Friday, 21 December 2012
Bizzare Ideas from the NRA
The NRA held a press conference this morning where they advocated the placement of armed cops in schools, in order to prevent future tragedies like the one in Newtown. This idea strikes me as a weird abdication of what seems to be their purpose as an organization. The NRA and fellow second amendment advocates usually promote an ideology and policies that support an armed citizenry; the idea being that we cant rely on the government or its agents to protect us or loved ones. This type of suggestion cuts against that purpose; with more cops there really isn't any reason to own a gun, unless you are worried about the cops--in which case you shouldnt be arguing for them to be placed in schools in the first place.
Sunday, 18 November 2012
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.
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.
Saturday, 17 November 2012
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.
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.
Tuesday, 23 October 2012
A Problem in the Fed's Structure
There are a number of problems with Federal Reserve decision making. But one that I think has been overlooked is the problem created by having the Fed serve two somewhat unrelated roles; monetary policy and financial stabilization. This seems to have lead to a problem in its institutional structure.
Broadly, financial stabilization encompasses the regulatory aspects of the Fed that seek to ensure a stable banking system. Monetary policy, on the other hand, involves macroeconomic stabilization through demand management. As Lars Svensson has pointed out, these are different roles, with different goals, and should be managed by different public officials.
In the Federal Reserve system the monetary policy role is conducted by the Federal Open Markets Committee (FOMC). This committee is made up of the Board of Governors of the Fed (appointed by the President and confirmed by the Senate) and a rotating group of regional presidents (selected by private banks in the region).
The regional presidents tend to be more hawkish in their approach to monetary policy, reflecting the views of local banks within their regions. Appointing more dovish members to the Board of Governors should balance this out, however, in trying to negotiate the Fed's two roles, the President will often appoint regulatory and financial experts, with little experience in monetary policy. For example, currently the only two members of the Board with clear backgrounds in macroeconomics are Ben Bernanke and Janet Yellen. The rest seem to have been chosen because of their backgrounds in regulation and financial markets. (Note: Jeremy Stein gave a very good speech on Monetary Policy at Brookings recently, so maybe he knows more than his resume suggests) The regional presidents tend to generally be economists. This presumably tilts FOMC debate away from more dovish/expansionary policies, as fewer voices in the room are both economic experts and appointed by Washington.
Creating a separate Board for regulatory supervision or reserving additional seats for macro-economists could help remedy this problem.
Broadly, financial stabilization encompasses the regulatory aspects of the Fed that seek to ensure a stable banking system. Monetary policy, on the other hand, involves macroeconomic stabilization through demand management. As Lars Svensson has pointed out, these are different roles, with different goals, and should be managed by different public officials.
In the Federal Reserve system the monetary policy role is conducted by the Federal Open Markets Committee (FOMC). This committee is made up of the Board of Governors of the Fed (appointed by the President and confirmed by the Senate) and a rotating group of regional presidents (selected by private banks in the region).
The regional presidents tend to be more hawkish in their approach to monetary policy, reflecting the views of local banks within their regions. Appointing more dovish members to the Board of Governors should balance this out, however, in trying to negotiate the Fed's two roles, the President will often appoint regulatory and financial experts, with little experience in monetary policy. For example, currently the only two members of the Board with clear backgrounds in macroeconomics are Ben Bernanke and Janet Yellen. The rest seem to have been chosen because of their backgrounds in regulation and financial markets. (Note: Jeremy Stein gave a very good speech on Monetary Policy at Brookings recently, so maybe he knows more than his resume suggests) The regional presidents tend to generally be economists. This presumably tilts FOMC debate away from more dovish/expansionary policies, as fewer voices in the room are both economic experts and appointed by Washington.
Creating a separate Board for regulatory supervision or reserving additional seats for macro-economists could help remedy this problem.
Wednesday, 17 October 2012
Fact Checkers
Without getting into the weeds of Candy Crowley's mid-debate "fact check" last night, I wanted to post a quick thought on "fact checking."
Fact checkers are needed because most members of the media prefer to cover the horse race. It's easier to cover. Most readers prefer it. However, that leaves a big gap in the coverage of the substantive claims made the candidates.
