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Ideal 2016 Nominee?

ResponsiblyIrresponsible
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3/7/2015 4:31:34 PM
Posted: 1 year ago
My ideal nominee is someone who adheres to the following:

"We've had a do-nothing Congress for the last several sessions, and that's not only deleterious to a fragile financial system, but utterly irresponsible and reprehensible given our status in the world. We must acknowledge that, while there are some pertinent functions of government, our capacity to impact the macroeconomy is limited. In fact, demand-side stimulus is utterly futile, and is offset by monetary policy. To that end, any attempt to chip away at the Fed's independence and thus spur an inflationary bias well-documented in the academic literature ought to be met with harsh opposition. Further, the only role of fiscal policy should be enacting supply-side reforms that stabilize the elasticity of the AS curve such that they tilt the real-growth-to-inflation ratio of nominal GDP toward the former."

In other words, I want a candidate who admits that fiscal policy is utterly useless. So far, I haven't seen any, and don't expect to.
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vampiress
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3/7/2015 5:25:36 PM
Posted: 1 year ago
I thought everyone agreed Hillary Clinton's pretty much guaranteed her victory.
Ideal nominee or not.
ResponsiblyIrresponsible
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3/7/2015 6:57:50 PM
Posted: 1 year ago
At 3/7/2015 5:25:36 PM, vampiress wrote:
I thought everyone agreed Hillary Clinton's pretty much guaranteed her victory.
Ideal nominee or not.

I feel like that's self-fulfilling, and the fact that so many people are inclined toward some sort of coronation ceremony only bestows that status upon her, deserved or not.

But, with that said, I thin it's highly likely that she will at least win the Democratic nomination. I'm more interested in discussing ideal nominees over probably nominees.
~ResponsiblyIrresponsible

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vampiress
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3/7/2015 7:22:36 PM
Posted: 1 year ago
At 3/7/2015 6:57:50 PM, ResponsiblyIrresponsible wrote:
At 3/7/2015 5:25:36 PM, vampiress wrote:
I thought everyone agreed Hillary Clinton's pretty much guaranteed her victory.
Ideal nominee or not.

I feel like that's self-fulfilling, and the fact that so many people are inclined toward some sort of coronation ceremony only bestows that status upon her, deserved or not.

But, with that said, I thin it's highly likely that she will at least win the Democratic nomination. I'm more interested in discussing ideal nominees over probably nominees.
As to address the 'fiscal policy' thing, I recently recall hearing that some republican candidates running, are fiscal conservatives. Any reactions?
ResponsiblyIrresponsible
Posts: 12,398
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3/7/2015 7:31:25 PM
Posted: 1 year ago
At 3/7/2015 7:22:36 PM, vampiress wrote:
At 3/7/2015 6:57:50 PM, ResponsiblyIrresponsible wrote:
At 3/7/2015 5:25:36 PM, vampiress wrote:
I thought everyone agreed Hillary Clinton's pretty much guaranteed her victory.
Ideal nominee or not.

I feel like that's self-fulfilling, and the fact that so many people are inclined toward some sort of coronation ceremony only bestows that status upon her, deserved or not.

But, with that said, I thin it's highly likely that she will at least win the Democratic nomination. I'm more interested in discussing ideal nominees over probably nominees.
As to address the 'fiscal policy' thing, I recently recall hearing that some republican candidates running, are fiscal conservatives. Any reactions?

I've not a big a fan of the GOP for a number of reasons which actually extend well beyond economics, but there are a few problems even with those who profess to be "fiscal conservatives":

(1) I'm not one to deny that fiscal policy can be stimulative, but would only argue that any fiscal multiplier above 0 is a measure of Fed incompetence. The rationale behind this is completely lost on the GOP, who loves to pour money into wars whilst cutting social programs.

(2) I think fiscal policy ought to be an end in itself, which really only means that I think we ought to spend the money wisely in lieu of hoping that a dollar wasted has X multiplier effect, because in a perfect world it doesn't. But, with that said, I'm not one to scream about deficits at zero nominal interest rates because it's *impossible* for them to crowd out private investment, and countries that borrow in their own currency can't default. So the notion that we ought to panic and slash social programs, entitlements, etc. is just utterly foolish.

(3) Even if I were to take a position more conservative than my own and argue that austerity is actually expansionary because it's, at worse, net zero on the demand side and positive on the supply side, I wouldn't support the GOP because, again, they love deficits on silly things--war spending, subsidies to Big Oil, etc.

(4) The GOP has been extremely hostile to the Fed--trying to force it to model policy by a Taylor Rule, trying to pass an audit, screaming about "bubbles" and "inflation" and things they (and most people) don't understand, etc. It's a losing game for them, because implicit in it is a position that demand shocks don't matter. Anyone who lived through 2007-09 would (or should) wholeheartedly disagree.

(5) A lot of them are just bat-sh1t insane.
~ResponsiblyIrresponsible

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vampiress
Posts: 26
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3/7/2015 7:54:47 PM
Posted: 1 year ago
At 3/7/2015 7:31:25 PM, ResponsiblyIrresponsible wrote:
At 3/7/2015 7:22:36 PM, vampiress wrote:
At 3/7/2015 6:57:50 PM, ResponsiblyIrresponsible wrote:
At 3/7/2015 5:25:36 PM, vampiress wrote:
I thought everyone agreed Hillary Clinton's pretty much guaranteed her victory.
Ideal nominee or not.

I feel like that's self-fulfilling, and the fact that so many people are inclined toward some sort of coronation ceremony only bestows that status upon her, deserved or not.

But, with that said, I thin it's highly likely that she will at least win the Democratic nomination. I'm more interested in discussing ideal nominees over probably nominees.
As to address the 'fiscal policy' thing, I recently recall hearing that some republican candidates running, are fiscal conservatives. Any reactions?

