Austerity USA/September 18, 2011, 5:34 PM

Austerity USA アメリカの緊縮財政

Goldman Sachs (no link) has a nice chart showing just how much fiscal policy has been a drag on the economy since the second half of last year, and also shows that the Obama jobs plan, even if enacted in full, would only be enough to put it in neutral:


Just worth bearing in mind.


Legends Of The Fall (Of 2009)/October 13, 2011, 8:43 AM

Legends Of The Fall (Of 2009) (2009年)秋の伝説

Mike Konczal has some thoughts on the Obama administration’s economic missteps, and mentions that there were reports in Fall 2009 that the administration was afraid of the invisible bond vigilantes:

Noam Schieber at the New Republic was getting word from Treasury as early as late 2009 that they thought that they needed “some signal to U.S. bondholders that it takes the deficit seriously” and “spending more money now [on stimulus] could actually raise long-term rates, thereby offsetting its stimulative effect.” This naturally lead to wanting to strike “grand bargains” with the other side, a path that lead the administration down some bad roads in terms of the agenda.

I was hearing the same thing, with more specifics; as I wrote at the time,

Well, what I hear is that officials don’t trust the demand for long-term government debt, because they see it as driven by a “carry trade”: financial players borrowing cheap money short-term, and using it to buy long-term bonds. They fear that the whole thing could evaporate if long-term rates start to rise, imposing capital losses on the people doing the carry trade; this could, they believe, drive rates way up, even though this possibility doesn’t seem to be priced in by the market.

Even then, this seemed awesomely wrong-headed: policy makers were being scared off dealing with a real economic disaster by threats that existed only in their imagination. Now, of course, it looks even worse.

Debt and Growth in the G7/December 26, 2011, 9:40 AM

Debt and Growth in the G7 G7の債務と成長

I’ve written fairly often about the often-cited Reinhart/Rogoff claim that terrible things happen to economic growth if the ratio of debt to GDP exceeds 90 percent. It’s a claim that has been pretty thoroughly debunked – yet it continues to circulate among Very Serious People as a known fact. Anyway, I was looking at some debt data, and thought that it might be useful to look at debt of the major advanced economies since World War II, and see what gets picked out by the 90 percent criterion.
僕は、GDPに対する債務の比率が90%を超えると恐ろしいことが起こるという内容のよく引用されるラインハート/ロゴフの論文についてかなり書いてきた。その論文の主張はすっかり本質が暴露されてしまっている―だが、今でもVery Serious People(すごくまともな人々)の間ではよく知られた事実として流布し続けている。ともかく、僕はいろいろな債務のデータを見ている中で、第二次世界大戦以来の主要な先進国の債務に関するデータを見て、その90%の基準に分類される国を調べることが有益なんじゃないかと考えた。

So here’s the debt/GDP ratios of the G7 countries since 1946, together with a line representing the famous 90 percent threshold. What do we see?


The answer is that the >90 club consists of the English-speaking nations in the immediate aftermath of World War II, Britain for a longer postwar stretch, Italy since the late 80s, Japan since the mid-90s, and a couple of years in Canada.

And what do we know about those episodes? The English-speaking economies contracted in the years immediately after the war, not because of debt, but because Rosie the Riveter went back to being a housewife. Italy and Japan both experienced sharp growth slowdowns before their debt went so high, and you can make a strong case that slow growth caused high debt, not the other way around.
そして、これらのエピソードについて分かっていることと言ったら? 英語圏の経済は戦後すぐの数年間収縮したが、それは債務のためではなく、銃後の女性が主婦に戻ったからだ。イタリアと日本はともにその債務が非常に高くなる前に急激な成長率の鈍化を経験したのだから、成長率の鈍化が高い債務率を引き起こしたのであり、逆ではないという十分強固な論拠になる。

So this really looks like a case of spurious correlation – not that this will have any influence on the people who seized on this correlation because it confirmed their preconceptions.

翻訳の感想:アメリカにVery Serious People(すごくまともな人々)がいて、イギリスにUnduly Influential Voices(はなはだしく影響のある声)がいる。そして日本にSerious World People(まともな世界の人々)がいる。ソース

The Yen And The Low-Inflation Trap/October 2, 2011, 12:54 PM

The Yen And The Low-Inflation Trap 円と低インフレの罠

I’m in Japan for a conference tomorrow. Here’s how I expect it to go:

I’ve already had one very jet-lagged meeting, in which I was asked for thoughts on the strong yen, which is making Japanese manufacturers very unhappy. Here are some thoughts.

