tag:blogger.com,1999:blog-582368152716771238.post8856297069208513914..comments2024-03-29T07:18:14.271-05:00Comments on The Grumpy Economist: Negative stimulus, 1946John H. Cochranehttp://www.blogger.com/profile/04842601651429471525noreply@blogger.comBlogger21125tag:blogger.com,1999:blog-582368152716771238.post-42925932080850148882012-02-06T08:45:50.299-06:002012-02-06T08:45:50.299-06:00What's most interesting is that it seem to hav...What's most interesting is that it seem to have been written a couple months before publication.Eric Falkensteinhttps://www.blogger.com/profile/07243687157322033496noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-50271215015474065512012-02-06T08:08:32.300-06:002012-02-06T08:08:32.300-06:00I think you missed the part where I said "lar...I think you missed the part where I said "large financial institutions". Also, don't confuse liquid with safe. Liquid means you can easily trade it; it doesn't mean it can't drop in value (ask Lehman shareholders). As to your point about "...4 - 5 years ago...", it is irrelevant to the discussion. You're trying to explain why rates are negative, which is abnormal. The fact that rates were positive, and historically are almost always positive (talking nominal vs real), doesn't need explaining.JSShttps://www.blogger.com/profile/00094786846806144085noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-80512297048339407732012-02-04T12:48:24.451-06:002012-02-04T12:48:24.451-06:00"As a research economists, it's a bit fri..."As a research economists, it's a bit frightening. There are surely such elephants in our room that we're missing, and we will kick ourselves for not really noticing them."<br /><br />This will probably most certainly be the truth.Nancy Kirschhttps://www.blogger.com/profile/04531604945677482968noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-55359477916183352502012-02-04T08:59:01.360-06:002012-02-04T08:59:01.360-06:00thank you for the link
it is unfortunate that a g...thank you for the link<br /><br />it is unfortunate that a great deal of useful information is wrapped in such a polemic. the result is a paper of little usefulness.<br /><br />from the information presented I would conclude:<br /><br />1) federal debt doesn't matter (federal debt was 150% of GDP in 1946)<br /><br />2) what does matter are: (a) the level of private debt, which was low, and the ability of banks to expand private lending to meet loan demand; (b) broad based private savings matter; and (c) work force attitude and skills matter---those returning GIs had abundant skills and great morale<br /><br />if we took the lessons of 1946 seriously, our first priorities would be to find some to reduce private debt, down to a level where people could "prudently" borrow (whatever that means)<br /><br />our second priority would be to concentrate on deepening and broading private savings (raising taxes on carried interest and lowering taxes on savings deposits)<br /><br />And, most importantly, we would be spending more on education and stop attacking the morale of our workers (ending imports, stopping attacks like those in Wis. and Ind., etc.)John L. Davidson, Esq., Saint Louis, Missourihttps://www.blogger.com/profile/06489381481280010964noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-41520277741567391612012-02-04T08:17:03.593-06:002012-02-04T08:17:03.593-06:00by your logic, we should close all Christian Churc...by your logic, we should close all Christian Churches, given all the evil done through history in the name of ChristJohn L. Davidson, Esq., Saint Louis, Missourihttps://www.blogger.com/profile/06489381481280010964noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-26727535817791722212012-02-03T18:04:28.036-06:002012-02-03T18:04:28.036-06:00Correct Nancy. It was a most unusual time and cir...Correct Nancy. It was a most unusual time and circumstance. about two million people came back from either war, or war related work and got married and had a lot of kids. They needed all the things that people could not get during the war because of rationing. <br /><br />In addition we had to also supply most of the needs of the rest of the world because the other economies had been so crushed due to war and war debt.<br /><br />It was a unique time, and anyone who advocates policy today based upon that time period is just showing ignorance.kyle8https://www.blogger.com/profile/13299846346032212714noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-81308939823468893532012-02-03T18:00:37.708-06:002012-02-03T18:00:37.708-06:00I absolutely believe that Keynesianism is exactly ...I absolutely believe that Keynesianism is exactly that, just wild guesswork. I offer as my evidence the wretched history of Keynesian stimulus.kyle8https://www.blogger.com/profile/13299846346032212714noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-63257765761014534752012-02-03T17:42:56.512-06:002012-02-03T17:42:56.512-06:00to make wild guesses in the dark
