tag:blogger.com,1999:blog-582368152716771238.post8229857951717072538..comments2024-03-29T04:41:56.077-05:00Comments on The Grumpy Economist: Who is afraid of a little deflation? John H. Cochranehttp://www.blogger.com/profile/04842601651429471525noreply@blogger.comBlogger45125tag:blogger.com,1999:blog-582368152716771238.post-61436271912163419582017-04-18T14:00:17.040-05:002017-04-18T14:00:17.040-05:00can anyone summarize the above topic?can anyone summarize the above topic?Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-80210165209767278122014-12-15T01:32:36.397-06:002014-12-15T01:32:36.397-06:00People may see deflation as a positive because the...People may see deflation as a positive because the value of money increases. However, the issue with deflation that maybe is not as obvious is that deflation can lead to periods of high unemployment, since people might be discouraged to spend, with goods and services becoming cheaper in the future. Just something to put out there.Jordan Fnoreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-62307765542530031452014-12-15T01:04:33.597-06:002014-12-15T01:04:33.597-06:00People may see deflation as a positive because the...People may see deflation as a positive because the value of money increases. However, the issue with deflation that maybe is not as obvious is that deflation can lead to periods of high unemployment, since people might be discouraged to spend, with goods and services becoming cheaper in the future. Just something to put out there.Jordan Fnoreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-66835631960865118712014-12-14T11:10:12.439-06:002014-12-14T11:10:12.439-06:00You are missing an important point there: technolo...You are missing an important point there: technological progress. If you consider falling prices due to improvements in production processes and facilities, business does not necessarily cut into its own profit margins (as long as costs fall at a higher rate than prices). <br /><br />In this context it is important to understand that there are different types of deflation depending on wheter it is triggered from the demand side or from the supply side. For further information check out this<a href="http://principles-of-economics-and-business.blogspot.com/2014/12/macroeconomics-deflation.html" rel="nofollow">link</a>.Johnhttp://principles-of-economics-and-business.blogspot.comnoreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-8553632002701537752014-11-21T01:59:31.344-06:002014-11-21T01:59:31.344-06:00Also, when talking about deflation, the effects de...Also, when talking about deflation, the effects depend heavily on the cause. If deflation is a result of technological progress, it is positive. Everybody has more money and more value (well, except those who haven't switched from the old technology and those who produce it, but that's standard movement in the economy). If deflation is the result of some one-time measures or series of clear measures, economy and our predictions have to adjust to those measures, but deflation is just a statistical point, not something good or bad for the economy (think of Italy this summer - the deflation there was the result of their telecoms, right after last series of EU-mandated cuts in roaming prices). If deflation is the result of inadequate demand, that is a big problem.<br />Any analysis of deflation that does not focus on only one of the causes is wrong, and even intellectually dishonest. <b>(Note: I don't have WSJ access and haven't read the article, so this comment has nothing to do with Mr. Cochrane's article, but with general tone of various articles I've read on the web.)</b>Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-22151603395734852752014-11-21T01:39:03.929-06:002014-11-21T01:39:03.929-06:00One thing where I see most economists err, a lot:
...One thing where I see most economists err, a lot:<br />Economy is generally very stable system. Especially developed Western economies. It needs either extreme shocks or long-term severe mismanagement to throw it off so much that it enters into negative feedback loop and can't stabilize. So, all the talk about high inflation loop or high deflation loop is just wrong. Left to itself, economy will always return towards mean, to some stable state. It doesn't mean that you can't get into high inflationary spiral (deflationary one is a lot less likely), but you usually need decade-long concentrated effort (that means that if all the efforts to rise inflation in EU, USA, Japan suddenly succeed, governments and central banks would need to keep those efforts up for considerable time afterwards, years and more, to ensure something like Argentina scenario). So, both inflationists and deflationists should stop talking about their spirals and predict either moderate inflation for a while, or low inflation/low deflation for a while. Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-21356580994795818142014-11-20T21:26:22.676-06:002014-11-20T21:26:22.676-06:00Cesium,
