on the
books.- It's the financial system, stupid. Japan in the 1990s is a Rorshach test for macroeconomists, so I can't claim everyone sees this as I do. But my take (borrowed from Anil Kashyap) is that Japan demonstrated that the real issue in financial crises is the financial system. If we don't fix it, no amount of fiscal stimulus will make much difference. That's one of the reasons I'm optimistic about the US right now: unlike Japan, we faced our problems, ugly as they were, and have acted decisively to correct them.
What would I do? I'd prefer to remain in my comfortable office at NYU, but if forced to make a recommendation, I guess I'd say the following: Go ahead, spend a few hundred billion over the next two years; it may help, especially if the economy performs worse than we expect. But spend it on things that have clear social value. At the same time, try to make some progress on the long-term spending issues built into our current retirement and health-care systems. That won't be nearly as popular as spending money now, but it's an opportunity to show some real leadership. And make sure you keep your eyes on the financial system: if the banks don't recover, none of us will. Good luck!
Best,
Dave
A Question about Learning Economics
Three observations that, I hope, add up to an answer:Dear Prof Mankiw,
First time e-mailer, long time reader of the blog.
I'm currently a Sophomore at University of Wisconsin-Madison planning to major in Economics having just completed the intermediate Econ courses there. During my spare time, I love to do what most other students probably would consider crazy, and just read economics books no matter what the viewpoint of the author is. I had my first Economics courses in high school taught by a Friedman disciple, my Intermediate Micro by another very Chicago school economist, and my intermediate Macro taught by (from what I was able to judge) a Neo-Keynesian.
Every time I've gone into office hours with these professors, I've always come away with the attitude of "I can definitely see their point". I have never felt like they forced their beliefs on me, which is a good thing. I fully admit that I'm a young foolish college student, so whenever these professors or teachers talk to me, I'm usually pretty open to whatever they say. I've gotten into some very spirited debates with my Macro professor, but it's always been completely respectful and very thought-provoking.
So I guess my question, although loaded, is this: What advice would you give to a college undergrad being exposed to so many different ideologies at the same time? I can go from being told by my ECON 301 (Intermediate Micro) professor that we should, for example, let the banks fail and let the market do it's work, and I can see his point. I can then go talk to my ECON 302 (Intermediate Macro) professor and he will say that it's ludicrous to not do SOMETHING regarding the financial crisis, and I can also see his point.
I know there is never a set in stone answer for what economic should dictate,but would you say that the way you see Economics today was slowly cemented as you progressed in your studies?
Thanks again, love your blog, happy holidays.
-[name withheld]
1. The current economic environment is a particularly hard time to learn economics. There are a lot of topics about which economists agree, but the diagnosis and best remedy for the current economic downturn are not among them. It is therefore no surprise that your econ profs express disparate views about the appropriate policy in the current environment. Don't read too much into this fact. I bet there are many other topics about which these economists would come to similar conclusions. Ask them about rent control, or international trade, or Pigovian taxes, for instance, if you want to find broad areas of agreement.
2. You are lucky that you have professors with different viewpoints. Your job, as a budding economist, is to learn from all of them. Ideally, at the end of the day, you should be able to understand and appreciate (although not necessarily agree with) each point of view. You should try to construct in your mind a debate between your Friedmanite professor and your Keynesian professor. What points would each raise, and how would the other respond?
3. As you come to grips with these various points of view, you will be in a better position to judge which you find most cogent. But don't expect to reach unequivocal positions easily. In my view, it is best to consider all knowledge as tentative. The best scholars maintain an open-mindedness and humility about even their own core beliefs. Excessive conviction is often a sign of insufficient thought, which in turn may be derived from a certain pig-headedness. Intellectual maturity comes when you can maintain the right balance between informed belief and honest skepticism. You sound like you are on the right path.
THE FACEHUNTER SHOW IS BACK!
Street-hunting-wise, here's my Old Continent schedule for the next weeks:
Dec. 27- Jan. 1.: Copenhagen
Jan. 2-15 : London
Jan. 16-19 : Stockholm (ELLE Galan)
Jan. 20-21 : Barcelone (Bread & Butter)
Jan. 22-25 : Paris (Men's Fashion Week)
Sydney, November 2008
Thursday, December 25, 2008
Wednesday, December 24, 2008
Tuesday, December 23, 2008
Monday, December 22, 2008
How Not to Stimulate the Economy
Case A: uses the money to give a lump-sum payment (such as a tax rebate) to Joe Average, who chooses to spend his free time sitting at home watching Mork and Mindy reruns.
