Jérémie Cohen-Setton — Blogs review: Understanding the Neo-Fisherite rebellion

Neo-Fisherism is on the blogs again. The idea that low interest rates are deflationary – that we’ve had the sign on monetary policy wrong! – started as a fringe theory on the corners of the blogosphere 3 years ago. Michael Woodford has now confirmed that modern theory, indeed, implies the Neo-Fisherian view when people’s expectations are infinitely rational. For Woodford, this is however a paradox of perfect foresight analysis, rather than something actually relevant for monetary policy.

Monetarists will be monetarists. But if you want a quick summary of what's going on over there, here it is.

Bruegel
Blogs review: Understanding the Neo-Fisherite rebellion
Jérémie Cohen-Setton

Marshall Auerback — Central Banks Are Trying To Do Too Much, Not Too Little

As the Fed winds down its asset buying program in the form of QE, it is worth considering this recent comment by economist Michael Woodford at the St Louis Fed:

“It’s obviously a very complex situation. In general, I wish the Fed were speaking more about the need for fiscal policy to take on more of the burden of trying to get the economy moving. 

I’m afraid that, to some extent, the Fed’s desire to stress the fact that we still have tools, we haven’t used all of our ammunition, has had unfortunate effects. Of course, the intention of that is to reassure the public. The feeling is that letting people be scared that maybe we’re out of ideas would itself create uncertainty about the future that would be undesirable for the economy. And that’s understandable. 

But I worry that it’s had the undesirable effect of letting Congress off the hook a little too easily by letting them say, “The Fed still has lots of things they can do to take care of the situation, so we can play other games.” 

And I think maybe the Fed would have helped the public debate if it had pushed back a little more on the view that everybody should be assuming the Fed will save everything.”

Classic case of using the wrong tool for the job.

Macrobits by Marshall Auerback
Central Banks Are Trying To Do Too Much, Not Too Little
Marshall Auerback

Brad DeLong — Joe Gagnon Responds to Michael Woodford, Ben Bernanke, and Others on the Risks and Power of Quantitative Easing: Friday Focus (December 20, 2013)

Nothing on QE being a tax. but a couple of interesting points relevant to MMT.

1. Consolidation. "The fourth cost is the possibility that the Fed could incur financial losses on its enlarged balance sheet. Bernanke simply dismisses this cost altogether when it is viewed in the overall context of the national balance sheet. To date the Fed has earned extraordinary profits from quantitative easing. The Treasury also has gained both from lower borrowing costs and from higher tax revenues. The Treasury’s gains far exceed any possible losses to the Fed. And private citizens receive further benefits to the extent that quantitative easing has boosted employment." [emphasis added]

2. Setting price rather than quantity. "But the Fed could address this problem by announcing adjustable daily targets for the yields of the securities it is buying. To hit these targets it would accelerate or decelerate its rate of purchase within the day." [emphasis added]

WCEG — The Equitablog
Joe Gagnon Responds to Michael Woodford, Ben Bernanke, and Others on the Risks and Power of Quantitative Easing: Friday Focus (December 20, 2013)
Brad DeLong

Steve Roth — Michael Woodford and Adair Turner Agree: CBs Won’t (and Shouldn’t) Sell the Bonds Back

Taboos are made to be broken. The Fed should just burn all those bonds. Welcome to MMT World.

Asymptosis
Michael Woodford and Adair Turner Agree: CBs Won’t (and Shouldn’t) Sell the Bonds Back
Steve Roth

Michael Sankowski — 3 Big Reasons Monetary Realism Matters

Getting into the nitty-gritty of monetary OR fiscal policy, and monetary AND fiscal policy that highlights the differences of monetarism, MMT and MR. Definitely worth thinking about, and Mike has not a good job in setting forth the issues from the MR vantage.

Monetary Realism
3 Big Reasons Monetary Realism Matters
Michael Sankowski

Cullen Roche comment on Mike post at Pragmatic Capitalism, An Interesting Wager…

I focus on Mike's post here.

My own view is that monetarism is biased toward economic rent-seeking, hence, favors the accumulation of wealth based on economic rents, and that MR shares this bias, probably because MR contributors Mike Sanskwoski, Cullen Roche, and JHK are in the financial sector, which is largely based on rent-seeking as presently operated. At least that is the way it would seem.

For example, Mike accepts the view that "real estate collateral is fairly valued now" based on historical data wrt to the Core Logic HPI and per capita income. Notice that this is based on per capita income, which has nothing to do with income distribution. Housing experts that I read, like Dr. Housing Bubble, say that housing prices are too high in relation to income distribution. Housing prices in general need to be much lower to be generally affordable at current income levels.

What has happened is that the government — chiefly the Fed and agencies, but extending to the WH — have kept housing prices higher than they would be to prevent the banking sector from insolvency without offering relief to underwater homeowners in servicing debts. The result is housing price manipulation by keeping bank RE inventory off the market or bundling sales to large investors who will rent and then flip.

This involves a huge transfer of economic rent to the wealthy and well-connected through government picking winners and losers.

A similar argument can be made about the financial sector in general. In supporting housing, the Fed admittedly made financial assets higher in value that they would otherwise have been.

The economic issues could have been addressed equitably through fiscal policy, while applying existing law to the financial sector instead of allowing rampant crime and corruption to continue and even proliferate, as Bill Black, Janet Tavakoli, and others have documented.

On one hand, MMT economists (Wray and Mitchell) and MMT allies (UMKC profs Black and Hudson) have been in the forefront of the red flag wavers. On the other, MR is silent about this. One wonders what their stance is.

I don't want to start a big kerfuffle over this, and I regret if anyone's feathers are ruffled. I don't mean this personally in any way, and I realize that I am stepping on friends' toes here. But this issue is bigger than personal feelings. It threatens to take the whole system down, in my view.

My sense is that some career-bias at MR may be entering in here, resulting in the ability to see, let alone address, some huge issues, which if not resolved with lead to the mother of all crashes in the not-so-distant future due to persistence of crony capitalism, corruption and capture. Much of this can be traced to rent-seeking behavior replacing productive contribution abetting by government though capture, e.g., the revolving door and lobbies.

While I don't think that this all there is at issue among monetarism, MMT, and MR, it is a big one. The other big one is the issue of resolving the trifecta of growth wrt production and productivity minus economic rent, employment and price stability. This is the thrust of the MMT policy position, which claims to harmonize the trifecta at full use of available human resources. As far as I understand it, the TC rule is similar to monetarist rules in that it comes it a couple of percentage points higher in unemployment.

So I think that the bet the Brad DeLong proposes needs to be very carefully specified wrt economic criteria.

Moreover, I am not very satisfied with employment measures in terms of "jobs." The present push is toward global equalization of wages for most workers. This is also an issue that needs to be addressed head on, because it is socially and politically important as well as economically. That is to say, the push is on by the elite for a neoliberal world market with the workers of the world competing equally with each other. This is resulting in a fundamental restructuring of social and political relations in the developed world, putting the US, UK, and the EZ in social, political and economic turmoil.