Tuesday, August 21, 2012

Miller Time Again

Matt Miller writes
In case you were wondering, Ronald Reagan wasn’t a Drawbridge because he entered office when marginal rates, at 70 percent, were truly damaging to the economy.
This is written to prove that his critique of Ryan and Romney isn't based on extremism. Interestingly, he feels no need to present any evidence at all in support of his assertion. Of course all serious people agree that top rates of 70% are way too high. I guess that's why the US economy did so badly in the 1960s. And, of course, the 40s and 50s with top marginal rates at 90 percent were such a catastrophe. What is the basis for your claim ? I confess I am an economist and have published on the effects of taxes on growth in the Journal of Public Economics. I am aware of no evidence that top marginal rates of 70% damage economies. It is not for lack of looking. Many economists have attempted to find such evidence and failed. Don't you think you should cite some evidence or, at least, name a source, before making a claim outside of your field of expertise ? I think you are ignorant and completely wrong. I think what you mean is that proposals for a top rate of 70% (from for example a Nobel Prize winner and a Clark medalist) are so very far from being remotely politically possible that you write ignorant nonsense about economics. The grim thing is that I am quite sure that Miller never even considered checking for evidence that 70% is too high. It is just something that all reasonable people accept. I don't think he even feels he made any concession there. The Villager debate is detached from evidence. If a position has been politically marginalized for long enough, then it is considered nonsense without any regard for data.

Wednesday, April 25, 2012

Brad on Ben and the Borg

Department of Huh ?

Borg assimilates Ben.  Although it is forbidden, he must wear the ring to escape.  Third pop culture reference here.

Ben is not being logical.  You can't argue that higher inflation would be worse, because it leads to higher inflation then next time the Fed takes extraordinarily accomodative actions.

The argument is that a higher inflation target would help during this liquidity trap, but it means that just fed funds rate of zero plus new QE1 and QE2 would cause higher inflation then next time we are in a liquidity trap. And that would be bad because ...

Sure sounds to me as if he's been assimilated by the Borg. The claims that Low inflation and the reputation for being obsessed with low inflation are good is dogma.  There is no need for a rational defence.  Rather, it must be right, because it is so implausible.  Anyone can see how higher inflation causes lower real interest rates, but only an adept who has been to the inner sanctum can understand why Ben must never ever wear the ring.

On Graphs and Spin

Brad says US GDP growth is relatively bad because we should have population growth

On pop growth.  I don't see how it helps GDP growth when the economy is in a liquidity trap.  I can see how it keeps inflation low even with rapid GDP growth, but I don't see the relevance under current circumstances.

Also you are arguably unfair to the USA as you start the recession at the US peak.  If you set the German peak to 100% then Germany would be below the US each compared to own peak.

So why am I typing this ?  Look Brad the US is considered the big country with the most expansionary policy.  US relatively bad means Keynes and Friedman failed (to the unwashed pundit masses).

You see the graph as showing that the US is doing nowhere near as well as it could and should.  Others see vindication of Angela Trichet.

Of course you are a social scientist and call em as you see em blogger, so you don't care.  But in case you did, you would be well advised to blog USA ! USA ! USA ! Better than old Europe in every way !

Tuesday, April 24, 2012

Why does Wall Street Hate Obama

I comment on Drum commenting on DeLong.

I agree with you. I had the first of your two thoughts when I read Brad's post. But I am interested in the second now. I think part of the reason businessmen hate regulation is that the suggestion that they can't be trusted hurts their feelings. But I also think there is something even simpler and older -- they don't like the fact that someone is more powerful than they and can threaten them with fines or prison. No one does, of course, but I think this distaste is particularly strong among those who have fought their way to the top of something. Those with enough money to matter as major campaign doners have long had more money than they can spend; they keep at it, because they want to win. I think this selects people with a male baboon level of sensitivity to dominance and hierarchy and little tolerance for the fact that he ranks below the President.

I think the main thing is your first point. Their feelings are hurt as they are reviled not admired and those who supported Obama expected him to be on their side. But I think there is something to point 2b they are angry that he has shown he has the power to tell them what not to do.

Tuesday, April 17, 2012

On Salmon on Koos


I don't get it at all. Koo and you agree that tax cuts won't stimulate as the money will be saved, but also assume that increased government spending must be financed by debt. Given the analysis, the solution is clearly increased government spending and reduced budget deficits financed by massively increased taxes.

In other words my advice for, say Rome, where I live, is raise my taxes.

Also note that the huge Spanish capital account deficit implies a huge current account surplus. The rest of the world is doing for Spain that which the Spanish government can't do. Spaniards are buying foreign bonds and foreigners are buying Spanish goods. This is part of the solution not part of the problem.

Monday, April 16, 2012

DSGE forecasting again

The DSGE models which do a bit better aren't DSGE models. Nthe Baa-Treasury spread is added as an explanotory variable without any discussion of micro founding it. I claim that the model which does poorly rather than terribly is an ad hoc aggregate model without micro foundations.

Also, the outcome on the graph is not the BEA's current estimate (-8% at an annual rate). This means that the outcome as re-estimated months before the publication date of the post is well outside of the 90% confidence interval except for the last panel which shows an ad hoc model using contemporary data.

Finally why no forecasts using data from the trough ? There is no evidence in the post that the DSGE model had any success forecasting the recovery. The good looking figure adds another variable ad hoc. Oddly it just happens to track GDP the growth rate very well.

Sunday, April 15, 2012

Comment on John Williams

This is a comment on an article excerpted by Mark Thoma here


It's not just housing ? Oh really. Oddly discussion of actual evidence tends to get back to housing. For example, search fo "For example". I recall two. On tight credit the "example" is tight mrtgage standards. The claim that small businesses also have a problem with tight credit is not backed up with evidence. I note that only the normal tiny fraction of small businesspeople say their worst problem is "interest rates/finace" .

Then on QE worked. "For example" QE I purchases of mortgage backed securities. There was no discussion of QE II in the article. There was no distiction between opration twist and low forecast inflation, low forecast groth and his own proposal to keep the short term rate low. I would say that twist sure seems to have worked (although no evidence is presented in the article). But I also think the case for QE II consists entirely of conflating it with the other two interventions. In particular no evidence was presented which challenges my conviction that investors treated 7 year notes and cash as close substitutes.