I've not a big a fan of the GOP for a number of reasons which actually extend well beyond economics, but there are a few problems even with those who profess to be "fiscal conservatives":

(1) I'm not one to deny that fiscal policy can be stimulative, but would only argue that any fiscal multiplier above 0 is a measure of Fed incompetence. The rationale behind this is completely lost on the GOP, who loves to pour money into wars whilst cutting social programs.

(2) I think fiscal policy ought to be an end in itself, which really only means that I think we ought to spend the money wisely in lieu of hoping that a dollar wasted has X multiplier effect, because in a perfect world it doesn't. But, with that said, I'm not one to scream about deficits at zero nominal interest rates because it's *impossible* for them to crowd out private investment, and countries that borrow in their own currency can't default. So the notion that we ought to panic and slash social programs, entitlements, etc. is just utterly foolish.

(3) Even if I were to take a position more conservative than my own and argue that austerity is actually expansionary because it's, at worse, net zero on the demand side and positive on the supply side, I wouldn't support the GOP because, again, they love deficits on silly things--war spending, subsidies to Big Oil, etc.

(4) The GOP has been extremely hostile to the Fed--trying to force it to model policy by a Taylor Rule, trying to pass an audit, screaming about "bubbles" and "inflation" and things they (and most people) don't understand, etc. It's a losing game for them, because implicit in it is a position that demand shocks don't matter. Anyone who lived through 2007-09 would (or should) wholeheartedly disagree.

(5) A lot of them are just bat-sh1t insane.
Lol I concur, utterly insane how the GOP influences the Fed (its incompetence) and especially how representatives spout economic nonsense that no one can comprehend besides republicans themselves. It's exhaustingly repetitious but inevitable if Americans' preferences are for the GOP in the next presidential election. I swear it's critical that the circumstances are favorable for less deranged politicians from either party.
ResponsiblyIrresponsible
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3/7/2015 8:03:39 PM
Posted: 1 year ago
At 3/7/2015 7:54:47 PM, vampiress wrote:
At 3/7/2015 7:31:25 PM, ResponsiblyIrresponsible wrote:
At 3/7/2015 7:22:36 PM, vampiress wrote:
At 3/7/2015 6:57:50 PM, ResponsiblyIrresponsible wrote:
At 3/7/2015 5:25:36 PM, vampiress wrote:
I thought everyone agreed Hillary Clinton's pretty much guaranteed her victory.
Ideal nominee or not.

I feel like that's self-fulfilling, and the fact that so many people are inclined toward some sort of coronation ceremony only bestows that status upon her, deserved or not.

But, with that said, I thin it's highly likely that she will at least win the Democratic nomination. I'm more interested in discussing ideal nominees over probably nominees.
As to address the 'fiscal policy' thing, I recently recall hearing that some republican candidates running, are fiscal conservatives. Any reactions?

I've not a big a fan of the GOP for a number of reasons which actually extend well beyond economics, but there are a few problems even with those who profess to be "fiscal conservatives":

(1) I'm not one to deny that fiscal policy can be stimulative, but would only argue that any fiscal multiplier above 0 is a measure of Fed incompetence. The rationale behind this is completely lost on the GOP, who loves to pour money into wars whilst cutting social programs.

(2) I think fiscal policy ought to be an end in itself, which really only means that I think we ought to spend the money wisely in lieu of hoping that a dollar wasted has X multiplier effect, because in a perfect world it doesn't. But, with that said, I'm not one to scream about deficits at zero nominal interest rates because it's *impossible* for them to crowd out private investment, and countries that borrow in their own currency can't default. So the notion that we ought to panic and slash social programs, entitlements, etc. is just utterly foolish.

(3) Even if I were to take a position more conservative than my own and argue that austerity is actually expansionary because it's, at worse, net zero on the demand side and positive on the supply side, I wouldn't support the GOP because, again, they love deficits on silly things--war spending, subsidies to Big Oil, etc.

(4) The GOP has been extremely hostile to the Fed--trying to force it to model policy by a Taylor Rule, trying to pass an audit, screaming about "bubbles" and "inflation" and things they (and most people) don't understand, etc. It's a losing game for them, because implicit in it is a position that demand shocks don't matter. Anyone who lived through 2007-09 would (or should) wholeheartedly disagree.

(5) A lot of them are just bat-sh1t insane.
Lol I concur, utterly insane how the GOP influences the Fed (its incompetence) and especially how representatives spout economic nonsense that no one can comprehend besides republicans themselves. It's exhaustingly repetitious but inevitable if Americans' preferences are for the GOP in the next presidential election. I swear it's critical that the circumstances are favorable for less deranged politicians from either party.

I agree with all that, though I do think there aren't--so far as I know--any comparable nut cases on the left. Sure, there are a lot of economic illiterates who ignore globalization cite the 1950 as evidence for tax hikes, think that the MW "boosting consumption," even if it's true, is at all plausible, and who oppose free trade. But I haven't see any of them go to the extremes of a Cruz or a Paul.

Though, strangely, I can't stand listening to Democrats at monetary policy testimonies, either. Granted, the Republicans ripping on the Fed are agonizing, but they actually may almost be rivaled, as a matter of rhetoric, by sycophantic Democrats.

----
Actually, I take that back: Warren's suggestions on having the FBNY President approved by the Senate and wanting to deprive the Fed of *even more* of its emergency lending powers is comparable to GOP inanity.
~ResponsiblyIrresponsible

DDO's Economics Messiah
vampiress
Posts: 26
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3/7/2015 8:26:30 PM
Posted: 1 year ago
At 3/7/2015 8:03:39 PM, ResponsiblyIrresponsible wrote:
At 3/7/2015 7:54:47 PM, vampiress wrote:
At 3/7/2015 7:31:25 PM, ResponsiblyIrresponsible wrote:
At 3/7/2015 7:22:36 PM, vampiress wrote:
At 3/7/2015 6:57:50 PM, ResponsiblyIrresponsible wrote:
At 3/7/2015 5:25:36 PM, vampiress wrote:
I thought everyone agreed Hillary Clinton's pretty much guaranteed her victory.
Ideal nominee or not.