"Deflation means that supply is grea...Cesium,<br /><br />"Deflation means that supply is greater than demand."<br /><br />Not always. Technological advances can also fuel deflation with no changes in either supply or demand. New manufacturing method allows company to produce the same amount of widgets at a lower cost. The cost savings in a competitive environment are passed onto the consumer. Prices fall, quantity of goods produced and sold stays the same.<br /><br />"Or they can maintain price and production and pay for warehousing the excess supply, leading eventually to going bankrupt."<br /><br />That would depend on whether the loans made to said company are collaterized by that warehouse full of goods. If a bank is willing to accept warehoused goods as collateral on a loan, then the company can keep borrowing and producing using any warehoused goods as collateral on new loans.<br /><br />Of course, banks don't typically want a warehouse full of widgets if a company can't sell enough widgets - they want cash. FRestlyhttps://www.blogger.com/profile/09440916887619001941noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-50894573270408642162014-11-20T14:14:23.656-06:002014-11-20T14:14:23.656-06:00Cesium,
I was pulling numbers out of a hat to pro...Cesium,<br /><br />I was pulling numbers out of a hat to provide an example - you are correct, I didn't have an EIA estimate nor do I build / operate wind mills for a living.<br /><br />And really on a 30 year horizon, I came pretty close. Over 30 years the government would need to build about 4.29 windmills. Assuming that 7 year financing remains at 2% over those thirty years and construction costs hold so that each new windmill can be constructed and maintained for $5 million, total construction, maintenance, and financing costs for the 4.29 windmills is:<br /><br />4.29 * $5 million * ( 1 + 7 * 2%) = $24.4 million.<br /><br />In my example<br /><br />1 * $10 million * ( 1 + 4% * 30 ) = $22 million<br /><br />I am using non-compounded (coupon) interest. If a private enterprise were doing this, they would be paying amortized interest.<br />FRestlyhttps://www.blogger.com/profile/09440916887619001941noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-47255735564600171382014-11-20T12:40:32.044-06:002014-11-20T12:40:32.044-06:00Cesium- go back and read what I actually wrote aga...Cesium- go back and read what I actually wrote again before accusing me of "faith-based reasoning". <br /><br />My exact quote: " If I'm not mistaken this would give the U.S. the highest capital gains rate in the world by a huge margin"<br /><br />Your link is for regular income tax rates, not capital gains. The top long term capital gains rate in France appears to be 38%. The highest highest OECD country is Denmark at 42%. So yes, the 70% rate Krugman proposes would appear to be the highest by a large margin. It would also be more than three times the current OECD average.<br /><br />http://taxfoundation.org/article/high-burden-state-and-federal-capital-gains-tax-rates<br />Zacknoreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-62900271590953548692014-11-19T21:51:32.477-06:002014-11-19T21:51:32.477-06:00Deflation means that supply is greater than demand...Deflation means that supply is greater than demand. Business can respond in a couple of ways: they can reduce supply (fire people); they can reduce prices (reduce profit margins) which will eventually cause them to go bankrupt so that they will have to fire people. Or they can maintain price and production and pay for warehousing the excess supply, leading eventually to going bankrupt. Firing people reduces demand further.<br /><br />On the other hand, the government could go out and use fiscal policy to borrow at low interest rates to hire people who aren't doing anything and capital that isn't doing anything to increase GDP. That increases demand and reduces unemployment, firming up profit margins. As we approach full employment, employers start bidding up wages which bids up prices, at which point the stimulus can be removed.Cesiumhttps://www.blogger.com/profile/02025636403503365433noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-59504033335981922832014-11-19T21:39:37.038-06:002014-11-19T21:39:37.038-06:00lmgtfy: http://en.wikipedia.org/wiki/List_of_count...lmgtfy: http://en.wikipedia.org/wiki/List_of_countries_by_tax_rates<br />Nope, France has a 75% top marginal tax rate.<br /><br />Looks like you should stop using your faith-based reasoning and try some evidence-based reasoning instead.Cesiumhttps://www.blogger.com/profile/02025636403503365433noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-38890409569104817772014-11-19T21:35:32.591-06:002014-11-19T21:35:32.591-06:00The fed also has a mandate to maintain full employ...The fed also has a mandate to maintain full employment.Cesiumhttps://www.blogger.com/profile/02025636403503365433noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-3921801538938276962014-11-19T21:35:00.548-06:002014-11-19T21:35:00.548-06:00Cochrane apparently is unaware of economies of sca...Cochrane apparently is unaware of economies of scale. By helping to build out, say, wind energy, production ramps up. Across a broad range of industries, increasing production by a factor of 10 reduces price by a factor of 2 because of economies of scale. <br /><br />Frank Restly is apparently unaware of the EIA estimates of levelized costs for wind energy. A more realistic estimate is $5 million for a 5MW plant operating 20% of the time financed at 2% interest over 7 years.Cesiumhttps://www.blogger.com/profile/02025636403503365433noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-49496232539299342782014-11-19T21:14:08.967-06:002014-11-19T21:14:08.967-06:00Interesting how Cochrane dosesn't seem to unde...Interesting how Cochrane dosesn't seem to understand supply and demand. 