brad dehoghead wonders " .... what if the money-printers show up but Italy does not undertake its structural adjustment..."

well that's the point
if you're  the italian  popular left
i say to u

make my day wage slaves

call the ECB's bluff

"the money printers" WILL show up
regardless

the zone will not be allowed to implode
 no matter what deficit path gets drafted up
by the club med helots

if there's a fear that miight panic the corporate guardian class
this  is prolly it

the jobbled mass of people of the zone's southern tier
 will realize the ECB has no choice but to back stop our bonds

we're too big to let break loose

beating upon greece went on to long without a resolution
now the people may wake up and fight back till
the ECB caves

cousin marty makes a big fat noise after a quiet chin scratch or two ....

" If the Italian government has to continue paying a seven or even eight per cent interest rate to finance its debt, the country’s total debt will grow faster than its annual output and therefore faster than its ability to service that debt. If investors expect that to persist, they will stop lending to Italy. At that point, it will be forced to leave the euro. And if it does, the value of the “new lira” will reduce the price of Italian goods in general and Italian exports in particular. The resulting competitive pressure could then force France to leave the euro as well, bringing the monetary union to an end."


"But this need not happen. Italy can save both its own economic sovereignty and the euro if it acts decisively and quickly ..."

by doing guess what


" balance its budget.....It already has a “primary budget surplus”….
if it cuts spending and raises revenue by a total of just three per cent of its GDP....

 If reforms to strengthen incentives and reduce regulatory impediments raise the  growth rate to two per cent

 that together with a long-term balanced budget
would cause Italy’s public debt to decline from today’s 120 per cent of GDP to about 65 per cent over the next 15 years
if Italy can borrow at the 4% it borrowed at before the crisis began…."


marty
 since this can't be allowed to happen
italy " .. forced to leave the euro.
because "... the value of the “new lira” will reduce the price of Italian goods in general
 and Italian exports in particular."
and
"The resulting competitive pressure could then force France to leave the euro.... bringing the monetary union to an end."

it won't ..regardless of italian budgetary policy

result the italian borrowing cost will be back in the 4's within  a matter of   quarters  not years

a first familly white amerika could be proud of

The oldest 10 per cent of Medicare recipients are responsible for about 90 per cent of the entire Medicare budget

that's prolly a mean lie


but i like it anyway

timing aside ...

there's a fortune to be had investing now in italian and spanish bonds
just borrow very long to buy em
or use cash
when the ECB comes to the rescue these prices will soar
greek bonds ?

maybe not so much ...

i fear the hair cut there
and prior to the general latin europe/club med rescue

pour encourage les autres

and this haircut to that side car of the zone
might also
 have a nice  bi product

 by  pretending maybe
 "you're next dagos"
the corporate guardians of a free peaceful  and united europe
can squeeze out some more pub sec pruning
 mustn't be to obvious just yet
that  club meds big boys are    les ' too f'in big to fail '

...

yes i am strongly convinced there will be no italian or spanish hair cuts
and if i had any money i might buy some italian bonds ...err soon
there must be at least one more drop left b4 the market wises up to the full gig here

just a hip hip for pythagorian mendelian genetic determinism

consistent with the  dialectics of nature ???

damn well better be !!!!

New business creation has declined 23% since 2007

fed revelations of trillions in bank backings in 09

"Remember the $700 billion Troubled Asset Relief Program with
which the federal government came to the rescue of faltering
banks in 2008? Well, according to a Bloomberg report, that
was just a fraction of the financial help the Federal Reserve
Bank wound up doling out to troubled lenders. The real total
was reportedly closer to $8 trillion, after you add up
benefits outside TARP, including emergency loans given at
below-market rates:"

my take ??
now its the ECB's turn  to hit comparable money creation numbers over there

far from going oh horrors at these revelations

we should take heart

this proves any amount of money can be  generated to buy up any amount of circulaing securities

that includes trillions in sovereign piigs bonds

more jaimie bashing ...sorry good heart

"Homeownership was a great American success
story."

i'll pass on that

" It rose for 60 years  peaking around 2004 - and for
most of those six decades it was an honest business, more or
less."

i'll pass on that too
 though i prolly shouldn't


" But in its last five years, the long boom was kept
alive by the greatest financial swindle in world history."

fine but here it comes folks....the major blooper meme

" In the collapse that followed, an enormous amount of middle-
class wealth was wiped out. "

wealth ???
lot values my dear jaimie are not wealth

they might be a very precarious store of purchasing power

but not wealth not real wealth

 houses are wealth  but not lots

gardens are  wealth  even lawns
land itself is wealth but not that land's location

construction and reconstruction that adds wealth

level the land build roads thru it add street lights  pipes and drains
that adds wealth

in particular owning a house and a house lot it sits on
  is a very solid store of wealth
even after a lot pop it is what it is and worth the cost of its reproduction eh ??