I feel like that's self-fulfilling, and the fact that so many people are inclined toward some sort of coronation ceremony only bestows that status upon her, deserved or not.

But, with that said, I thin it's highly likely that she will at least win the Democratic nomination. I'm more interested in discussing ideal nominees over probably nominees.
As to address the 'fiscal policy' thing, I recently recall hearing that some republican candidates running, are fiscal conservatives. Any reactions?

I've not a big a fan of the GOP for a number of reasons which actually extend well beyond economics, but there are a few problems even with those who profess to be "fiscal conservatives":

(1) I'm not one to deny that fiscal policy can be stimulative, but would only argue that any fiscal multiplier above 0 is a measure of Fed incompetence. The rationale behind this is completely lost on the GOP, who loves to pour money into wars whilst cutting social programs.

(2) I think fiscal policy ought to be an end in itself, which really only means that I think we ought to spend the money wisely in lieu of hoping that a dollar wasted has X multiplier effect, because in a perfect world it doesn't. But, with that said, I'm not one to scream about deficits at zero nominal interest rates because it's *impossible* for them to crowd out private investment, and countries that borrow in their own currency can't default. So the notion that we ought to panic and slash social programs, entitlements, etc. is just utterly foolish.

(3) Even if I were to take a position more conservative than my own and argue that austerity is actually expansionary because it's, at worse, net zero on the demand side and positive on the supply side, I wouldn't support the GOP because, again, they love deficits on silly things--war spending, subsidies to Big Oil, etc.

(4) The GOP has been extremely hostile to the Fed--trying to force it to model policy by a Taylor Rule, trying to pass an audit, screaming about "bubbles" and "inflation" and things they (and most people) don't understand, etc. It's a losing game for them, because implicit in it is a position that demand shocks don't matter. Anyone who lived through 2007-09 would (or should) wholeheartedly disagree.

(5) A lot of them are just bat-sh1t insane.
Lol I concur, utterly insane how the GOP influences the Fed (its incompetence) and especially how representatives spout economic nonsense that no one can comprehend besides republicans themselves. It's exhaustingly repetitious but inevitable if Americans' preferences are for the GOP in the next presidential election. I swear it's critical that the circumstances are favorable for less deranged politicians from either party.

I agree with all that, though I do think there aren't--so far as I know--any comparable nut cases on the left. Sure, there are a lot of economic illiterates who ignore globalization cite the 1950 as evidence for tax hikes, think that the MW "boosting consumption," even if it's true, is at all plausible, and who oppose free trade. But I haven't see any of them go to the extremes of a Cruz or a Paul.

Though, strangely, I can't stand listening to Democrats at monetary policy testimonies, either. Granted, the Republicans ripping on the Fed are agonizing, but they actually may almost be rivaled, as a matter of rhetoric, by sycophantic Democrats.

----
Actually, I take that back: Warren's suggestions on having the FBNY President approved by the Senate and wanting to deprive the Fed of *even more* of its emergency lending powers is comparable to GOP inanity.
Lol I love how you're very indecisive about either parties, even though I'm aware you don't identify as a republican. I think the general consensus is that both parties have a number of radical lunatics that will surely demolish any form of stability in the government , if they indeed came into power. That much I believe is pre-determined, but we can still extract much from the upcoming results.
At the mention of Warren, I'm iffy on whether her stances are viable or not. Haven't perused through much of her political positions. BUT, it'll be intriguing to see how she debunks Hillary. I hear she has quite a number of guaranteed supporters as well.
That1User
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3/7/2015 8:50:52 PM
Posted: 1 year ago
At 3/7/2015 7:31:25 PM, ResponsiblyIrresponsible wrote:
What do you think is the most sound economic policy?
"Our life is what our thoughts make it."
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ResponsiblyIrresponsible
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3/7/2015 9:44:46 PM
Posted: 1 year ago
At 3/7/2015 8:50:52 PM, That1User wrote:
At 3/7/2015 7:31:25 PM, ResponsiblyIrresponsible wrote:
What do you think is the most sound economic policy?

Right at this moment?

I think it would be most sound if Congress were to do next to nothing and the Fed were to, in lieu of raising rates somewhere around June of this year, implement a nominal GDP target of 5 percent predicated on returning total-dollar spending to its pre-recession trend. That may take a while, so there's flexibility with where best to draw the index, but it's at least a start.
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ResponsiblyIrresponsible
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3/7/2015 9:49:42 PM
Posted: 1 year ago
At 3/7/2015 8:26:30 PM, vampiress wrote:

Lol I love how you're very indecisive about either parties, even though I'm aware you don't identify as a republican.

Well, yeah, because neither of them actually understand the complex issues they're voting on. lol.

I think the general consensus is that both parties have a number of radical lunatics that will surely demolish any form of stability in the government , if they indeed came into power. That much I believe is pre-determined, but we can still extract much from the upcoming results.

Normally I would disagree because the GOP completely outdoes the Dems in terms of just sheer lunacy, but Dodd Frank (Title XI particularly) compensates for quite a bit.

At the mention of Warren, I'm iffy on whether her stances are viable or not. Haven't perused through much of her political positions. BUT, it'll be intriguing to see how she debunks Hillary. I hear she has quite a number of guaranteed supporters as well.

I doubt she'll run; a while back she signed a letter endorsing Hillary, which you would think completely undermined her brand--in much the same way as her endorsement of Obama--but I guess her supporters just don't care that she's either (1) completely fake or (2) playing politics. The latter is more plausible, but you would think their "progressive savior" is beyond it all when it comes to something as important as....picking the next president.

