tag:blogger.com,1999:blog-24338064.post6906320835138410202..comments2024-02-11T19:28:27.997+11:00Comments on Personal Reflections: Sunday Snippets - fires, global warming, problems with benefits & with multipliersJim Belshawhttp://www.blogger.com/profile/10075614280789984767noreply@blogger.comBlogger14125tag:blogger.com,1999:blog-24338064.post-9423914569133441922013-01-15T06:13:13.353+11:002013-01-15T06:13:13.353+11:00That would fit with my memory, too, anon, although...That would fit with my memory, too, anon, although the end of the Ost was I thought earlier; same effect?<br />Jim Belshawhttps://www.blogger.com/profile/10075614280789984767noreply@blogger.comtag:blogger.com,1999:blog-24338064.post-24133077787855521802013-01-15T00:41:20.026+11:002013-01-15T00:41:20.026+11:00Problem probably much aggravated by the fact that ...Problem probably much aggravated by the fact that Greece initially joined the Euro zone at a ridiculous Drachma / Euro parity - as did others such as Italy and East Germany when it exchanged its Ost Marks for Deutsche Marks. Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-24338064.post-28490566621435856952013-01-14T18:19:12.997+11:002013-01-14T18:19:12.997+11:00I understand your point, Winton. It's just tha...I understand your point, Winton. It's just that I am suspicious about expectation arguments. I need to think about it a bit more. I can see how changing expectations can lead to sharp shifts including asset bubbles or sharpened downturn. But generally I prefer to work on more basis data. It's probably worth a post to tease my ideas out, except that I am too likely to make silly errors! <br /><br />Greece is interesting. I wasn't surprised at the idea of real wages in Greece rising more than Germany. It happened in a lot of the periphery states. You may be right about the reason why.Jim Belshawhttps://www.blogger.com/profile/10075614280789984767noreply@blogger.comtag:blogger.com,1999:blog-24338064.post-86216740395203016732013-01-14T07:33:18.435+11:002013-01-14T07:33:18.435+11:00Jim
I'm not sure about mechanisms. It may be h...Jim<br />I'm not sure about mechanisms. It may be helpful to think in terms of how policies will effect expectations about future growth in aggregate demand. If people are persuaded that central banks are serious about promoting NGDP growth - even by risking an outbreak of relatively high inflation if necessary - they will be less inclined to put off buying a house (for example) in the expectation that Steve Keen's (and other prophets of doom) are correct in predicting that house prices will fall.<br /><br />Re real wages in Greece, the issue is their level relative to the level that would enable a substantial reduction in unemployment. My understanding is that prior to the GFC real wages in Greece rose by a lot more than in Germany. The correction that has occurred since then has not been enough to restore the relativities that existed at the turn of the century. (I'm not suggesting that those relativities in 2000 should be set in concrete - that was just the base of the indexes I remember.) I'm sorry I can't remember my data source - perhaps OECD.<br />I have the impression that the real wage problem in Greece is one of the outcomes of government mis-management e.g. using public sector growth to soak up unemployment.Winton Bateshttps://www.blogger.com/profile/07383561940886657594noreply@blogger.comtag:blogger.com,1999:blog-24338064.post-17874321718692902892013-01-14T06:19:41.730+11:002013-01-14T06:19:41.730+11:00Thanks to both for the links!
kvdThanks to both for the links!<br /><br />kvdAnonymousnoreply@blogger.comtag:blogger.com,1999:blog-24338064.post-60936580631786965842013-01-14T06:14:55.809+11:002013-01-14T06:14:55.809+11:00Turning to Greece, I am not sure that Greece has h...Turning to Greece, I am not sure that Greece has high real wages relative to the rest of the Eurozone. I would have thought that its real wages were low. The problem in Greece lies in large part with Government mismanagement and consequent responses. Jim Belshawhttps://www.blogger.com/profile/10075614280789984767noreply@blogger.comtag:blogger.com,1999:blog-24338064.post-79932117800657503662013-01-14T06:09:58.771+11:002013-01-14T06:09:58.771+11:00Thanks for the second link, Winton. kvd, the Econo...Thanks for the second link, Winton. kvd, the Economist has a useful summary - http://www.economist.com/news/finance-and-economics/21568426-fed-specifies-unemployment-threshold-raising-rates-other-mandate.<br /><br />Winton, I'm not quite sure how the inflation expectation thing is actually meant to work. Say I form the view that as a consequence of QE inflation will rise to 3%. That has certain effects. It slightly increases my chances of increasing prices if I produce, it slightly erodes the real value of debts with time affecting investment judgments, but I am not sure that it is going to make me spend. Unless, of course, I expect very high inflation.<br /><br />The old explanation for the impact of what is now called QE ran a little differently. Say the Fed buys Government debt or mortgage backed securities or other assets back from the private sector. With interest rates very low, part of that money will flow into consumption, part into the purchase of assets that might offer some prospect of return. You can only have so much sitting in the modern equivalent of under the bed. I guess if the scale is big enough, these effects can be cumulative. <br /><br />I don't know, I accept that this is a weakness, what US interest rates are on things like credit card debt or on loans for working capital or for asset purchases. In Australia, there is now a large divergence between official rates and what we actually still pay. If QE forces those rates down, then at least some purchases or investments will become more attractive.