I don't beli...to make wild guesses in the dark<br /><br />I don't believe at all that is what Keynes said.<br /><br />For there own purposes, people project that, but that is not what he says when I read him.John L. Davidson, Esq., Saint Louis, Missourihttps://www.blogger.com/profile/06489381481280010964noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-17318715114609111642012-02-03T14:43:06.168-06:002012-02-03T14:43:06.168-06:00It was the start of the Cold War, and there was pr...It was the start of the Cold War, and there was probably a lot of pent up demand for manufactured products at the end of the war.Nancy Kirschhttps://www.blogger.com/profile/04531604945677482968noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-9682660813530826962012-02-03T14:43:05.570-06:002012-02-03T14:43:05.570-06:00Booo! learn your historical metaphors: the economi...Booo! learn your historical metaphors: the economist building a castle in the sky is huge since at least Marx!LALhttps://www.blogger.com/profile/08196675112184615614noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-4129745333869113862012-02-03T14:37:12.840-06:002012-02-03T14:37:12.840-06:00This comment has been removed by the author.LALhttps://www.blogger.com/profile/08196675112184615614noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-59070147820858470552012-02-03T11:49:32.119-06:002012-02-03T11:49:32.119-06:00I see what you are saying, but that doesn't ex...I see what you are saying, but that doesn't explain why as we've had more and more stimulus etc., the rates have moved lower and lower. You can interpret it however you want, but the market is currently willing to pay US govt to take its money. People can buy stocks, gold, corporate bonds, etc. They can hold cash. There are plenty of liquid investments in the world that allow you to avoid negative real yield investments, such as a 10 year treasury. Also, only 4-5 years ago rates were highly positive. Presumably 4-5 years ago people were sending kids to college as well.<br /><br />Once we see something that the market is doing that makes no sense, then we start inventing after the fact explanations. So we need to make up our minds - is market the most efficient alternative we have at aggregating all available information or not ? if not, there is room for other things. If yes, well then, I am confused by negative real yields on 10yr bondsIndependentVoterhttps://www.blogger.com/profile/10978132678617731242noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-20284675631384802942012-02-03T09:05:19.602-06:002012-02-03T09:05:19.602-06:00Here's a paper on the post WWII boom
http://m...Here's a paper on the post WWII boom<br /><br />http://mercatus.org/sites/default/files/publication/U.S.%20Postwar%20Miracle.Henderson.11.4.10.pdfWarrenhttps://www.blogger.com/profile/17059735648946659240noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-31397574666144655272012-02-03T08:29:28.411-06:002012-02-03T08:29:28.411-06:00You can't ignore the fact that large financial...You can't ignore the fact that large financial institutions that are required to hold cash can't simply deposit it at a local bank. Given the need to hold cash, the need to insure that the cash is available when needed, and the lack of other "risk-free" assets, it is understandable why some might pay a negative interest rate, assuming the rate is negligible. If my only two options available for deposit of my kid's college money that I need for this fall are a potentially risky asset or one that charges me a nominal fee but "guarantees" return of principal, then it makes sense, and it should not be interpreted as the market requesting more government spending.JSShttps://www.blogger.com/profile/00094786846806144085noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-66754469520431992742012-02-03T07:07:43.680-06:002012-02-03T07:07:43.680-06:00Agreed -- I can't figure out how a reasonable ...Agreed -- I can't figure out how a reasonable person can look at the trillions of dollars worth of needed infrastructure repairs in the US, and the millions of unemployed construction workers, and conclude that the best policy is to do nothing (or even worse, to cut public spending). Fiscal stimulus may not be necessary or helpful in normal times, but these are not normal times.JSRhttps://www.blogger.com/profile/09614849295823728127noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-42162197235085704952012-02-03T06:53:27.805-06:002012-02-03T06:53:27.805-06:00Ok, let's listen to the market because markets...Ok, let's listen to the market because markets are more efficient at using all available information than governments are. The market is telling us that it is willing to lend US government money at negative real interest rates. In other words, the market wants to PAY US government to take its money. So doesn't this mean the market, as the most efficient information aggregator available to US, analyzed all the information and decided it wants US government to smooth consumption, create stimulus, invest the money, whatever terminology you prefer - but the market wants Government spending money. What do you make of that ?IndependentVoterhttps://www.blogger.com/profile/10978132678617731242noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-26250005333508229132012-02-02T23:07:13.014-06:002012-02-02T23:07:13.014-06:00"there's no reason to suspect that govern..."there's no reason to suspect that government will do a better job directing resources next time..."<br /><br />But we're so much smarter now, this time is different...Scott in Calihttps://www.blogger.com/profile/03047670284932770108noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-14056321501725942702012-02-02T22:42:25.064-06:002012-02-02T22:42:25.064-06:00JLD, Cochrane is practicing what he preaches. I d...JLD, Cochrane is practicing what he preaches. I don't claim to be able to speak for a leading economist, but the gist is that in light of the fact that we don't "know everything so well," it is best to let markets work, rather than continue to make wild guesses in the dark, which is the nature of Keynesian policy, and government direction of resources in general. We have a tremendous amount of historical data along those lines, including the ridiculous Keynesian predictions about the way the economy would fare in the aftermath of WWII. You rightly point out that Keynes largely reversed himself towards the end of his life, and for good reason.