I haven't any doubt that she could win, though obviously Wall Street money will pour in big time for her opponent. Strangely, I'm on their side.
~ResponsiblyIrresponsible

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Chang29
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3/8/2015 12:11:35 AM
Posted: 1 year ago
At 3/7/2015 4:31:34 PM, ResponsiblyIrresponsible wrote:
My ideal nominee is someone who adheres to the following:

"We've had a do-nothing Congress for the last several sessions, and that's not only deleterious to a fragile financial system, but utterly irresponsible and reprehensible given our status in the world. We must acknowledge that, while there are some pertinent functions of government, our capacity to impact the macroeconomy is limited. In fact, demand-side stimulus is utterly futile, and is offset by monetary policy. To that end, any attempt to chip away at the Fed's independence and thus spur an inflationary bias well-documented in the academic literature ought to be met with harsh opposition. Further, the only role of fiscal policy should be enacting supply-side reforms that stabilize the elasticity of the AS curve such that they tilt the real-growth-to-inflation ratio of nominal GDP toward the former."


In other words, I want a candidate who admits that fiscal policy is utterly useless. So far, I haven't seen any, and don't expect to.

I agree with a candidate that thinks fiscal policy is useless. In regards to the Fed, I would like new Fed appointees to be in favor of deflationary monetary policies.
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If it can be de-centralized, it will be de-centralized.
ResponsiblyIrresponsible
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3/8/2015 12:19:55 AM
Posted: 1 year ago
At 3/8/2015 12:11:35 AM, Chang29 wrote:
At 3/7/2015 4:31:34 PM, ResponsiblyIrresponsible wrote:
My ideal nominee is someone who adheres to the following:

"We've had a do-nothing Congress for the last several sessions, and that's not only deleterious to a fragile financial system, but utterly irresponsible and reprehensible given our status in the world. We must acknowledge that, while there are some pertinent functions of government, our capacity to impact the macroeconomy is limited. In fact, demand-side stimulus is utterly futile, and is offset by monetary policy. To that end, any attempt to chip away at the Fed's independence and thus spur an inflationary bias well-documented in the academic literature ought to be met with harsh opposition. Further, the only role of fiscal policy should be enacting supply-side reforms that stabilize the elasticity of the AS curve such that they tilt the real-growth-to-inflation ratio of nominal GDP toward the former."


In other words, I want a candidate who admits that fiscal policy is utterly useless. So far, I haven't seen any, and don't expect to.

I agree with a candidate that thinks fiscal policy is useless. In regards to the Fed, I would like new Fed appointees to be in favor of deflationary monetary policies.

So you want them to emulate Japan?

Monetary policy can only impact demand, so you're saying the Fed ought to perpetually suppress demand. Because wages and prices remain sticky, this means constant layoffs. Why would you want that?
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ResponsiblyIrresponsible
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3/8/2015 12:47:08 AM
Posted: 1 year ago
Also, the reason fiscal policy is useless is that monetary policy does the job better, so a perpetually deflationary monetary policy would obviously render fiscal policy effective.
~ResponsiblyIrresponsible

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Chang29
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3/8/2015 1:03:27 AM
Posted: 1 year ago
At 3/8/2015 12:19:55 AM, ResponsiblyIrresponsible wrote:
At 3/8/2015 12:11:35 AM, Chang29 wrote:
At 3/7/2015 4:31:34 PM, ResponsiblyIrresponsible wrote:
My ideal nominee is someone who adheres to the following:

"We've had a do-nothing Congress for the last several sessions, and that's not only deleterious to a fragile financial system, but utterly irresponsible and reprehensible given our status in the world. We must acknowledge that, while there are some pertinent functions of government, our capacity to impact the macroeconomy is limited. In fact, demand-side stimulus is utterly futile, and is offset by monetary policy. To that end, any attempt to chip away at the Fed's independence and thus spur an inflationary bias well-documented in the academic literature ought to be met with harsh opposition. Further, the only role of fiscal policy should be enacting supply-side reforms that stabilize the elasticity of the AS curve such that they tilt the real-growth-to-inflation ratio of nominal GDP toward the former."


In other words, I want a candidate who admits that fiscal policy is utterly useless. So far, I haven't seen any, and don't expect to.

I agree with a candidate that thinks fiscal policy is useless. In regards to the Fed, I would like new Fed appointees to be in favor of deflationary monetary policies.

So you want them to emulate Japan?

Monetary policy can only impact demand, so you're saying the Fed ought to perpetually suppress demand. Because wages and prices remain sticky, this means constant layoffs. Why would you want that?

Japan's policies are to maintain a 2% price inflation target. Japanese people would be better off if Japan's central bank would embrace deflation, not fight it.

Deflate the money supply then let wages and prices react. Wages are more sticky than prices, wage stickiness will increase real wages with monetary deflationary policies. Prices that are less sticky and will fall much faster than wages. Thus, increasing real income of workers. With a deflationary economy individuals have more power, and government policies have a lessor effect on the economy.

Deflation does not cause layoffs, there might be examples of coloration but there is not causation. Your desired candidate is a "... candidate who admits that fiscal policy is utterly useless", a deflationary Fed is that fiscal admission.

You are extremely smart in economics, take stated negative effects of deflationary monetary policies, policies that stabilize or reduce the money supply. The common stated negative effects of deflation focus on government and macro-level issues, like lower GDP, negate Fed interest rate changes, defer purchases, and others. All of those effects are beneficial at an individual's level. Lower prices are always good for individuals.
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3/8/2015 1:35:31 AM
Posted: 1 year ago
At 3/8/2015 1:03:27 AM, Chang29 wrote:
Japan's policies are to maintain a 2% price inflation target. Japanese people would be better off if Japan's central bank would embrace deflation, not fight it.