Case B: uses the money to hire Joe to sit at home and watch Mork and Mindy reruns.
Case C: uses the money to hire Joe to sit at home and watch Family Feud reruns, which Joe does not enjoy quite as much as Mork and Mindy.
In all the cases, Joe will spend some of the money he gets on consumer goods and services, leading to a Keynesian multiplier. But those knock-on effects are the same in the three cases, so we can put those aside for now.
Let's begin by comparing cases A and B. These two scenarios are identical in terms of final allocations and economic welfare. Joe is doing the same thing, and all the money flows are the same. But note that the macroeconomic statistics would be different. In Case B, Joe is employed producing a government service. If we used standard data to compare Case B with Case A, Case B would show more hours worked and a higher Gross Domestic Product.
Now look at Case C. It has the same employment and GDP as Case B, but welfare is strictly lower. Joe is, after all, less happy watching Family Feud. Comparing Case C with Case A, therefore, we see greater employment, greater GDP, and lower welfare.
Usually, GDP is a reasonable proxy for economic well-being, so more is better, but that is not true in this example. Part of the problem here is that GDP includes government purchases at cost. If the government hires people to produce stuff that is worthless, that stuff is included in GDP just as much as if the government buys something valuable. When calculating GDP, the national income accountants do not pass judgment on the social utility of government spending. Anyone concerned with economic well-being has to go beyond thinking about GDP.
The moral of the story: If the government spends a fiscal stimulus package on goods and services without much public value (as in Case C), it could well stimulate the economy as measured by macroeconomic aggregates but leave the participants in the economy worse off (compared with a feasible alternative, Case A). Avoiding this trap requires that the government spend taxpayers dollars only those items that pass a strict cost-benefit test. That is hard to do quickly. Willy-nilly spending is a good way to stimulate the economy only if the outcome is judged by the wrong metric.
Sunday, December 21, 2008
Advice for the Generous
I doubted that I knew enough about the topic to offer a good answer, so I passed the question on to my Harvard colleague, development economist Michael Kremer. Here is his reply:Dear Dr. Mankiw,
As I draft my extensive Christmas list of unneeded items, my conscience calls me to add a favorite charity or two, which my family members could consider gifting in my name.
Still, I know that not all charities are as efficient (or proficient) at their giving. For example, I remember reading (in Easterly's White Man's Burden, I think) that there have been many less-than-perfect results in distributing free bed-nets, arguing that they are optimally delivered subsidized rather than free. While I think bed-nets are a great avenue to donate to the world's poor, there are many different organizations where someone can purchase them, and I, for one, have no idea who is the best at it.
Do you know any for market-friendly charitable-giving groups, who give bed-nets or anything else? If so, could you please post on your blog? (I think many students and other young people are interested in giving to national and international organizations but know little about how the money flows to the people.)
I hope my request isn't too vague. Happy Holidays!
Chris
Thanks to Chris for asking the question and to Michael for answering it. I hope this information helps direct some charitable giving in the right direction.Dear Greg,
Sure, I would be happy to make some recommendations.
If readers want to donate for nets, one good organization I have supported in the past is here. TamTam provides nets free at clinics. Personally I think this approach makes sense because charging dramatically reduces use, free distribution can help encourage mothers to come to antenatal clinics, and, like vaccines, insecticide treated nets can help interfere with disease transmission creating positive externalities. For some evidence on the first issue, see this paper.
One of the best buys out there is treating kids for worms. Two billion people have intestinal worms worldwide, including 400 million school-children. The medicine costs pennies per dose. Because the medicine is cheap and safe, but diagnosis is expensive, the World Health Organization recommends mass treatment in schools in areas of high prevalence, which can keep total costs per treated child to $0.25.
Treatment not only has medical benefits but helps kids stay in school longer. Ted Miguel and I estimate benefit/cost ratios of more than twenty to one in Kenya. Hoyt Bleakley estimates that the Rockefeller Foundation's deworming campaign in the US South in the early twentieth century added two years to average education in affected areas and that worms accounted for 20% of the income gap between the US North and South at the time.
Based on the evidence, several economists, including Esther Duflo, Kristin Forbes,and me, are involved in, and have donated to, a new group called Deworm the World. Information is available here. There is a donate button which explains how people can give.