2% deflation implies that demand is low relative to the supply. Cochrane also hypothesizes that productivity is increasing 1% per year, and that wages are not falling. So the amount of employment is constant, so the number of goods being produced each year is increasing. So business is cutting into it's profit margins to lower prices to try and push the ever increasing supply out the door. That model doesn't sound realistic to me.Cesiumhttps://www.blogger.com/profile/02025636403503365433noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-15566204829889564532014-11-19T12:08:03.953-06:002014-11-19T12:08:03.953-06:00That might depend on how exactly the deflation man...That might depend on how exactly the deflation manifests itself. Imagine a world where the price of goods and services are constantly steadily falling by 1 or 2% per year and as a result the revenues of every major company are on a gentle glide path towards zero. Companies would be in a constant struggle to grind down wages. There would be few "steady earning" stocks in such an environment. Absalonhttps://www.blogger.com/profile/09131268683451462949noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-34867541670009383792014-11-19T03:27:15.663-06:002014-11-19T03:27:15.663-06:00If low deflation becomes the expected norm won'...If low deflation becomes the expected norm won't P/E ratios adjust sharply higher since acceptable return for steady earning stocks would become 4-5% (20-25P/E) and much higher for modest predictable growth?cwhulickhttp://googlenoreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-6204902377944623982014-11-18T23:09:34.929-06:002014-11-18T23:09:34.929-06:00Link to the interview
http://consultingbyrpm.com/...Link to the interview<br /><br />http://consultingbyrpm.com/blog/2014/11/king-krugman-launches-war-against-dictionaries.html<br /><br />Zacknoreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-69213365528209237512014-11-18T23:07:33.058-06:002014-11-18T23:07:33.058-06:00Speaking of Krugman, I came across a recent inter...Speaking of Krugman, I came across a recent interview where he advocates for a single-payer health care system and a 70% top marginal tax rate for both the income and capital gains taxes. If I'm not mistaken this would give the U.S. the highest capital gains rate in the world by a huge margin. <br /><br />I'm not sure which seemed more bizarre to me: the fact that he claims none of this would have seemed politically radical 20 years ago, or that he equates these tax policies as somehow being a return to the post-war generation. I thought it was pretty much universally acknowledged by economists that the high nominal rates during those years were mainly symbolic- that rates were higher in the 50's and 60's, but the official definitions of income and taxable income were also much narrower back then.Zacknoreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-206519374814175662014-11-18T03:31:17.190-06:002014-11-18T03:31:17.190-06:00It makes no sense to compare Japan with the United...It makes no sense to compare Japan with the United States on the basis of overall RGDP growth. During the period mentioned by Cole, the Japanese population (particularly working age population) was decreasing while the population in the US was increasing.<br /><br />Come back with an analysis of RGDP per capita or RGDP per working age adult. That is the only meaningful comparison given the demographics.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-31181261785584843162014-11-17T15:11:15.973-06:002014-11-17T15:11:15.973-06:00"And that moderate inflation is associated wi..."And that moderate inflation is associated with pretty good growth."<br /><br />One of the problems that economists across the spectrum seem to have is falling into the correlation is causation trap or thinking that if they can write an equation linking variables then any one of those variables gives them a policy lever to effect the others. The result is that we get policies like the Fed's "pushing on a string" quantitative easing policies. <br /><br />Arguing that solid growth was associated with inflation in the past and therefor if we can just force inflation we will have growth is cargo cult thinking. Japan seems to be staking its future on that reasoning.<br /><br />I care about inflation because artificially forcing inflation has real costs and probably does not give a meaningful policy lever to promote growth. Absalonhttps://www.blogger.com/profile/09131268683451462949noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-66438536848205876382014-11-17T14:51:29.637-06:002014-11-17T14:51:29.637-06:00There is nothing to be afraid of - it's necess...There is nothing to be afraid of - it's necessary and long overdue.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-25083523255017332732014-11-17T01:06:08.956-06:002014-11-17T01:06:08.956-06:00Okay, but...