It hasn't been doing it. Japan experienced a deflationary spiral for an entire two decades which made deflationary expectations ingrained and self-reinforcing, which is why now, under Abenomics, it's increasingly hard to actually hit 2 percent inflation--not to mention backlash from people on fixed incomes who benefit from deflation temporarily, though deflation is no way, shape or form beneficial.

Deflate the money supply then let wages and prices react. Wages are more sticky than prices, wage stickiness will increase real wages with monetary deflationary policies.
Prices that are less sticky and will fall much faster than wages. Thus, increasing real income of workers. With a deflationary economy individuals have more power, and government policies have a lessor effect on the economy.

That's a horrid idea for a number of reasons.

First, I agree that wages are a lagging indicator, but all that means is that you're shifting--not creating--purchasing power from employers to workers, which leads to layoffs--meaning that, even *if* you increase real income temporarily for workers who keep their jobs, you depress overall real income because firms cut back on production and lay people off. There's a fundamental distinction between deflation from monetary policy and deflation from a positive supply shock.

Second, you're going to unstick the wage at some point, in which case all of these effects are reversed, deflation falls further, you unstick the wage again, etc. If you happen to hit the zero lower bound on nominal interest rates--which you will eventually, because interest rates tend to fall as inflation expectations fall--then a fall in inflation means a rise in real interest rates, which further depresses aggregate demand and reduces inflation further, spawning a self-reinforcing effect.

Third, why do you care if individual real incomes of *some* workers increase if deflationary expectations actively discourage consumption? It's a textbook case that a fall in inflation expectations causes people to put off spending.

Fourth, deflation increases the value of nominally denominated debt burdens. Following the recession, people paid down longstanding debt for about 5 years in lieu of consuming, and this deleveraging process, which again caused them to put off consumption. So if you increase debt burdens AND lay people off, consumption on balance falls. So what's the point?

Fifth, deflation threatens financial stability because again interest rates tend to fall which leads to an underpricing of risk and ultimately financial excesses.

Deflation does not cause layoffs, there might be examples of coloration but there is not causation.

I never said deflation causes layoffs, but you need to understand where deflation comes from. An aggregate demand shortfall, which *leads* to deflation, causes layoffs because, as you even admit, wags and prices are sticky. If deflation were from a positive supply shock, there would be a slightly different issue, though debt deflation would nevertheless ensue, interest rates would tend to fall, real rates would tend to rise, and more.

It isn't an issue of correlation versus causation because deflation AND layoffs, in this case are caused by a shortfall in aggregate demand. Even the most basic of econ textbooks tells you that because labor is a derived demand, a fall in AD leads to a fall in labor demand.

Your desired candidate is a "... candidate who admits that fiscal policy is utterly useless", a deflationary Fed is that fiscal admission.

That isn't remotely true, and ignores why I said *demand-side* fiscal stimulus is useless. The argument I and a number of others have been making is that monetary policy OFFSETS fiscal policy. In other words, if Congress pursues an expansionary policy, the Fed responds with a tighter policy than it would've pursued to maintain its inflation target. Further, if Congress cuts spending, the Fed responds with a more expansionary policy than otherwise. It's predicated on the Fed actually doing its job, not perpetually succumbing to deflation, which would be completely dumb and an obfuscation of both legs of its dual mandate.

You are extremely smart in economics, take stated negative effects of deflationary monetary policies, policies that stabilize or reduce the money supply. The common stated negative effects of deflation focus on government and macro-level issues, like lower GDP, negate Fed interest rate changes, defer purchases, and others. All of those effects are beneficial at an individual's level. Lower prices are always good for individuals.

But they're not beneficial for individuals if they're leading to layoffs, lower consumption which leads to even more layoffs, and thus that fall in demand leads to more layoffs, and thus less consumption, ad infinitum.

I don't see how it's possible for something to be good at the micro but not macro level, since macro is simply an aggregate of micro. If you took it from a micro perspective, it's even worse because deflation would lower production costs and shift the supply curve to the right, which brings inflation down even further. In the real world, of course, it takes a long time for that "self correcting" mechanism to actually take hold, and it's debilitating at zero nominal interest rates, which you would actually have if deflation becomes ingrained. Further, because you're removing purchasing power from businesses, not only does consumption fall in spite of lower prices, but business investment falls.

There just isn't anything good that comes from deflation. If you need evidence for that, look at the US during the Depression amid really tight money or at Japan in recent memory.
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3/8/2015 3:28:10 AM
Posted: 1 year ago
@Deflation: I provide evidence that it is bad in my debate with HG (see link in sig)
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https://rekonomics.wordpress.com...
"A trend is a trend, but the question is, will it bend? Will it alter its course through some unforeseen force and come to a premature end?" -- Alec Cairncross
ResponsiblyIrresponsible
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3/8/2015 3:38:40 AM
Posted: 1 year ago
At 3/8/2015 3:28:10 AM, 16kadams wrote:
@Deflation: I provide evidence that it is bad in my debate with HG (see link in sig)

^^^ That too, lol.

I was approaching it from a more theoretical approach since I didn't feel like digging up papers on it, but yeah.
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Chang29
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3/8/2015 7:24:55 AM
Posted: 1 year ago
At 3/8/2015 1:35:31 AM, ResponsiblyIrresponsible wrote:
At 3/8/2015 1:03:27 AM, Chang29 wrote:
Japan's policies are to maintain a 2% price inflation target. Japanese people would be better off if Japan's central bank would embrace deflation, not fight it.

It hasn't been doing it. Japan experienced a deflationary spiral for an entire two decades which made deflationary expectations ingrained and self-reinforcing, which is why now, under Abenomics, it's increasingly hard to actually hit 2 percent inflation--not to mention backlash from people on fixed incomes who benefit from deflation temporarily, though deflation is no way, shape or form beneficial.