Deworm the World will soon be a tax exempt 501(c)3 organization, but not before either the holidays or the end of the tax year. If readers are from the US and want a tax deduction, they can support Save the Children's school health efforts by clicking on the link above and going to the donate box, or if they want to more directly help Deworm the World, they can donate to Innovations for Poverty Action by going to this link and noting that the donation is for Deworm the World in the comment box.
Thanks for writing,
Michael
Saturday, December 20, 2008
Another Stimulus Spending Skeptic
I read your blog on a daily basis and I've noted your skepticism about the monstrous bailout package being considered by the incoming Obama administration. In reading all of the econblogs I can find, I'm struck by the lack of practical knowledge both there and within the circle of advisers Obama has assembled.
I work for the DoD and when the Department of Homeland Security was established,we helped them with many things, not the least of which was contracting. To make a long story short, you cannot juice up a government agency's budget by tens of billions (or in the case of the stimulus package, hundreds of billions) and expect them to be able to process the paperwork to contract it out, much less oversee the projects or even choose them with any kind of hope for success. It's like trying to feed a Pomeranian a 25 lb turkey. It's madness.
It was years before DHS got the situation under control and between the start and when they finally assembled a sufficiently capable team of lawyers, contracting officials, technical experts and resource managers, most of the money was totally wasted. Now take the DHS situation and multiply it by 20 and you've got the Obama stimulus package. Even if they hand the money to existing governmental agencies, the situation will be the same. Those existing agencies are working full time administering the
budgets they have. They can't just add a zero at the end of each contract and be done with it.Lastly, I've seen no business case analysis for this investment. I've seen lots of people referring to models and charts and graphs and history, but I've seen no analysis indicating that any of this will give you even a modest ROI....
Stop looking at models and equations and theoretical constructs for a while and look at the practical considerations of the stimulus package. I've been doing this sort of thing for quite a while and I'm convinced it's doomed from the start. If they feel the need to blast a trillion dollars into confetti, then tax cuts would make the most sense. Even if the public used the money to pay down debt, that would be a good thing as it would transfer the debt burden from the consumer to the government making the consumer feel a little bit like spending again.
Let the Rent Seeking Begin
The Association of Zoos and Aquariums (AZA) today called for shovel-ready zoo and aquarium infrastructure projects to be eligible for Federal stimulus funding....Many zoos have their roots in the Great Depression, when the Federal Work Projects Administration (WPA) helped build many zoos across America.Of course, this lobbying is part of the political process. Whether the AZA gets the money it wants for new zoos will be up to the new administration and Congress. I am sure that the Obama transition team is now carefully evaluating many hundreds of billions of dollars of proposed spending projects and will, over the next few weeks, determine precisely which of these pass a cost-benefit test.
As for me, I think dropping money out of a helicopter is looking better and better. (Or, more seriously, consider my federalist fiscal stimulus.)
Friday, December 19, 2008
#466: see you in 2009.
via absolutely beautiful things.
the big picture.
to wrap up this year (and as i embark on a 2 week hiatus from blogging), i plan to reflect on the past 12 months and think of...
the risks i've taken, the mistakes i've made, and the joys i've experienced.
to become a better person ...isn't really a goal per se.
but that's ok.
because that's what i aim to be, year after year. as defined by me and those i admire.
***************************************
as for the wedding thing...and this blog...
my heart just bursts with gratitude when i think of what it's become, what it's provided and what it's taught me.
and i sincerely thank you for taking this journey with me.
planning a wedding isn't a notable goal in the grand scheme of things. i mean. is it even really a goal.
but i believe that some of the learnings and realizations many of us have experienced along the way can be translated into viable big picture lessons. life lessons that reach far above and beyond just planning a wedding.
and to say it has for me would be somewhat of an understatement. melty, velveeta cheese. but true.
so xoxo times a mil and cheers to more learnings and realizations together in the future.
see you in 2009.