"Homes were once a source of
pride, safety, and collateral. "

well the homes were jaimie
 but the lots sure should not have been
and that throws a light back on the whole process since the first GI bill

a proper national george tax set up
back in 1946 or so
 could have supported home ownership
and kept the store of  real wealth intact
 the wealth  that is a house of a certain sort and a lot of a certain size

 a free and clear home represents a part of the american dream



"Now they're often a burden"

the mortgage is the burden and its underwater because the value of the  lot under the home ...sank


if house building has stopped
 that is not because
we have a glut of houses
hardly

we have a market in houses  so straight  jacketed by underwater mortgages
so over loaded with excess supply up for sale
 that  the resale market today can't get the credit to clear itself

and the new home market can't justify the risks of construction givewn lot values that are still falling

hey its possible the correction in lots is so over corrected

existing houses and lots are going of at  less then   replacement costs

-------------------------------------------

one of our better angel's jaimie gallwit plays blind man's bluff over forex dynamics

"Nothing can stop the Chinese,
Koreans, Vietnamese, and others from making shoes and ships
and sealing wax at wages we can't compete with. And nothing
will.
"

jg ...please there is a dollar forex rate
at work here too

that rate can be altered
and if set and maintaine at a fair competition level
 in the long run we  could re-balance our industrial sector

no that sector even if it recovered enough to balance our industrial trade sector
still  may  not be
a more  jobs plan
but we don't need a more jobs plan if we maintain full employment federal budgets 

we  may in some sense not need a robust industrial sector
maybe we can earn and cheat our way to a sustainable economic structure
 even if our industrial sector shrinks to pea size
but we as a nation and as a society
would and will  greatly benefit
from a robust industrial sector

and that is regardless
 of how many relatively  low skill  jobs that sector  contains
in the future

hell maybe it will al be more automated then todays chemical plants and refineries and power plants

we would  benefit in the future
from  a robust  pay its own way in the world
 industrial sector 
just like we  now benefit from a robust agricultural sector
which  employs directly very few  jobbler folks indeed anymore

--err... though those big ag do employ get still the shaft
  big ag  treats and  pays its few  bracero jobblers
very very very very poorly  eh ??
which  btw
    is itself in part a forex issue ---

a self important jack ass that progressive unions don't need braying for them

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Robert Kuttner

"i've seen the past and it works"

debt spikes

time capsule prediction

"A few years ago Gauti Eggertsson published a persuasive analysis (pdf) of the big economic recovery of 1933-37; he argued that it had a lot to do with changed expectations of future monetary policy. Specifically, by taking America off the gold standard — a shocking move at the time — and explicitly calling for a return to pre-Depression price levels, FDR created an expectation of rising prices that had a salutary effect on demand."

some day ; folks will savour just how fucked up that passage really is

S and s ..SOS

from  Q* = ( 2yK/r ) 0.5 . to scarf

why ?



discrete methods and scale effetcs are mandated by optimal inventory tasks
 S, s) model  is by far the best developed case.........


 in which increasing returns
exist in the modeled  system

minsky schminsky ...debt default and firm bankrupcy :under general demand constraints

if the production system is generally and chronically  demand constrained

why is a  business default  evidence....prima facia evidence at least ...
of a system degrading  bad stream of purchases  ???



consider only the event itself
 not its ripples thru the chain of criss crossing obligations
on the P and R grid

ignore any  knock on  tip overs into default
or at least assume the knock ons  peter out
long before a reflexive general  contraction
                                                         in credit markets triggers itself

--- surely a fully socialized credit/insurance  system
 could counter ...limit... rectify .. these ripples ..eh ?---

then what  about acts of default   is anti social ??

in a keen sense
given chronic under demand
defaults at the worse act just like keynes  buried bottles of dollars

the substance of defaults tomorrow are today a  means to increase output...
and we always actually live in the now  of production
can't recover idle labor hours
you can store labor power just like electric generation capacity but you can't store labor hours
an more then  today we can effectively store electricity itself
maybe electricity some day

but the hours of a human life ...nope

imprudent purchases today
 are a means to stretch the  production system
 preempt  slack
 tease   out a bit more potential social "utility " into actual utility

the marginal opportunity cost realistically has a market value of zero
there is no bum demand crowding out better demand
yes  a genrally supply constrained production  system
might generate a "cost " in lost opportunity of higher market value
and yes at the margin bank credit is rationed
but once its just a bum receivable only  ....
one more item sold out of some other firms inventory .....