Deflate the money supply then let wages and prices react. Wages are more sticky than prices, wage stickiness will increase real wages with monetary deflationary policies.
Prices that are less sticky and will fall much faster than wages. Thus, increasing real income of workers. With a deflationary economy individuals have more power, and government policies have a lessor effect on the economy.

That's a horrid idea for a number of reasons.

Looking at each horrid point of deflation.

First, I agree that wages are a lagging indicator, but all that means is that you're shifting--not creating--purchasing power from employers to workers, which leads to layoffs--meaning that, even *if* you increase real income temporarily for workers who keep their jobs, you depress overall real income because firms cut back on production and lay people off. There's a fundamental distinction between deflation from monetary policy and deflation from a positive supply shock.

At a micro level, you know the law of demand, when price of a good falls, demand increases. This higher demand but lower cost puts pressure on higher cost producers, and rewards the lower cost producers. With a higher demand for the product profits can still be made with efficient business decisions. Labor would flow to the highly efficient producers. Personnel layoffs would be short term frictional unemployment.

Second, you're going to unstick the wage at some point, in which case all of these effects are reversed, deflation falls further, you unstick the wage again, etc. If you happen to hit the zero lower bound on nominal interest rates--which you will eventually, because interest rates tend to fall as inflation expectations fall--then a fall in inflation means a rise in real interest rates, which further depresses aggregate demand and reduces inflation further, spawning a self-reinforcing effect.

More deflation is even better, lower prices keep increasing demand. Rising interest rates are a desired effect. Rising interest rates increase savings, which is real wealth accumulation.

Third, why do you care if individual real incomes of *some* workers increase if deflationary expectations actively discourage consumption? It's a textbook case that a fall in inflation expectations causes people to put off spending.

Lower prices encourages consumption, every micro model that correlates lower prices with higher demand. The textbook case makes zero sense in the real world, a person is not going to delay purchasing bologna today, because it might cost less tomorrow. If a person is ready for some fried bologna it will be purchased.

Correct, punishing inefficient people that should not be rewarded at the expense of efficient savers. This also causes borrowing to be more expense, especially for the government which is also desirable. This higher cost of borrowing encourages real wealth creation, not debt creation.

Fourth, deflation increases the value of nominally denominated debt burdens. Following the recession, people paid down longstanding debt for about 5 years in lieu of consuming, and this deleveraging process, which again caused them to put off consumption. So if you increase debt burdens AND lay people off, consumption on balance falls. So what's the point?

Deflation is more financial stable, real interest rates reach a natural equilibrium, which is coordinated with time and correctly price risk. This real interest rate cannot be affected by central bankers.

Fifth, deflation threatens financial stability because again interest rates tend to fall which leads to an underpricing of risk and ultimately financial excesses.

A deflationary economy puts the economy in the hands of individuals, not central planners. The Fed should not have any role in stabilizing prices or maintaining unemployment.

Deflation does not cause layoffs, there might be examples of coloration but there is not causation.

I never said deflation causes layoffs, but you need to understand where deflation comes from. An aggregate demand shortfall, which *leads* to deflation, causes layoffs because, as you even admit, wags and prices are sticky. If deflation were from a positive supply shock, there would be a slightly different issue, though debt deflation would nevertheless ensue, interest rates would tend to fall, real rates would tend to rise, and more.

It isn't an issue of correlation versus causation because deflation AND layoffs, in this case are caused by a shortfall in aggregate demand. Even the most basic of econ textbooks tells you that because labor is a derived demand, a fall in AD leads to a fall in labor demand.

Your desired candidate is a "... candidate who admits that fiscal policy is utterly useless", a deflationary Fed is that fiscal admission.

That isn't remotely true, and ignores why I said *demand-side* fiscal stimulus is useless. The argument I and a number of others have been making is that monetary policy OFFSETS fiscal policy. In other words, if Congress pursues an expansionary policy, the Fed responds with a tighter policy than it would've pursued to maintain its inflation target. Further, if Congress cuts spending, the Fed responds with a more expansionary policy than otherwise. It's predicated on the Fed actually doing its job, not perpetually succumbing to deflation, which would be completely dumb and an obfuscation of both legs of its dual mandate.

You are extremely smart in economics, take stated negative effects of deflationary monetary policies, policies that stabilize or reduce the money supply. The common stated negative effects of deflation focus on government and macro-level issues, like lower GDP, negate Fed interest rate changes, defer purchases, and others. All of those effects are beneficial at an individual's level. Lower prices are always good for individuals.

But they're not beneficial for individuals if they're leading to layoffs, lower consumption which leads to even more layoffs, and thus that fall in demand leads to more layoffs, and thus less consumption, ad infinitum.

I don't see how it's possible for something to be good at the micro but not macro level, since macro is simply an aggregate of micro. If you took it from a micro perspective, it's even worse because deflation would lower production costs and shift the supply curve to the right, which brings inflation down even further. In the real world, of course, it takes a long time for that "self correcting" mechanism to actually take hold, and it's debilitating at zero nominal interest rates, which you would actually have if deflation becomes ingrained. Further, because you're removing purchasing power from businesses, not only does consumption fall in spite of lower prices, but business investment falls.

There just isn't anything good that comes from deflation. If you need evidence for that, look at the US during the Depression amid really tight money or at Japan in recent memory.

There are many examples were microeconomic effects on individuals or firms have opposite effects on macroeconomic model, like savings, lower prices, trade deficits, strong currencies.
Lower production costs are also good.
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Vox_Veritas
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3/8/2015 7:42:18 AM
Posted: 1 year ago
A candidate who is Libertarian Right.
Call me Vox, the Resident Contrarian of debate.org.