*tto*
Thursday, December 18, 2008
Stimulus Spending Skeptics
Obama advisers, including Christina Romer and Lawrence Summers, have been contacting economists from across the political spectrum in search of advice as they assemble a spending plan that would meet Obama's goal of preserving or creating 2.5 million jobs over two years....Only one outside economist contacted by Obama aides, Harvard's Greg Mankiw, who served on President Bush's Council of Economic Advisers, voiced skepticism about the need for an economic stimulus, transition officials said.Skepticism, rather than unequivocal opposition, is the right word. When contacted, I said the same things I have been saying on this blog: that monetary policy is not out of ammunition, and that tax cuts are potentially more potent than spending increases. I could have added that a spending-based stimulus to address the current short-term crisis might lead to a long-term increase in the size of government, but I doubted that concern would sway Team Obama. In general, I think economists need a large dose of humility when evaluating alternative proposals to deal with the current downturn, as there is still a lot we do not understand.
I am sure I am not the only person in the economics profession skeptical of spending increases to stimulate the economy. See, for example, GMU economist Tyler Cowen. If the new administration wanted to find more skeptics of stimulus spending among professional economists, I could have come up with some possible candidates for them, but the Obama economists probably already know who those likely skeptics would be.
By the way, House Republican leader John Boehner is compiling "a list of credentialed American economists who would like to add their voices to the list of stimulus spending skeptics." Click here to learn more.
Who's asleep?
A smart but snarky friend points out:President-elect Barack Obama says the government has been "asleep at the switch" when it comes to overseeing the nation's financial system.
He says Americans are "feeling frustrated that there's not a lot of adult supervision."
You might appreciate the irony that Citigroup's primary federal regulator is Timothy Geithner.
#465: oh em gee.
step-by-step instructions on once wed. (twice in one day. seriously, emily's awesome.)
imagine all the wonderful table conversations that are waiting to be had around these rock candy (!!!) centerpieces.
"i wonder if this is crystal."
"maybe they're rough cut diamonds."
"i don't know why but i feel like licking one."
"it tastes like candy."
"sweet."
"dude."
oh. and i've also decided to DIY our guys' bouts.
inspired by the uber crafty chelsea of oh my deer.
p.s. i didn't know i would end up wanting to DIY so much. but with 5 months left, and having seriously caught the crafty bug, i'm more than ok with taking these on. in fact, i'm really excited to have found these projects...projects that will definitely help us make the wedding more "us". the aesthetic as it is right now (aka BLANK) leaves much to be desired...so i'm hoping these little handmade bits will infuse a whole lot of us-ness into the day.
it's getting personal.
#463: garland love.
via frolic.
maybe i can make my own version in shades of white. or something.
edit: closed this post too soon.
because here's another beautiful garland that i can make.
via once wed.
********************************************
i've decided. it's garland day everyday until i decide which garland to start working on for the ceremony space. and of course, your two cents is always appreciated.
this is a DIY project i can get behind. can't wait.
Two Views of Housing Policy
Recent news articles suggest that the Treasury Department is considering a plan to offer a 4.5% mortgage for home buyers for a period of time. Let's hope it does. It would help arrest the decline in house prices that is at the base of the ongoing financial crisis and recession.Ed Glaeser and Joe Gyourko:
Encouraging everyone to make highly leveraged bets on housing was patently a mistake. Housing policies of the past also erred by aiming at amorphous, often contradictory objectives, including higher homeownership rates, more affordable housing units and, most recently, higher prices. Those policies then mistakenly applied the same policy medicine to every housing market, whether housing was abundant and inexpensive or scarce and unaffordable. The problems of old-style housing policy are well illustrated by the unwise proposal being considered to provide subsidized loans to home buyers at 4.5 percent interest.
Art Laffer agrees with Al Gore
The Obama team's chatter about creating jobs in alternative renewable energies is hollow to say the least. Here's why: Any serious attempt to reduce carbon emissions must ultimately rely on a very large tax on the use of fossil fuels. And a very large tax on fossil fuels as an add-on to the taxes we already pay would drive the economy deeper into the ground -- with or without alternative renewable energy jobs.
The only real solution is Al Gore's proposal to offset a carbon tax dollar-for-dollar with either an income or payroll tax reduction. If a carbon tax increase were offset dollar-for-dollar with an income tax rate cut, I for one would strongly support the policy. The economy would benefit because the progressive income tax does far more damage than a carbon tax would, and we'd use less oil. It's a win-win situation. Yet this perspective appears to be totally outside the Obama team's ken.
Wednesday, December 17, 2008
Trade: Not an Obama Priority
This was what worried me last March.Saying that he has come to the realization that trade is not the highest priority for the incoming Obama administration, Rep. Xavier Becerra has decided not to accept Barack Obama's offer to be United States Trade Representative, according to an interview the California Democrat gave to the editorial board of La Opinion, a Spanish-language newspaper in Los Angeles....