The key thing, I believe, is that real interest rates in the United States and other advanced countries are now significantly lower than in Japan. If you look at the Treasury real yields, the interest rate on US 5-years indexed to inflation is now around -.5, that’s right, minus 0.5. In Japan the nominal rate is lower, but not zero even though markets are signaling that they expect continued deflation over the next 5 years.

As I’ve tried to explain, that’s because of the option value: short-term rates can go up but they can’t go down. And the result is that Japan has a significantly positive real 5-year rate, around 0.7 percent.

So Japan, having allowed deflation to get embedded in expectations, ends up being just what it doesn’t want to be: a magnet for capital fleeing low yields in the US and elsewhere.

That said, I would argue that the United States is already on the edge of its own low-inflation trap. Japan is us, a few years from now, but with less misery.

Defeatism/September 30, 2011, 9:33 AM

Defeatism 敗北主義

Martin Wolf is getting frantic, as well he should. The austerians have brought us to the brink of a vast disaster. A recession in Europe looks more likely than not; and the question for the United States is not whether a lost decade is possible, but whether there is any plausible way to avoid one.

Wolf directs us to a recent speech by Adam Posen (pdf), which opens with a passage that very much mirrors my own thoughts:

Both the UK and the global economy are facing a familiar foe at present: policy defeatism. Throughout modern economic history, whether in Western Europe in the 1920s, in the US and elsewhere in the 1930s, or in Japan in the 1990s, every major financial crisis-driven downturn has been followed by premature abandonment―if not reversal―of the macroeconomic stimulus policies that are necessary to sustained recovery. Every time, this was due to unduly influential voices claiming some combination of the destructiveness of further policy stimulus, the ineffectiveness of further policy stimulus, or the political corruption from further policy stimulus. Every time those voices were wrong on each and every count. Those voices are being heard again today, much too loudly. It is the duty of economic policymakers including central bankers to rebut these false claims head on. It is even more important that we do the right thing for the economy rather than be slowed, confused, or intimidated by such false claims.

Indeed. Posen’s “unduly influential voices” are my Very Serious People. And it has been an awesome spectacle watching the VSPs search, obsessively, for reasons not to fight mass unemployment. Fiscal policy must tighten to appease the invisible bond vigilantes and please the confidence fairy. Interest rates must rise because, well, um, inflation, well, no, low rates cause moral hazard ― yes, that must be it.
なるほど。ポーゼンの言う「はなはだしく影響のある声」というのがこちらで言うVery Serious People(すごくマジメな人々)のことだ。そしてVSPの連中が異常なほど大失業と戦わない理由を探し求めている光景には恐るべきものがある。財政政策は債券自警団をなだめて信頼の妖精を喜ばせるために引き締められなければならないんだと。利子率は上昇するに違いない、なぜなら、えっと、ううん、インフレがー、じゃないや、低い利子率はモラル・ハザードを引き起こすから―はい、それはそうじゃなきゃいけないんだと。

And we’re not (just) talking about ignorant politicians. This stuff has been coming from the European Central Bank, the Organization for Economic Cooperation and Development, the Bank for International Settlements.

I don’t fully understand it. But a large part of it, it seems obvious, is the intense desire to see economics as a morality play of sin and punishment, where the sinners are, of course, workers and governments, not the bankers. Pain is not an unfortunate consequence of policies, it’s what is supposed to happen.

How obsessive are these people? So obsessive that when the financial doom they predict fails to materialize, they consider this a bad thing: punishment must be administered, so what are the markets waiting for? Here’s Alan Greenspan a while back:
こういった人々はどれほど執ようなのか? あまりに執ようすぎて、彼らの予言した金融的破滅が実現しなかった時には、それを悪いことだと考えてしまう:罰は執行されなければならない、それなら市場は何を待っているというのか? 少し前のアラン・グリーンスパンの発言がある:

Despite the surge in federal debt to the public during the past 18 months―to $8.6 trillion from $5.5 trillion―inflation and long-term interest rates, the typical symptoms of fiscal excess, have remained remarkably subdued. This is regrettable, because it is fostering a sense of complacency that can have dire consequences.