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ResponsiblyIrresponsible
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3/8/2015 8:32:18 AM
Posted: 1 year ago
At 3/8/2015 7:24:55 AM, Chang29 wrote:
At a micro level, you know the law of demand, when price of a good falls, demand increases. This higher demand but lower cost puts pressure on higher cost producers, and rewards the lower cost producers. With a higher demand for the product profits can still be made with efficient business decisions. Labor would flow to the highly efficient producers. Personnel layoffs would be short term frictional unemployment.

None of that is remotely true because you agreed with me just a second ago that prices are sticky. If prices could adjust, we wouldn't be having this discussion. Micro completely ignores the fat that wages are sticky, so if demand shifts to the right, because employers can't cut wages or prices, they lay people off.

Not to mention, that "self correcting" mechanism is, again, destabilizing at zero nominal interest rates, as I explained above, via the paradox of flexibility. It also renders a myriad of supply-side tax cuts virtually useless, if not outright deleterious, via the paradox of toil.

More deflation is even better, lower prices keep increasing demand. Rising interest rates are a desired effect. Rising interest rates increase savings, which is real wealth accumulation.

How are they increasing demand when more deflation results more lower aggregate demand and thus more layoffs, especially when deflation (1) increases the value of fixed debt, causing people to put off consumption (since 50% of households amid the recession have a negative net worth); (2) causes consumers to put off spending; and (3) decreases the value of assets--so, for instance, should have the impact over time of reducing home prices, thus eroding the value of collateral and making loans virtually unattainable.

No, they won't increase savings (except amongst the affluent over time, which is precisely what we don't want), because in much the same way as the Great Recession, consumers will need to try to borrow to maintain their standard of living or even to survive. Not to mention, we run into the paradox of thrift: in Krugman's formulation, "your spending is my income, my spending is your income." In other words, if we both cut back on spending at the same time, overall income falls, one or both of us becomes unemployed, consumption falls again, our wealth actually collapses again, etc.

Lower prices encourages consumption, every micro model that correlates lower prices with higher demand. The textbook case makes zero sense in the real world, a person is not going to delay purchasing bologna today, because it might cost less tomorrow. If a person is ready for some fried bologna it will be purchased.

There's actual empirical backing to deflation causing consumers to put off consumption for a myriad of reasons, the most prominent of which is increasing the value of fixed debt, but mostly overall demand is going to fall because, once again, a number of people were laid off, and thus businesses put off investment in capacity.

A good example is oil prices: they'll been falling drastically on a global level, and though there are supply-side benefits, falling inflation expectations have sent retail sails into the toilet.

Correct, punishing inefficient people that should not be rewarded at the expense of efficient savers. This also causes borrowing to be more expense, especially for the government which is also desirable. This higher cost of borrowing encourages real wealth creation, not debt creation.

This is even more ludicrous.

First, the use-savings identity is savings = investment + NX. The mechanism through which savings increases wealth over the longer term is the fact that it's funneled through financial markets and invested by businesses--but this cannot happening when investment is plummeting due to lower consumption; businesses aren't going to invest amid mass unemployment, which again, via the paradox of thrift, this would result in.

Deflation is more financial stable, real interest rates reach a natural equilibrium, which is coordinated with time and correctly price risk. This real interest rate cannot be affected by central bankers.

If it can't be affected by central bankers, why do you want the Fed to push for "deflationary" policies? It can't be targeted by the Fed, but it's destabilizing because deflationary expectations, a la Japan, become ingrained and self-reinforcing.

It isn't financially stable at all because people need to borrow to maintain their standard of living, and arbitrage will lead investors toward more risky investments, which itself is what leads to financial excesses.

A deflationary economy puts the economy in the hands of individuals, not central planners. The Fed should not have any role in stabilizing prices or maintaining unemployment.

This is absurd, because again, you just agreed with me that prices and wages are sticky, so deflation due to an AD shock leads to mass unemployment. Mass unemployment has long-run implications like, say, lower trending levels of real output. Not to mention, depressions generally result from overly tight monetary policy, which you're perpetuating to an exponential degree.

I typed out a lot of good stuff you ignored.


There are many examples were microeconomic effects on individuals or firms have opposite effects on macroeconomic model, like savings,

Savings isn't even examined in micro because the key role of savings is investment via financial markets, which only enter the fray in macro.

lower prices,

Over time, and mass misery until they actually unstick, and if we're at zero nominal interests, mass pain after the fact--which is probably the cause because, again, interest rates gravitate to zero amid recessions.

trade deficits,

Trade deficits aren't generally a micro concept either, though I've seen them in micro textbooks. The story is probably that they tend to raise interest rates, right? The open-economy macro model says the same thing, though you seem to agree with me that (1) this need not be the case and (2) because a trade deficit is a foreign direct investment surplus, this need not be overly bad.

strong currencies.

Completely ignored in micro, and deleterious in the real world because they choke of export--see the U.S. right now, for instance.

Lower production costs are also good.

It takes a long while to actually get there, with gratuitous misery in the process, and at the ZLB, this again is not the case.
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3/8/2015 8:45:39 AM
Posted: 1 year ago
The key point I want to stress is that the Fed cannot influence real variables directly: its goal ought to be, or at least is implicitly, stabilizing nominal incomes. Nominal income is equal to nominal income per person plus nominal income of hires. The first is sticky, the latter is not, so if NGDP falls, firms cut back on production, leading to layoffs, depressing nominal income further, etc.
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3/8/2015 9:09:41 AM
Posted: 1 year ago
At 3/8/2015 7:42:18 AM, Vox_Veritas wrote:
A candidate who is Libertarian Right.