<br /><br />The economic policies that George Bush and Dick Cheney adapted at the outset of the recession were unquestionably Keynesian. TARP, the Bush Paulson stimulus, the Foreclosure tax relief bill, etc. were all programs that received largely bipartisan support, and would undoubtedly be considered Democratic programs in the current political environment. Obama's economic policies, while more extreme, were ideologically indistinguishable. It is wholly backwards to assign the GOP disproportionate blame. <br /><br />Classical economists would not have advocated stimulus in the wake of WWII, nor would they have at the outset of the present crisis. Other than Krugman and a few other fringe leftists, even most self identified Keynesians aren't advocating for more stimulus under present circumstances. There are also real distinctions between Keynesian economics and Classical economics, and they should be debated on their own merits, not on the basis of political happenstance. Nixon was a Republican, but his Keynesian policies had the same disastrous effects as Obama's, Bush's, Carter's, and FDR's, and there's no reason to suspect that government will do a better job directing resources next time, regardless of which party is in charge.Jason Weinmanhttps://www.blogger.com/profile/11211087552762790514noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-84715903435808149312012-02-02T22:32:49.696-06:002012-02-02T22:32:49.696-06:00JLD, his justified criticisms of Keynes are based ...JLD, his justified criticisms of Keynes are based on looking at how its has performed historically, what he is suggesting is that future policy directives/debate should experience humility... apples and oranges mate.TSpencerhttps://www.blogger.com/profile/17282671628344621810noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-66164337124942352162012-02-02T22:01:10.695-06:002012-02-02T22:01:10.695-06:00You write, "Maybe it should give us some humi...You write, "Maybe it should give us some humility -- so much policy debate seems based on the idea that we know everything so well."<br /><br />Why don't you practice what you preach and start by taking out the following phrase (and all your other digs and personal criticisms of Keynes): <br /><br />the first great failures of Keynesian economics<br /><br />Instead, look at the situation with a little understanding or humility, understanding that a wise man changes his mind often and a fool never.<br /><br />Close to the end of his life Keynes remarked that he was still thinkging. Just before his death in 1946, Keynes told Henry Clay, a professor of Social Economics and Advisor to the Bank of England of his hopes that Adam Smith's 'invisible hand' can help Britain out of the economic hole it is in: "I find myself more and more relying for a solution of our problems on the invisible hand which I tried to eject from economic thinking twenty years ago." <br /><br />Predictions that we would have unemployment and deflation at the end of the War were not Keynesian, they were classical and shared by most everyone. <br /><br />People knew the numbers of men in the armed services who were going to be discharged. They had within short memory experienced massive unemployment and had been unsuccessfull in finding any solution. Now, it seems to me that expecting unemployment and deflation wasn't that off based.<br /><br />As for why not, respectfully, I would suggest that your explanation is not the answer.<br /><br />From such charts as are available to me, as well as I can read them, private debt expanded and was the key driver in preventing the expected contraction.<br /><br />As you know, we may have had a similar period of prosperity starting in 2001 when private debt and mortgage equity withdrawals masked real declines elsewhere.<br /><br />In sum, drop all the attacks on Keynes, all the silly metaphors like Keynesian castles. You might find some common ground were we could make progress.<br /><br />Take me for example. I am a Keynesian, but the more I consider the matter, the more I believe that the problem with Keynesian solutions is its moral hazard. I can see where both political parties have refused to do what was right because they knew bases could be covered with Keynesian deficits. The worst offenders have been Republicans, especially Deficits Don't Matter Cheney. (Where was Cochrane?)<br /><br />As for MF, Lucas, etal, leave them out. An idea or INsight is either useful or it is not. When you attach an idea to a person it only leads to a personalty cult, counter-cult, etc.John L. Davidson, Esq., Saint Louis, Missourihttps://www.blogger.com/profile/06489381481280010964noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-47279772019860025592012-02-02T21:55:57.074-06:002012-02-02T21:55:57.074-06:00"That could never happen now, in any academic..."That could never happen now, in any academic journal."<br /><br />Is this because today the process (writing the article, getting it peer-reviewed, having a journal accept it, then delay to publication) is much slower? If so, do you have any idea why this is the case? Or is it that academic journals now have more of a circle-the-wagons mentality? Or is it for some other reason not readily apparent to this outsider to academia (albeit one who, even after college, still downloads and reads the occasional article when he can find a free copy)?Jeff Waldenhttps://www.blogger.com/profile/11969143527962555101noreply@blogger.com