Becerra said, "My concern was how much weight this position [U.S. Trade Representative] would have and I came to the conclusion that it would not be priority No. 1, and perhaps, not even priority No. 2 or 3."
Update: A reader suggests that I misinterpreted this story. If trade had been a priority, the reader suggests, it would have a renegotiation of trade agreements and a retreat from free trade. So putting trade on a back burner is then good news.
Perhaps. But I suppose this means that Joe Biden will not be following in the footsteps of Al Gore, who as veep defended the Bush-negotiated NAFTA on nationwide TV. Recall that there are still several pending free trade agreements, including those with Colombia and South Korea. The incoming adminstration would boost business confidence, and maybe investment spending as well, if it made a clear commitment to get these treaties passed and to continue pushing for more open markets.
Update on Rue la la
Here's what you do:
1. Go to www.ruelala.com/gift
2. Enter my e-mail: preppywedding@hotmail.com
And WOWSA. You get a 10 dollar credit.
Thanks to our friends at rue la la.
#461: the aisle.
via pink by echo.
this is what i will be working with. well, minus the decorations.
i just did a quick 2-minute brainstorming session and had the following thoughts:
*no aisle
*no loose petals
*no christmas lights
*could they move that bust on the mantle
*if not, what could i cover it with
*hang ribbon or mini banners criss-crossed on the chandeliers
*or hang pomanders on the chandeliers
*candles on the ground seem dangerous
*so maybe put candles on the mantle, if any at all
*maybe no decorations would work best.
those of you who had an indoor ceremony setup, and particularly in dimmish lighting, how did you make it work for you?
#460: continuing the money talk.
if you think you're in the latter category and could use some tips as you plan your wedding, give these a read:
1) ...via perfect bound.
2) ...via manolo for the brides.
Crises and Government
Click on the figure to enlarge.The above figure (reprinted from my favorite textbook) shows government revenue as a percent of GDP. The most noteworthy feature of these data is the substantial growth of government from 1929 to 1945. It is easy to understand why the size of government grew so much during this period: The nation was responding to the crises of the Great Depression and, especially, World War II. But what is noteworthy is that while these crises were transitory, the increase in the scope of government was permanent.
This historical episode is one reason why advocates of limited government are rightly worried about the fiscal stimulus package that the incoming administration is going to propose. Rahm Emanuel, the new White House chief of staff, is reported to have said, "You don't ever want to let a crisis go to waste: It's an opportunity to do important things that you would otherwise avoid." It is not entirely clear what he meant by this. But one interpretation is that he wants to use a temporary crisis as a pretense to engineer a permanent increase in the size of government.
Here is one question reporters should focus on when evaluating the proposed plan: Five or ten years from now, when the economy is presumably at some normal level of employment and growth, what will the federal budget look like, as evaluated by the budget deficit and tax revenue as a share of GDP?
----
Update: Russ Roberts emails me that "Robert Higgs's Crisis and Leviathan is devoted to the relationship between the size of government and crisis." Thanks, Russ, for the reference.
Tuesday, December 16, 2008
#459: money honey.
maybe it's because we're going to need another car in less than 2 months.
maybe it's because we're soon going to be legally responsible for each other's financial well being.
...but i'm super motivated to review all of our savings, retirement plans, credit cards, student loans, etc. i'm planning to discuss with the fiance tonight and i'm actually really looking forward to it.
during our annual christmas dinner last week, a friend shared that she and her husband use separate checking accounts along with a joint savings account. the husband is responsible for the major bills like rent and utilities. they are each responsible for their own car and insurance bills. and then they both contribute any excess to the joint savings account.
back when i was actually making money, we were headed down a similar path. we both contributed to a joint checking and paid all of our joint expenditures (meals, vacations, etc) through that account. we each paid for our own cars and insurance and also had our own separate retirement, investment, and savings accounts.
i thought that's how we would keep things. but not so.
because now that my income structure has changed (as in, been whittled down closer to zero), that process no longer works. we now deposit both of our incomes to a joint checking and disperse funds to a joint savings twice monthly. all of our bills (his, mine, ours) are now jointly paid out of the...joint checking.