I thought you were socially conservative.
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Chang29
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3/8/2015 9:26:17 AM
Posted: 1 year ago
At 3/8/2015 8:45:39 AM, ResponsiblyIrresponsible wrote:
The key point I want to stress is that the Fed cannot influence real variables directly: its goal ought to be, or at least is implicitly, stabilizing nominal incomes. Nominal income is equal to nominal income per person plus nominal income of hires. The first is sticky, the latter is not, so if NGDP falls, firms cut back on production, leading to layoffs, depressing nominal income further, etc.

My overall point is the Fed should not have any goals or mandates to effect income, prices, or employment. Yet, the Fed does have harmful mandates, that is why I want a candidate that is for restricting the power of the Fed.

I have a lot to do tomorrow and need to go. The below is an audio essay "Deflation and Liberty" by J"rg Guido H"lsmann and makes a good case for deflation.
http://mises.org...
A free market anti-capitalist

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ResponsiblyIrresponsible
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3/8/2015 9:28:28 AM
Posted: 1 year ago
At 3/8/2015 9:26:17 AM, Chang29 wrote:
At 3/8/2015 8:45:39 AM, ResponsiblyIrresponsible wrote:
The key point I want to stress is that the Fed cannot influence real variables directly: its goal ought to be, or at least is implicitly, stabilizing nominal incomes. Nominal income is equal to nominal income per person plus nominal income of hires. The first is sticky, the latter is not, so if NGDP falls, firms cut back on production, leading to layoffs, depressing nominal income further, etc.

My overall point is the Fed should not have any goals or mandates to effect income, prices, or employment. Yet, the Fed does have harmful mandates, that is why I want a candidate that is for restricting the power of the Fed.

I have a lot to do tomorrow and need to go. The below is an audio essay "Deflation and Liberty" by J"rg Guido H"lsmann and makes a good case for deflation.
http://mises.org...

I have a lot to do as well. I'll read over that essay, and we can continue this discussion later.
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twocupcakes
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3/8/2015 10:18:29 AM
Posted: 1 year ago
At 3/8/2015 12:47:08 AM, ResponsiblyIrresponsible wrote:
Also, the reason fiscal policy is useless is that monetary policy does the job better, so a perpetually deflationary monetary policy would obviously render fiscal policy effective.

What about in situations (like now) with near 0% interest rates. With interest rates so low, monetary policy cannot do anymore to combat unemployment as they have already lowered interest rates all the way. In situations like the only effective policy is fiscal policy.
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3/8/2015 10:27:10 AM
Posted: 1 year ago
16kadams
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ResponsiblyIrresponsible
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3/8/2015 10:33:54 AM
Posted: 1 year ago
At 3/8/2015 10:18:29 AM, twocupcakes wrote:
At 3/8/2015 12:47:08 AM, ResponsiblyIrresponsible wrote:
Also, the reason fiscal policy is useless is that monetary policy does the job better, so a perpetually deflationary monetary policy would obviously render fiscal policy effective.

What about in situations (like now) with near 0% interest rates. With interest rates so low, monetary policy cannot do anymore to combat unemployment as they have already lowered interest rates all the way. In situations like the only effective policy is fiscal policy.

I completely disagree, and in fact I agree with Rick Mishkin that this position is actually rather dangerous. There are a lot of things the central bank can do even at zero nominal interest rates which in fact they have done:

(1) Buying up a large amount of assets. There are empirical estimates showing that, had the Fed not done this, inflation would be about half a percentage point lower and unemployment would be 1.25 percent. There are several channels through which this impacts the real economy, but I'll mention only the most prominent:

-Interest-rate channel via bringing down long rates, whether through flow effects (prices up, yields down, so adjustments in risk premia) or stock effects (supply down, yields down, as well as expectations of future supply are down, which also applies downward pressure on yields).

-Exchange-rate channel: lower interest rates, and particularly lower long rates, bring down the dollar's exchange rate, thus bolstering exports.

-Signaling channel, because long-term interest rates depend on (1) inflation expectations; (2) expected path of future short rates; and (3) risk premia. So the Fed can promise to keep rates low for an "extended period" or something of that nature, so future short rates are lower, and thus long rates are lower. This actually is--per my username--"credibly committing to being irresponsible." Ironically, much of that stems from Paul Krugman's 1998 paper on Japan where he argued that monetary policy could be extremely poignant even at zero nominal rates, and even now when he's shouting about the "liquidity trap," he still thinks monetary policy can be effective.

-Portfolio balance channel: The Fed buys a bunch of assets, so investors reshuffle their holdings into more risky assets such as, say, corporate bonds. That leads to a fall in a broad number of interest rates--though, admittedly, there's research questioning how broad this channel actually is.

-Wealth effect: This can work either through raising asset prices, raising stock prices (which is the most volatile way to do it, by the way), encouraging mortgage refinancing, etc., but the end result is increasing consumption.

-Eroding the real value of fixed debt through higher inflation, which I'll get to in a second.

(2) Forward guidance -- it's a policy tool in itself, but it goes hand and hand with LSAP's in terms of the signal

The core point I think worth emphasizing is that the short-term nominal interest rate is a terrible gauge of the stance of policy--it doesn't even signal whether money is tight or loose, because interest rates tend to gravitate to zero when times are bad (1920s, or look at Europe now) and rise when times are good (1970s). Longer-term interest rates--if we even want to use interest rates--bear more heavily on investment, and the Fed can bring those down via raising medium-term inflation expectations and thus reducing real interest rates via movements in risk premia. But the key isn't even interest rates: it's committing to a higher future price level (or higher level of NGDP) which induces business investment, and provided that investors perceive the change in policy not as transitory, but as permanent, you'll see a rapid rise in expectations of future growth and thus a rise in economic activity.
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3/8/2015 10:35:47 AM
Posted: 1 year ago
At 3/8/2015 10:18:29 AM, twocupcakes wrote:

I can dig up some papers on monetary policy at the ZLB, if you're interested.
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