Fact checkers shouldn't try to hard to evaluate if a claim is true, rather, they should provide readers with the background information and context from which they, themselves, can evaluate the truth of what a candidate said.
Giving out a certain number of Pinochio's with their pants-on-fire is gimmicky, and it takes away from they are needed for; providing the background information required for examination of the factual assertions made on the campaign trail.
Fact checkers are needed because most members of the media prefer to cover the horse race. It's easier to cover. Most readers prefer it. However, that leaves a big gap in the coverage of the substantive claims made the candidates.
Fact checkers shouldn't try to hard to evaluate if a claim is true, rather, they should provide readers with the background information and context from which they, themselves, can evaluate the truth of what a candidate said.
Giving out a certain number of Pinochio's with their pants-on-fire is gimmicky, and it takes away from they are needed for; providing the background information required for examination of the factual assertions made on the campaign trail.
Tuesday, 16 October 2012
How to Reduce Inequality
The Economist recently had an article on inequality that I found annoying. They claim to have put forth a "radical centrist" proposal to reduce inequality. Unfortunately, their proposal reads more like a lame centrist proposal, with the usual centrist talking points: school reform, eliminate deductions in the tax code, reform entitlements, etc. Their advice for third world countries is basically to discontinue poor government policies (the Chinese Hokou system, fuel subsidies).
The problem with these reforms is that they don't really have much to do with inequality. Or at least they aren't ways to attack inequality directly. Here are three ideas:
1) Let people from poor countries move to rich countries. This is the best way to reduce global inequality. When people move to the U.S. from a third world country their real income will almost always go up.
2) Use our tax system to redistribute money from rich people to poor people.
3) Use monetary and fiscal policy to reduce unemployment. When unemployment is low more people have jobs, and those who have jobs can more easily bargain for a raise.
It's fine if you don't like these ideas, or are concerned about secondary effectss. But this is how you attack inequality. The Economist just took a bunch of policies they already favor and then claimed enacting those policies is the way to reduce inequality. It's really disingenuous.
The problem with these reforms is that they don't really have much to do with inequality. Or at least they aren't ways to attack inequality directly. Here are three ideas:
1) Let people from poor countries move to rich countries. This is the best way to reduce global inequality. When people move to the U.S. from a third world country their real income will almost always go up.
2) Use our tax system to redistribute money from rich people to poor people.
3) Use monetary and fiscal policy to reduce unemployment. When unemployment is low more people have jobs, and those who have jobs can more easily bargain for a raise.
It's fine if you don't like these ideas, or are concerned about secondary effectss. But this is how you attack inequality. The Economist just took a bunch of policies they already favor and then claimed enacting those policies is the way to reduce inequality. It's really disingenuous.
Monday, 15 October 2012
Fiscal Cliff and the Upcoming Election
Jonathan Chait has a good post on the importance of the upcoming presidential election. His argument is basically that if Romney wins and the Republicans get 50 senators they will be able to use "budget reconciliation" procedures to pass the Ryan budget. Whereas, if Obama wins, because the Bush tax cuts automatically expire at the end of the year, he will plenty of leverage.
What's interesting is that it is sort of unclear at this point what Obama will use this leverage for. It would seem that the top progressive priority would be some form of cap-and-trade/carbon tax legislation. Obama could try to pair a renewal of the Bush tax cuts with a carbon tax. However, this hasn't really been discussed by the administration. My prediction is that he renews the middle class tax cuts, lets the cuts for those making over 250,000 expire, oversees the implementation of Dodd-Frank and Obamacare, and hopes that the economy is in better shape in two years and the Dems can take back the house. Environmental advocates should see this as an opportunity for Obama to push for carbon legislation.
What's interesting is that it is sort of unclear at this point what Obama will use this leverage for. It would seem that the top progressive priority would be some form of cap-and-trade/carbon tax legislation. Obama could try to pair a renewal of the Bush tax cuts with a carbon tax. However, this hasn't really been discussed by the administration. My prediction is that he renews the middle class tax cuts, lets the cuts for those making over 250,000 expire, oversees the implementation of Dodd-Frank and Obamacare, and hopes that the economy is in better shape in two years and the Dems can take back the house. Environmental advocates should see this as an opportunity for Obama to push for carbon legislation.
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