The deep thinkers in Minneapolis have come up with a new formula. Bubbly Equilibria? What does that mean?
I suppose that someone has to create such drivel. The formulas were based on an Apples and Bananas economic model. Unfortunately the real world is a bit more complex.
The bottom line from Mr. K is that bubbles of any kind don’t create a threat to employment provided that the Fed provides the “appropriate” level of monetary stimulus. He does point out the limits of monetary policy due to the limitations of zero interest rates. So really this is just a defense of QE. His words:
“The bubble collapse has no impact on unemployment or output, given sufficiently accommodative monetary policy,”
This suggests that the Fed can "fix" all bubbles. What Mr. K does not seem to get is that the Fed is the one that causes bubbles. They do it with accommodative monetary policy. We are seeing this in ink every day. Look at the S&P, look at the CRB and look at the two-year note. They are all at bubble levels today. It’s cheap money and loose monetary policy that did it. The current bubbles formed by the Fed will pop. And when (not if) they do, guys like Kocherlakota will respond with: “We need more stimulus!!”
We do need some folks at the Fed who are purely academic economists. But they should not be pulling the strings on policy. We need pragmatists. Ones that can look beyond the next six months and say, “We should follow policies that promote long –term stability”. The current policies that create bubbles, and then fight them when they burst with more monetary stimulus, are old school. We need some new leadership. That leadership should not come from academia.
Want some evidence of that? (Reuters)
In one of the paper's more surprising claims, Kocherlakota suggested that extending unemployment benefits -- sometimes seen as adding to the jobless rate because it can discourage those receiving benefits from actively seeking jobs -- actually reduces it.
Mr. K. has to get out of ivory tower and talk to the people. He may be able to argue that extending unemployment benefits is countercyclical. But if he bothered to ask around and see what is happening he would understand that extending unemployment just creates more unemployed. I’d be happy to introduce him to a few folks that maxed out unemployment because it was much easier than working. But those people found work as soon as the checks stopped.
I suspect he would hear as much back in Minneapolis (if he bothered to ask). He would also hear that the folks in his district are just sick and tired of bubbles and the Fed that keeps causing them.
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Getting these academics in contact with real people can be painful. Consider the experience of "Let them eat iPads" Dudley.
ReplyDeleteHey BK,
ReplyDeleteI thought you were fucking with me when you included those equations for “bubbly equilibria”—but then I went to the source, Kocherlakota’s paper, and couldn’t believe he was putting forth this bullshit.
What’s terrible is that the uninitiated and the unsophisticated are going to be intimidated out of their skins by Kocherlakota’s equations—which is of course the whole point: By dressing up his drivel in pseudo-intellectual garbs, he robs people of the confidence to ask the pertinent questions, pertinent questions which would reveal he doesn't have a clue as to what he's doing. But because of his scary equations, people just take him at his word—words which pile up into a steaming mound of bullshit.
Do keep in mind that academics—since the Greeks—have used pseudo-sophistication to scare off questioning. Just like a bully needs bluster, an academic needs equations, so as to disguise the fact that he doesn't know what he's talking about.
BTW, notice how Krugman is now talking hyperinflation due to the Fed's policies? Came to the party sorta late, didn't he?
GL
Tks GL.
ReplyDeleteI often comment on Krugman's blog. My last message was something like:
"The 'shelter cost' will surely push CPI above the Fed's target of 2% CPI. Surely you see that coming? A good economist looks forward, not backward. Ahead of the curve, not behind it."
Maybe he took me to heart???
(just kidding)
Laying the groundwork for QE-3?
ReplyDeleteIf you consider The Fed the pinnacle of employment for any trained economist, (it is) then you can see how any trained economist would fall in line with whatever The Fed wants to sell.
ReplyDeleteIn the political realm, a macro economist is hired based on their ability to turn an ideology into economic jargon.
A pragmatic macro economist cannot find work outside of freelancing community college introductory courses. I'm not kidding. Micro specialized economists have an easier time getting employed in Finance.
Take one step back from that. Say there's an aspiring Economics PhD student. What's she going to study? She has roughly two choices.
1. Pick a topic that will get her hired on as a professor at a University. This generates a thesis that agrees with the political theme broadcast inside the University Economics programs. This thesis typically is an attempt to justify a political agenda, nothing more. An aged example of this is the widely discredited 'Supply Side' economics that has morphed into whatever alec.org is selling at the moment.
2. Pick a topic that will get her hired in Finance. Basically, trading algo's and no political baggage. This kind of thesis resembles a physics thesis more than economics, the social science.
What's a pragmatist to do?