aggregate all the firm  purchases that will lead to firm defaults  and deliquencies
in a month or week or quarter
added up together
 for  now they imply  additional effective demand ..no ??

 an economy of  fully  prudent firms would  not include
 this additional spritz  of effective demand
the purchases and payments of the rash the stupid and the negligent

take the thought process from there

job class household default is quite another matter of course

how can we separate out the varieies of  "honest" if idiotic firm  defaults
 from looting and deliberate long premeditate  fraud ???

one can learn much that  oughta be made institutionally acceptable
 from a study of  the late clinton equity/startup  bubble

 quite different  lessons indeed
then those  we seem to knee jerk learn from the late baby bush bubble

firms on a bender
firms gone wild
can a optimized sewt of institutions turn this to good account

much like the discovery of limited liability
  socially beneficial imprudence
 needs to be examined  carefully

maybe defaults are a clear boundary a clear outcome of a firm that needs to change
or even get vaporized
but should we really try to minimize firm  defaults ???
stygmatize honest defaulters

they paid a lot of wages ..for a while

" apart from the unexpected...any really general workers' movement will only come into existence here when the workers are made to feel the fact that Amerika's world market hegemony is broken."

surely  given the events of the last decade that moment has arrived...and then some

"history is about the most cruel of all goddesses, and she leads her triumphal car over heaps of corpses, not only in war, but also in "peaceful" economic development. And we men and women are unfortunately so stupid that we never can pluck up courage to a real progress unless urged to it by sufferings that seem almost out of proportion."

why don't firms cut wages faster these days ???

we have all this slack and yet prices on complex  products and services are not dropping
because the wages paid their producers aren't dropping

so cut wages at least right ???

right ????

will a micro  model of the firm 
that explains rationally
  this no wage rate  cut policy
by  corporate amerika
despite  a sea of idless around them
 please step forward

oh come  now   don't be shy  step right up here

beware this thin edge of the wedge goo goos.....: Limit future increases in transfer payments to affluent households

watch the definition of affluent and whether its indexed to inflation

the strategy is to turn all transfer systems into anti poverty programs

take this dodge ball
" in 1979, households in the lowest income quintile received 54 percent of all transfer payments. In 2007, those households received just 36 percent of transfers."

generational wedge

"In effect, Social Security and Medicare have been transferring money from low-earning young people (who don't pay income but are hit by the payroll tax) to increasingly affluent old people"

not pleasingly arched

parallel development

bureaucrat capitalism is it just state capitalism ??

the present PRC set up i think is a great embodiment of bureaucrat capitalism

irony ???

well the party as helmsman
 is certainly quite different
                from foreign corporate helmsmanship

national bureaucrat capitalism versus comprador bureaucrat capitalism

why bother its either repetitive or ignored ...

The political economy of nominal wage targeting

WARNING: if you are not a macroeconomist you may not understand this post, even if you think you do. This is especially true if you are not a macroeconomist but think you know something about "political economy". (When I hear the words "political economy" I usually reach for my shovel.*) This post is an experiment. You, the reader, may be part of that experiment.
This post is partly about mutual incomprehension between macroeconomists and non-economists. But it's written mainly for an audience of macroeconomists. So stop and think before you come out swinging wildly in the comments.

