Svennson Strikes Back

Lars Svennson, deputy director of the Riksbank, has been publicly disagreeing with his colleagues over the proper role monetary policy. The other day he gave a speech at the the BIS trying to clarify the differences in opinion.

I recommend reading the entire speech, but, broadly he believes conditions in Sweden (high unemployment, low inflation) warrant looser monetary policy. His colleagues are concerned that looser monetary policy will 1) encourage households to take on too much debt; 2) the debt will be used to buy houses; and 3) housing prices will rise too much. Their concern is that this creates instability in the financial system and leaves it vulnerable to drops in housing prices.

Svennson notes that currently household debt and housing prices are at stable levels, while unemployment is high, and thus, even within their framework, they should still be advocating looser policy. However, his larger point is that monetary policy isn't a very effective tool for dealing with these problems. He argues that these problems are better remedied by "Macroprudential Policy" initiatives like rules on mortgage lending.

I think this is an important point. It seems like monetary policy officials throughout the world are trying to juggle too many balls; the ECB is really concerned about the fiscal policy of some of its constituent countries. Narrowing monetary policy makers' focus to unemployment and inflation makes it more clear where and when they are failing to provide sufficient demand.

Secession Won't Solve all Your Problems

Dave Weigel posted this funny article about the man who started the Alabama petition to secede on the White House's misguided "We The People" site. The man, Derrick Belcher, used to own a topless car wash before it got shut down by government officials for being in violation of obscenity laws. After Obama got reelected Belcher decided enough was enough and started the petition to secede.

What's interesting is that his, supposedly profitable, topless car wash business was actually shut down for being in violation of an Alabama state law. He really shouldn't have any beef with the feds at all! In fact, starting a car wash business requires navigating a series of state and local regulations. Car washes can't be placed in most locations because of local land use laws. Furthermore, you would likely need a state permit to open a car wash because of laws about discharging wastewater. There are, of course, applicable federal regulations, I'm sure the EPA says something about how you dispose of your wastewater and there are federal employment laws and such. But, in general, a lot of laws and regulations are state and local. At the same time its easier to just say "big government", blame Obama, and petition to secede.