dagblog - Comments for "Larry Summers Is Bad with Money"

Thanks. Gotta keep pushing

Doctor Cleveland — Wed, 31 Jul 2013 01:56:31 +0000

In reply to Hey Cleveland, the NYT agrees

Thanks.

Gotta keep pushing back against the Rubinites. They never quit, no matter how wrong they are.

Hey Cleveland, the NYT agrees

Historiann — Tue, 30 Jul 2013 16:03:13 +0000

In reply to Larry Summers Is Bad with Money

Hey Cleveland, the NYT agrees with you: http://www.nytimes.com/2013/07/30/opinion/choosing-the-next-fed-leader.h...

They want Yellin.

Congress has weighed in on

trkingmomoe — Sat, 27 Jul 2013 18:34:52 +0000

In reply to Larry Summers Is Bad with Money

Congress has weighed in on this. They want Janet Yellen to head the Fed. I am a fan of hers for a long time. I agree.

Summers himself was one of

A Guy Called LULU — Sat, 27 Jul 2013 01:46:03 +0000

In reply to Larry Summers Is Bad with Money

Summers himself was one of Obama's leading economic advisers during the first term, and neither his advice nor Obama's first-term policy were effective in turning the Great Recession around.

That is the most relevant answer to the question raised by the sight of Summers' trial balloon floating around. If that answer was different then other evidence that he is a poor choice could be discounted.

By now everybody and their brother has weighed in on the idea of a Summers nomination, and the hostility is as palpable as the summer heat. (We already knew what everybody and their sister thinks about Summers.) [Eskow]

Richard Eskow also has a good write up on the subject and here is his excellent first paragraph tease.

Whoever said, “What you don’t know can’t hurt you” doesn’t know much about economics. That goes double for the nomination of Lawrence Summers to head the Federal Reserve. For all the ink that’s been spilled on the topic, there’s at least one surprise ending people don’t seem to be considering.

http://blog.ourfuture.org/20130725/summers-and-the-fed-a-surprise-ending

Yes, its dual mandate enacted

EmmaZahn — Sat, 27 Jul 2013 00:26:53 +0000

In reply to But in fact, the Fed is

Yes, its dual mandate enacted by Congress in 1977 when confidence in the Phillips Curve was as great as for it would later be for the Laffer Curve. The year after Milton Friedman won the Nobel Prize.

Here is the actual wording of their mandate:

"The Board of Governors of the Federal Reserve System and the Federal Open Market Committee shall maintain long run growth of the monetary and credit aggregates commensurate with the economy's long run potential to increase production, so as to promote effectively the goals of maximum employment, stable prices and moderate long-term interest rates."

But even if the Fed once believed it could fulfill that mandate, post-2008, doubts are surfacing:

What are the Federal Reserve's objectives in conducting monetary policy? (excerpts)

Following its meeting in January 2012, the FOMC issued a statement regarding its longer-run goals and monetary policy strategy. The FOMC noted in its statement that the Committee judges that inflation at the rate of 2 percent (as measured by the annual change in the price index for personal consumption expenditures, or PCE) is most consistent over the longer run with the Federal Reserve's statutory mandate. [...]

The maximum level of employment is largely determined by nonmonetary factors that affect the structure and dynamics of the job market. These factors may change over time and may not be directly measurable. As a result, the FOMC does not specify a fixed goal for maximum employment; rather, the FOMC's policy decisions must be informed by its members' assessments of the maximum level of employment, though such assessments are necessarily uncertain and subject to revision. [...]

In setting monetary policy, the Committee seeks to mitigate deviations of inflation from its longer-run goal and deviations of employment from the Committee's assessments of its maximum level. These objectives are generally complementary. However, under circumstances in which the Committee judges that the objectives are not complementary, it follows a balanced approach in promoting them, taking into account the magnitude of the deviations and the potentially different time horizons over which employment and inflation are projected to return to levels judged consistent with its mandate.

So how are they doing? Despite increasing their balance sheet fourfold since 2008, they have not managed to boost core inflation up to their 2% target nor reduce unemployment to their goal estimate of 6% and interest rates continue to hug the zero lower bound. They are in uncharted waters now and rowing as hard as they can just to keep inflation and interest rates out of negative territory.

But in fact, the Fed is

Doctor Cleveland — Fri, 26 Jul 2013 20:22:52 +0000

In reply to as if their mission were ONLY

But in fact, the Fed is legally charged to hold down both.

as if their mission were ONLY

EmmaZahn — Fri, 26 Jul 2013 19:34:10 +0000

In reply to I would go further. Not

as if their mission were ONLY to hold down inflation

It is. Why else would the Fed have any mission regarding unemployment.

the Phillips curve is a historical inverse relationship between the rate of unemployment and the rate of inflation in an economy. Stated simply, lower unemployment in an economy is correlated with a higher rate of inflation. [at least in the short-term]

I would go further. Not

Doctor Cleveland — Fri, 26 Jul 2013 18:52:51 +0000

In reply to Employment and inflation are

I would go further. Not everyone wants low unemployment and low inflation. Some members of the Fed Board, and arguably some Fed Chairs, have acted as if their mission were ONLY to hold down inflation, unemployment rates be damned. We've suffered from that one-sided focus over the past five years.

Employment and inflation are

Michael Wolraich — Fri, 26 Jul 2013 17:32:39 +0000

In reply to The WaPo on Summers pluses

Employment and inflation are the issues. Of course, everyone wants low unemployment and low inflation. The question is how low, and what are the relative priorities?

Yellen is an inflation "dove." In the 90s, she successfully persuaded the Federal Reserve Board that Greenspan's zero inflation target was too low. Her target of two percent is now Fed policy. More recently, she has argued that the Fed should even allow even higher inflation in order to reduce unemployment.

Summers has been mum on monetary policy--which is concerning in itself--but he is expected to be more hawkish than Yellen. He would probably hold inflation to two percent, regardless of the employment figures.

Thanks.

Flavius — Fri, 26 Jul 2013 13:08:56 +0000

In reply to Flav, it is good to see you

Thanks.