i no longer have a 401k to contribute to...so we'll have to talk about setting up a separate IRA for me.
we have slightly different philosophies when it comes to the market (i'm fairly aggressive and like to experiment...he's conservative) so it might be in our best interest to keep building our investment accounts separately.
ok, now i'm just babbling. too much sugar.
at the end of the day, no matter what we decide to do with all of our accounts, i'm glad the fiance and i can talk very openly about money. we have different strengths and weaknesses when it comes to managing finances and i think (AND I HOPE AND I PRAY) that with continued transparency, we will always be able to resolve money issues logically and adeptly.
i keep hearing that MONEY (especially after buying a house, having kids, [insert additional financial burdens here]) creates all sorts of problems in relationships...so i'm banking on our open communication (pun anyone?) to keep us from falling into that trap.
The Next Round of Ammunition
Notice this passage in the Fed's press release (emphasis added):
The Federal Reserve will employ all available tools to promote the resumption of sustainable economic growth and to preserve price stability. In particular, the Committee anticipates that weak economic conditions are likely to warrant exceptionally low levels of the federal funds rate for some time.The phrase "for some time" is aimed at managing expectations in order to keep long-term interest rates down.
The next step for the Fed is to drop the "price stability" rhetoric. The Fed has never been truly committed to stable prices. After all, inflation during the Volcker-Greenspan era averaged about 2 to 3 percent. The Fed could have lowered inflation to zero if it had wanted. Now that zero, or even below zero, is a possibility, the Fed needs to convince people that we are going back to the normal inflation rate of 2 to 3 percent.
Let me suggest this wording for the Fed's next press release:
The Committee recognizes that moderate inflation would be desirable under the present circumstances. In particular, the overall level of prices a decade hence should be about 30 percent higher than the price level today. The committee anticipates keeping the stance of monetary policy sufficiently accomodative to achieve that degree of inflation over the coming decade.That is, even if the Fed cannot reduce nominal interest rates, it can reduce real interest rates by committing to a modest amount of inflation.
Some would view this as a radical change in monetary policy. In some ways, it would be. Given how weak the economy is, however, a bit of radicalism may be called for. I am more comfortable having the Fed commit itself to modest inflation than having the federal government commit itself to a trillion dollars of new spending. The more we can rely on monetary rather than fiscal policy to return the economy to full employment and sustainable growth, the better off future generations of taxpayers will be.
The abandonment of "price stability" would be the modern equivalent of Roosevelt's abandonment of the gold standard. Of all the things that Roosevelt did to get the economy out of the Depression, jettisoning the gold standard was the most successful. Today, monetary policy is fettered not by gold but by fear of inflation. Perhaps it is time is get over that fear, at least for a while. As Jim Tobin said in an earlier era, there are worse things than inflation, and we have them.
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Update: A reader points out to me that Paul Krugman seems miffed that I failed to cite his contribution to the large literature on expectations management by the central bank. Sorry, Paul. I actually do like Paul's paper on the topic quite a lot, and I cite it in my intermediate macro text when I discuss the liquidity trap (see footnote 5 on page 325 of the 6th edition).
It is funny. For academics, it is an occupational hazard to feel that your work is insufficiently cited. I had always assumed that the feeling would go away after winning a Nobel prize. I guess I was wrong.
Chu and Pigou
N.B.: NEC Director Larry Summers is also a club member in good standing. Will the energy secretary and NEC director manage to convince the president-elect to change his mind? Stay tuned.In a sign of one major internal difference, Mr. Chu has called for gradually ramping up gasoline taxes over 15 years to coax consumers into buying more-efficient cars and living in neighborhoods closer to work.
"Somehow we have to figure out how to boost the price of gasoline to the levels in Europe," Mr. Chu, who directs the Lawrence Berkeley National Laboratory in California, said in an interview with The Wall Street Journal in September.
But Mr. Obama has dismissed the idea of boosting the federal gasoline tax, a move energy experts say could be the single most effective step to promote alternative energies and temper demand.
Monday, December 15, 2008
#458: yes or no.
as in...let's say you're traveling from the states to the middle east...in oh, let's say, 5 days. like, would you wear your e-ring or leave it behind.
#457: lovely lady lunch.
side note: the "my water broke!" game was a HUGE hit. thank you anonymous commenter. i highly recommend it. little babies can be found at your neighborhood michaels. sounds wrong...but it was oh so right.
happy monday.
