tag:blogger.com,1999:blog-582368152716771238.post956498266010804223..comments2024-03-28T09:32:23.535-05:00Comments on The Grumpy Economist: Inflation DrumbeatJohn H. Cochranehttp://www.blogger.com/profile/04842601651429471525noreply@blogger.comBlogger15125tag:blogger.com,1999:blog-582368152716771238.post-81396574565132270282015-11-25T13:21:56.599-06:002015-11-25T13:21:56.599-06:00Well said!Well said!Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-49514308193854985422015-11-24T13:51:43.590-06:002015-11-24T13:51:43.590-06:00Noah basically defends himsel by arguing that the ...Noah basically defends himsel by arguing that the Japanese government screwup with the money they borrowed and now they have to present the bill to savers because there is no other alternative. I find the idea that such an argument has traction preposterous. What about the government stop protecting corporations, become more efficient, adopting policies that let a private economy to thrive, so that productivity increases and the government debt is sustainable and starts to be reduced ?Jose Romeu Robazzinoreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-32593670462484628322015-11-24T12:00:55.009-06:002015-11-24T12:00:55.009-06:00Pace the first commenter, I think it's John wh...Pace the first commenter, I think it's John who's forgetting rational expectations here. Assuming RE, the purchasers of Japanese government bonds are hardly the virtuous but naive yeomen John portrays. Rather, they -- at least, in the aggregate -- incorporate an estimate of the risks of future inflation in their bond buying decisions. (Moreover, RE actually holds that their subjective risk assessments are objectively correct, i.e. that the joint probability distributions of all variables is known ex ante.) So: inflation risk is priced into Japanese bonds, and bondholders have been receiving payments for assuming that risk. For decades. <br /><br />Side note on "unexpected" inflation: as far as I can tell, "unexpected" inflation was invented simply in order to be able to impute real consequences to monetary policies in a framework in which money is neutral or super-neutral. Policy analysis is just too easy if we "know" that monetary policy has no real results whatsoever...plus we can never say that a particular policy -- such as deliberate high-single-digit inflation -- is "bad." Saying "Oh, but this outcome was a surprise" is equivalent to abandoning RE as a discipline on modelling altogether and falling back to an intuitive "theory" of expectations far more "ad hoc" than anything proposed in the dreaded 1970s. <br /><br /><br /><br /> JEChttps://www.blogger.com/profile/13107662855215626812noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-76840595935001636782015-11-23T22:02:38.044-06:002015-11-23T22:02:38.044-06:00Hear hear!Hear hear!Ramnoreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-57405402223402760102015-11-23T20:05:40.726-06:002015-11-23T20:05:40.726-06:00John,
"The main one is that inflation reduce...John,<br /><br />"The main one is that inflation reduces the burden of debt"<br /><br />So does converting that debt to equity.<br /><br />"How does a government default benefit young people anyway? It does so if a large amount of tax revenue is being used to pay interest or principal on the debt, and the default is accompanied by a large tax cut for young families. Without tax cut, there is no transfer. Noah is strangely silent on the essential big tax cut aspect of his plan."<br /><br />No default necessary. Instead of giving a tax break to young families, Japanese government sells time discounted tax breaks ($1 Yen paid now will cover $1.20 Yen in tax liability 5 years from now) to young families. Japanese government uses proceeds of sale to buy back it's debt.<br /><br />FRestlyhttps://www.blogger.com/profile/09440916887619001941noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-46426278442221778212015-11-23T17:54:05.297-06:002015-11-23T17:54:05.297-06:00"Noah is advocating nothing more or less than..."Noah is advocating nothing more or less than a massive government default on this promise, engineered by inflation. The words "default," "theft," "seizure of life savings," apply as well as the anodyne "transfer.""<br /><br />How is this different than what the Fed says it wants to do?Fat Manhttps://www.blogger.com/profile/09554029467445000453noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-5155631919089727092015-11-23T17:00:41.445-06:002015-11-23T17:00:41.445-06:00Let me defend Noah here. In science, your argument...Let me defend Noah here. In science, your arguments are either true or false. Authority carries no weight. That I might have written things in the past that got published in academic journals gives me no special authority above what I can argue by logic and fact. There are plenty of Nobel Prize winners far more illustrious than me, who on occasion write drivel. I certainly don't want to accept he who has the most accolades is right, or I would have to be quiet about that. Finally, if Noah ends up being a literate economic journalist with no academic publications, that activity will have great value, given the amount of completely incoherent economic journalism out there. I still think he got it wrong here, but we argue on facts and logic, not on vitas. John H. Cochranehttps://www.blogger.com/profile/04842601651429471525noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-5346355762277474262015-11-23T16:50:52.837-06:002015-11-23T16:50:52.837-06:00I am a big fan of both John Cochrane and Noah Smit...I am a big fan of both John Cochrane and Noah Smith. I've been reading their blogs for years. <br /><br />However, I have to ask: Have you actually published anything, Noah? I see that you have a handful of working papers but that's it. I see zero publications let alone a single R&R. Cochrane's reputation and scholarship are outstanding -- what about you? I don't mean to criticize. I think your blog and Bloomberg column are excellent but is this all you do at SUNY Stony Brook? Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-52342728015124113652015-11-23T15:26:10.220-06:002015-11-23T15:26:10.220-06:00As someone who lived through the late 1970s and ea...As someone who lived through the late 1970s and early 1980s I know that inflation puts enormous cash flow burdens on debtors when they are required to pay high nominal rates that incorporate an allowance for inflation. Count me as opposed to the inflation as debt relief argument.<br /><br />The other argument for inflation is that it will deal with downward stickiness in wages and thereby stimulate the economy. But for that to be true there must be: (1) a large group of people; (2) who's real wages are materially in excess of a current market rate; but (3) who lack the bargaining leverage to get a cost of living increase on their pay checks. To the "downward sticky" people I ask: who are these overpaid people; how many are they; how much are they overpaid by; how did they get to being overpaid without having the power to extract a cost of living increase; and how would materially cutting the incomes of a materially large number of working people stimulate the economy? <br /><br />Absalonhttps://www.blogger.com/profile/09131268683451462949noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-35015743378293318052015-11-23T15:20:20.769-06:002015-11-23T15:20:20.769-06:00Thanks! I wrote a reply!
http://noahpinionblog.bl...Thanks! I wrote a reply!<br /><br /><a href="http://noahpinionblog.blogspot.com/2015/11/japanese-promises.html" rel="nofollow">http://noahpinionblog.blogspot.com/2015/11/japanese-promises.html</a>Noah Smithhttps://www.blogger.com/profile/09093917601641588575noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-12152752464247487132015-11-23T13:37:38.704-06:002015-11-23T13:37:38.704-06:00Yes, that's what Noah uses as a justification....Yes, that's what Noah uses as a justification. But, as I think you previously noted, inflating away the assets of those older bondholders eats into an estate, too---in much the same manner as an estate tax would. The generational transfer is not as simple or easy as Noah would have us believe.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-74209094293936075752015-11-23T13:22:49.205-06:002015-11-23T13:22:49.205-06:00The estate tax is an interesting wrinkle, and an o...The estate tax is an interesting wrinkle, and an often overlooked fact about how Japan can escape its large debt. But Noah justified inflation by a transfer from "old" to "young." Estates also transfer assets from "old" to "young." Now it turns in to just which young get the money. John H. Cochranehttps://www.blogger.com/profile/04842601651429471525noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-31969821254533639412015-11-23T12:49:22.268-06:002015-11-23T12:49:22.268-06:00The fact that Japan's public debt is owned dom...The fact that Japan's public debt is owned domestically is often cited as an advantage (and, per Krugman, a reason why high government debt isn't a problem). After all, the government's liability is someone else's asset. But, If you want to engage in the game of inflating away your public debt, as Noah Smith suggests Japan should, it isn't as damaging if it is foreigners whose oxen are gored. <br /><br />A much more straightforward solution to achieve what Noah is suggesting would be to enact a steep estate or inheritance tax on those old folks. Seize the assets when they die. Or, establish a special (higher) rate of tax on Japanese bond interest. The difference between those solutions and the proposed inflation is that the former has to go through the political process and the latter does the dirty work indirectly. Why isn't Noah Smith (and others) who favor high inflation as the policy solution frank enough to admit that that's the main advantage?<br /><br />Alas, there is no easy way out for Japan.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-36521339895544842572015-11-23T11:39:42.579-06:002015-11-23T11:39:42.579-06:00Well, one argument would be that bondholders benef...Well, one argument would be that bondholders benefited from lower-than-expected inflation in the 1990s. This also had the side effect of lowering inflation expectations. Now we need higher-than-expected inflation to undo the earlier transfer and to restore expectations to target. It would have been better to have and achieve a clear target from the beginning.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-57824744600991963062015-11-23T11:15:24.483-06:002015-11-23T11:15:24.483-06:00I think Noah's piece is indicative of the larg...I think Noah's piece is indicative of the larger failure of popular (i.e, IS-LM style) macro-economics to incorporate rational expectations of agents. People aren't stupid (and you would be, if you think otherwise). The inflation lever that Noah suggests can be pulled only once. After that, you've shown yourself to be incapable of keeping your promises, which raises borrowing costs. How does that help?Anonymousnoreply@blogger.com