In the U.S. from 1982-2007, we had r...Okay, but...<br /><br />In the U.S. from 1982-2007, we had real annual GDP growth a little north of 3%, and inflation a little south of 35 (CPI).<br /><br />In Japan 1992 through 2011, they had mild deflation, and 1% GDP growth.<br /><br />Those are long stretches, in the real world, in real economies with real structural impediments. <br /><br />I would say that deflation does not cause recession, but is associated with very, very, very slow growth. <br /><br />And that moderate inflation is associated with pretty good growth.<br /><br />My question for John Cochrane or anyone else: The U.S. economy from 1982 to 2007 posted good growth, and moderate inflation for 25 years, call it "3&3"<br /><br />Why would anybody care about moderate inflation? Is not "3&3" a pretty good sustained result?<br /><br />Is the Japan " -0.1&1" result better? <br />Benjamin Colehttps://www.blogger.com/profile/14001038338873263877noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-26981719766308811692014-11-16T20:58:58.115-06:002014-11-16T20:58:58.115-06:00Absalon,
"More seriously, where does the by ...Absalon,<br /><br />"More seriously, where does the by definition come..."<br /><br />The federal government does not operate with a profit / loss statement. If a government investment is not profitable, then it retains the ability to cover investment and / or financing costs through taxation.<br /><br />"...should society care if a public investment yields a positive financial rate of return?"<br /><br />No.<br /><br />All that being said, government should be beholden to a standard when selecting investment projects, profitability is not that standard.FRestlyhttps://www.blogger.com/profile/09440916887619001941noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-43722363516905642772014-11-16T14:30:18.159-06:002014-11-16T14:30:18.159-06:00"Deflation" and "inflation" ar..."Deflation" and "inflation" are not precisely defined or measured. We are having heated arguments over inflation and deflation dealing with effects that are probably smaller than the margin of error.<br /><br />We have a Fed trying to create inflation - without that, the US might well be experiencing deflation. We have Japan and Europe with very low inflation or outright deflation. If there is "inflation" in Japan or Europe it is so low as to fall well within the margin of error. <br /><br />Before trying to fix "deflation" we should have a better definition and a much better understanding of why there is deflation. My personal hypotheses for deflation would be:<br />1) China is accumulating foreign reserves for strategic reasons and as a way of shifting the misery of Chinese peasants to the Western working class. <br />2) endemic tax avoidance and the accumulation of wealth in tax havens is creating a fiscal drag on the Western economies (Chinese corruption is having a similar effect) Absalonhttps://www.blogger.com/profile/09131268683451462949noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-16922529552593625872014-11-16T12:42:16.364-06:002014-11-16T12:42:16.364-06:00"He's arguing for vast government investm..."He's arguing for vast government investment in energy boondoggles that by definition do not earn a positive financial rate of return."<br /><br />You mean like the Hoover dam? <br /><br />More seriously, where does the "by definition" come from and should society care if a public investment yields a "positive financial rate of return" if it generates enough consumer surplus that there is a positive total benefits return. We do not ask that the public school system generate a "positive financial rate of return."Absalonhttps://www.blogger.com/profile/09131268683451462949noreply@blogger.com