Gosh, it’s regrettable that the markets aren’t confirming my warnings! And today Ronald McKinnon laments, yes, laments the failure of the invisible bond vigilantes to show themselves ― they’re supposed to be “disciplining the government”, so why aren’t they here?
うへー、市場が自らの警告を確証してくれないから遺憾だって! そして、今日、ロナルド・マキノンは嘆き悲しんでいる、そう、見えない債券自警団が姿を見せてくれないことを嘆き悲しんでいる―彼らが「政府を鍛えてくれる」はずだった、それなら、どうして彼らはここにいないのか?

Just to reiterate a point I’ve made before, none of this reflects actual economic theory. Throughout this crisis, people like Adam Posen and yours truly have been basing our arguments on standard textbook macroeconomics, whereas the Very Serious People have been making up stories on the fly to justify their calls for pain. As Wolf, who really seems to have eaten his Wheetabix, puts it,

The waste is more than unnecessary; it is cruel. Sadists seem to revel in that cruelty. Sane people should reject it. It is wrong, intellectually and morally.

And this cruelty rules our world.

The Method Of Comparative Statics (Very, Very Wonkish)/January 15, 2012, 8:10 PM

The Method Of Comparative Statics (Very, Very Wonkish) 比較静学の手法(超オタク風)

Well, I read Scott Sumner’s claim that Simon Wren-Lewis and I are making basic errors, and at first I couldn’t figure out at all what his problem is. Then it struck me: he doesn’t understand that Wren-Lewis and I were doing comparative statics.

What do I mean by that? I thought this was part of every economist’s training, but maybe not any more. Anyway, there are a variety of problems in economics ― by no means only in macro ― where you want to understand how some kind of shock will affect some equilibrating variable. You want to know, say, how an excise tax will affect the price of coffee, or how an international transfer will affect the terms of trade, or how a change in the savings rate will affect GDP.
それってどういう意味かって? 僕にとって、それはあらゆる経済学者が修練している類のものだと思ってたんだけど、どうやら、もはやそうじゃないみたいだね。いずれにせよ、経済学には―決してマクロだけではない―ある種類のショックがどれだけ均衡変数に影響を与えるのか知りたくなる様々な問題がある。例えば、物品税がコーヒーの価格にどんな影響を与えるのか、あるいは、国際移転が交易条件にどんな影響を与えるのか、もしくは、貯蓄率の変化がGDPにどんな影響を与えるのか、といったような。

How do you do this? It’s often helpful to do the analysis in two stages. First, you ask how some desired quantities would change holding the equilibrating variable constant; then you ask how that variable has to change to restore equilibrium. So, for example, if I ask how an excise tax will affect the price of coffee, I start by asking how that tax would affect the excess supply of coffee ― the difference between the quantity of coffee demanded and the quantity supplied ― holding the price constant; then I ask how much the price of coffee has to fall to eliminate that excess supply.
どうすればこういったことを理解できるのか? この分析を2段階に分けて行うのが有効である場合がよくある。まず、均衡にある特定の変数が変化しないものとして、ある量がどれだけ変化するかを求める。その次に、その変数が均衡を回復するためにはどれだけ変化しないといけないかを求める。例えば、物品税がどれだけコーヒーの供給に影響を与えるのか求めたいとしよう。まず、価格が変化しないものとして、その税がどれだけコーヒーの過剰供給―コーヒーの需要量と供給量の違い―を引き起こすかを求める。その次に、その過剰供給をなくすためにはどれだけコーヒーの価格が下落する必要があるのかを求める。

Notice that in that first step I am not forgetting that in the end the quantity of coffee demanded must equal the quantity supplied; I’m reasoning in the subjunctive, asking how the quantities would shift if it the price were temporarily held constant.