<br /><br />As you can see, I am confused! Comments on Greece follow. Jim Belshawhttps://www.blogger.com/profile/10075614280789984767noreply@blogger.comtag:blogger.com,1999:blog-24338064.post-23964308702673766562013-01-13T23:41:30.797+11:002013-01-13T23:41:30.797+11:00Jim: As I understand it, once QE makes people expe...Jim: As I understand it, once QE makes people expect higher inflation, then we don't have a liquidity trap. I agree that there is a risk of over-shooting inflation targets - but outcomes will depend on expectations of what central banks will do.<br /><br />Whether government spending stimulates economic activity depends to a large extent on how it is funded. Foreign borrowing works - the government is solvent enough to be able to borrow. Monetization of government debt does tend to inflate aggregate demand.<br /><br />I understand that high unemployment in Greece is associated with high real wages. That problem is aggravated by relatively low labour mobility within Europe. It would remain a problem even with more budgetary assistance from Germany and France. If we rule out large wage cuts, I don't know how the problem can be resolved unless a) either Greece leaves the Euro and devalues or b) inflation rates rise in Europe as a whole with nominal wages remaining stable in Greece.<br /><br />kvd: By 'work' I mean getting people to undertake physical investment, purchase consumer durables etc.<br /><br />Re commentary on the Fed's policy regarding unemployment levels, I thought Scott Summner made good points <a href="http://www.themoneyillusion.com/?p=18122" rel="nofollow">here</a>.<br /><br /><br /> <br />Winton Bateshttps://www.blogger.com/profile/07383561940886657594noreply@blogger.comtag:blogger.com,1999:blog-24338064.post-26422285216223891762013-01-13T20:34:55.992+11:002013-01-13T20:34:55.992+11:00To Winton via Jim:
In your comment which ends wit...To Winton via Jim:<br /><br />In your comment which ends with "that is likely to work" I would be very interested to understand what you mean by "work"? i.e. how you would assess that the action had 'worked'.<br /><br />To you both: it is a frustration to me that I have been unable to find any commentary on the late last year announcement by the US that they would continue to pursue QE until a target unemployment figure had been achieved. Perhaps I even have that basic statement wrong (Winton talks about 'aggregate demand'?), but it is very difficult to pursue on an iPhone screen.<br /><br />kvdAnonymousnoreply@blogger.comtag:blogger.com,1999:blog-24338064.post-87949928478080300292013-01-13T19:25:26.678+11:002013-01-13T19:25:26.678+11:00Woops, the last comment should have read in part I...Woops, the last comment should have read in part I stand to be corrected Winton!Jim Belshawhttps://www.blogger.com/profile/10075614280789984767noreply@blogger.comtag:blogger.com,1999:blog-24338064.post-27605655200230348532013-01-13T19:24:25.915+11:002013-01-13T19:24:25.915+11:00Evan, I have read a little of Steve Keen's wor...Evan, I have read a little of Steve Keen's work, but should read more.<br /><br />I stand to be corrected Evan, but as I remember the liquidity trap neither extra liquidity nor low interest rates work if no one wants to consume or invest. The biggest risk is an asset bubble and inflation once things start picking up. <br /><br />Fiscal policy is more effective because it can directly stimulate economic activity. The best results come from a combination of the two.<br /><br />If the EU was a Federation like Australia, then equalisation would have tempered the results. The Greek Government would still have been forced into dramatic measures a la Victoria under Kennet, but the downside would have been more balanced by central transfers. Jim Belshawhttps://www.blogger.com/profile/10075614280789984767noreply@blogger.comtag:blogger.com,1999:blog-24338064.post-84450265775336270802013-01-13T17:39:09.970+11:002013-01-13T17:39:09.970+11:00Jim
I could have been more constructive in my comm...Jim<br />I could have been more constructive in my comment. <br />I rarely cite Keynesians, but <a href="http://krugman.blogs.nytimes.com/2011/10/30/a-volcker-moment-indeed-slightly-wonkish/" rel="nofollow">this article</a> by Paul Krugman in October 2011 might be worth considering. Winton Bateshttps://www.blogger.com/profile/07383561940886657594noreply@blogger.comtag:blogger.com,1999:blog-24338064.post-61495687415873534442013-01-13T12:37:06.119+11:002013-01-13T12:37:06.119+11:00Jim
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I don't think it is that simple....Jim<br /><><br /><br />I don't think it is that simple. Quantitative easing works on expectations about the future growth of aggregate demand - and hence influences the willingness to hold cash.<br /><br />If a central bank says it will keep buying assets until nominal GDP is growing by x per cent per annum -and back that up with action - that is likely to work. <br /> Winton Bateshttps://www.blogger.com/profile/07383561940886657594noreply@blogger.comtag:blogger.com,1999:blog-24338064.post-6800945077464292902013-01-13T11:09:58.712+11:002013-01-13T11:09:58.712+11:00Do you follow Steve Keen? - he is trying to re-do ...Do you follow Steve Keen? - he is trying to re-do economics to make it more theoretically consistent and closer to experience.<br /><br />His book Debunking Economics points out that classical economics is incoherent in it's own terms.Evanhttps://www.blogger.com/profile/13355215688351759230noreply@blogger.com