So what are people like Wren-Lewis and
me doing when we ask how savings or investment would change from some given shock? We’re not forgetting that in the end savings must equal investment; we’re just doing the first step in a comparative statics exercise. Suppose that I want to ask how, say, a fall in housing wealth affects the economy. First I ask how much this would increase savings, holding GDP constant; then I ask how much GDP has to fall to restore the equality between savings and investment. The picture ― which is something everyone used to learn in Econ 101 ― looks like this:
それでは、貯蓄や投資が一定のショックによってどれだけ変化するのかを求める時には、レン-ルイスや僕のような人々は何をしているのか? 僕らは貯蓄と投資が最終的には等しくなるということを忘れているわけじゃない。僕らは最初のステップとして比較静学の手続きを踏んでいるだけだ。例えば、住宅価格の下落がどれだけ経済に影響を与えるのか求めたいとしよう。まず、GDPが変化しないものとして、このことがどれだけ貯蓄を増やすことになるかを求める。その次に、貯蓄と投資の均衡を回復するためには、GDPがどれだけ下落しないといけないかを求める。図にすると―これはかつてあらゆる人がEcon101(経済原論)で学んでいたものだった―こんな感じになる:


Here the savings curve shifts up from S1 to S2; the upward shift of the curve at a given level of GDP is what Wren-Lewis and I mean by the “increase in savings”. In the end, of course, savings must equal investment, which is why GDP must fall from Y1 to Y2. But Wren-Lewis and I haven’t forgotten that S=I; we’re just using the perfectly ordinary method and language of comparative statics.

And Sumner thinks we have made some kind of basic error, and ties himself into knots trying to set us straight. It’s really very sad.

Quick Hits On A Busy Day/November 6, 2011, 1:13 PM

Quick Hits On A Busy Day 多忙な日のクイックヒット

Column is going into some new territory for me, so more time on research than usual. Also, doing a local event in about an hour …

So, just a couple of quick links.

Our new robot overlords are in the discussion these days. I think the automation of white-collar jobs has nothing to do with current unemployment, but it is a potentially large issue. And I wrote about it 15 years ago! This piece was written for a special issue celebrating the 100th anniversary of the magazine, with writers urged to write as if from the perspective of the year 2096; I had some fun.
最近、我らが新たなロボット大君主が話題になっている。僕は、ホワイトカラーの仕事の自動化は現在の失業と関係がないと思っているが、それは潜在的には重要な問題だ。そして、僕はそのことを15年前に書いた! その記事はある雑誌の100周年を祝う特別企画として書かれたもので、その中で、書き手はまるで2096年にいるかのように展望を述べているかのように書くことを求められた。それには楽しいものがあった。

Brad DeLong apologizes for not taking the liquidity trap seriously:

On my shelf is a slim, turn-of-the-millennium volume by Paul Krugman titled “The Return of Depression Economics.” In it he argued that we mainstream economists had been too quick to ditch the insights of Hicks ― and of economists Walter Bagehot and Hyman Minsky. Krugman warned that their analysis was still relevant, and that if we dismissed it we would be sorry.

I am sorry.

In the comments, he adds:

Yes. I was thinking: “Japan is weird, and has little to do with us over here on this side of the Pacific.”

Yes, I am very stupid. Yes, I have greatly sinned through my own fault.

This ties in with a proposal of mine: I think that a delegation of major US economists and policymakers should make a pilgrimage to Tokyo, and apologize to the emperor. We ― even me ― thought that we would not suffer the kinds of problems Japan faced. And we were right: we’re doing worse than they ever did.

More later, maybe, after I’ve been edited.

Dear Ben: It’s Not 2007 Anymore/November 3, 2011, 9:58 AM

Dear Ben: It’s Not 2007 Anymore 親愛なるベン:もう2007年じゃないんだ

The Federal Open Market Committee has spoken. It expects very high unemployment for at least the next three years, while it expects inflation to be below target. By any interpretation I can think of, the Fed therefore expects to fail to honor its dual mandate of price stability and full employment. To deal with this shortfall, it proposes doing … nothing.

But that’s not what has me upset, since that’s been the way of things all along. What got me was Ben Bernanke’s response to a question about whether the Fed might adopt nominal GDP targeting, or more broadly change its policy framework in some way that might help us escape the Lesser Depression. And his answer was no, because the standard approach has demonstrated “its benefits in terms of macroeconomic stabilization”.

Oh, my. Look, here’s a crude calculation – the variance of the unemployment rate over the previous 10 years:


You can see the Great Moderation, which might have led the Fed to believe, circa 2007, that it had this stabilization thing under control. But now, after four years and counting of slump?

And anyway, we don’t want “stabilization” right now – we want an escape from a slump that is crushing our future. This is no time to be basing policy on hopes that one of these years we’ll find ourselves back in the Great Moderation.

I have always had the working assumption that Bernanke was being as dovish as he could manage given his board, that in private he understood just how much we need radical action. Maybe not – and that’s very bad news.