This post is in two (OK, three) parts. The second part is about likely reactions to the first part, and is the main part of this post.
1. Consider this policy proposal:
"I think the Bank of Canada should switch from targeting CPI inflation to targeting wage inflation. I'm not hung up on the exact rate of wage inflation the Bank should target. My guess is that something like 2.5% wage inflation would be roughly right, and would give us roughly the same 2% CPI inflation in future. But if you want to argue for a higher or lower target rate of wage inflation, I don't really care a lot. So if wages start to increase faster/slower than 2.5%, the Bank of Canada should raise/lower interest rates, reducing/increasing demand for goods and labour, which would put downward/upward pressure on wage increases."
(BTW, I'm not actually proposing that, though it's not a bad policy, and is worth considering. And the merits or demerits of that proposal is not the point of this post.)
2. Reactions.
2a Macroeconomists. Any New Keynesian (for example) macroeconomist would react to the above policy proposal like this:
"Ho hum. Nothing new here. Nick hasn't even given us any reasons why targeting wage inflation would be better than targeting CPI inflation. I could build a model where one would be better in some cases, and the other would be better in other cases. It all depends on: whether wages are stickier than prices; on the source of the shocks; the exact specification of the model and its parameter values; and stuff like that. It might matter in the short run, but won't matter much if at all in the long run (unless better performance in the face of short run shocks leads to a higher growth rate).
Is Nick's policy "anti-labour"?? Don't be silly. Of course not. You would get exactly the same average levels of real wages and employment with either target, unless there are some sort of weird non-linearities in the model, or if better short run performance in the face of short run shocks leads to a higher growth rate. It's got nothing to do with being pro- or anti-labour."
2b. Non-economists. I'm guessing here:
"Nick's policy is anti-labour. He doesn't want workers' wages to increase. If he sees workers getting a better deal, he wants the Bank of Canada to tighten monetary policy to increase unemployment to weaken their bargaining power to force wages down again. Nick's policy isn't just anti-labour, it's deeply immoral in using unemployment to fight against workers' interests."
Roughly right?
2c. This one's trickier. Suppose you were a labour union leader who also believed in (something like) New Keynesian macroeconomics. In other words, you had the macroeconomics of (say) Paul Krugman, but your job was to run a labour union.
Even if you thought, as a good New Keynesian macroeconomist, that the policy might either be better or worse than inflation targeting, depending on the precise model, you would be very wary of the policy.
First, a lot of your members would be against it, for the reasons given in 2b above.
Second, if the wage targeting policy were implemented, and even if you knew, as a good New Keynesian macroeconomist, that it would make little or no difference to real wages and employment, which is what you care about, and that it made no difference to whether unions are good or bad, it might make a massive difference to how your job was perceived.
Suppose you managed to get an above-target 3.5% wage increase for your members. Everyone might then say: "Oh, that's great for your group of workers, but it simply means that some other group of workers are going to have to accept a 1.5% wage increase, to keep the average at 2.5%, and the Bank of Canada is going to have to make sure there's enough unemployment to force some other group of workers to only get 1.5%!".
And you would be left desperately trying to argue: "No, it doesn't mean that, because our wage increase could mean that average real wages would go up, even though nominal wages can't, because prices could come down as a result of our wages going up.....because,....er,..., well , it's all to do with the long-run neutrality of money, and the difference between real and nominal wages, and.....err....let me try to explain to you how this works.....brothers and sisters."
Would you want your job to be perceived like that? Would you like your job to be to have to try to explain that an increase in your wages might mean a fall in prices and an increase in average real wages even though average nominal wages were fixed by the Bank of Canada? Even though your argument for the benefits of union power would be equally valid (or equally invalid) whether the Bank were targeting CPI or nominal wage inflation?
Of course you wouldn't. I wouldn't wish that job on my worst enemy. Instead, you would say "Oh, to hell with trying to explain all that in New Keynesian macro, let's just blame the Bank of Canada for not letting us increase wages without creating unemployment! I can explain that to my members."
3. Coda. Back to macroeconomists: given the likely plausible reactions in 2b and especially 2c above, I wonder if your 2a is the correct answer?
* "Political economy" has two (modern) meanings. It can mean political scientists bullshitting about economics. Or it can mean economists bullshitting about politics. Economists tend to use the words in the second sense. Non-economists tend to use the words in the first sense.
The original is actually the rather clever: "when I hear of culture... I unlock (entsichere) my Browning". Browning being both a poet and a make of gun.

Posted by Nick Rowe on November 27, 2011 in Labour markets, Macro, Monetary policy | Permalink

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This is why you should support a gold standard. Stick it to the mine owners!

Posted by: Bob Murphy | November 27, 2011 at 10:04 PM

Bob: that was good for a laugh! There's now tea all over my keyboard.

Posted by: Nick Rowe | November 27, 2011 at 10:10 PM

2a is still the correct answer. More or less. It's a bit of a macro copout, but no need to bother delving into that here. It's the inescapable occupational hazard.
But the essential underlying issue is interesting, and not just in this very limited targeting context, but how the same dynamic plays out in lots of other areas too. Like fiscal policy decisions. Or regulation.
It also kind of demonstrates why the mostly undiluted macro view of Krugman has almost always turned up the right answer as of late. And why the policy-shaded work of the Chicago folks or his Royal Idiocy Niall Ferguson has proven dismally wrong of late.

Posted by: RN | November 27, 2011 at 10:18 PM

RN: glad to see you got the point of the post. But you lost me on your third paragraph. Sorry.

Posted by: Nick Rowe | November 27, 2011 at 10:25 PM

I'm no big city macroeconomist, so maybe I missed something important here, but would it be so hard for a labour leader to say "when you adjust for inflation, this won't affect your pay"?
Is there more to it, or is it just reasonable to assume that the average person doesn't understand inflation?

Posted by: Stephen Bank | November 27, 2011 at 11:05 PM

Surely one equilibrium is for unions to generally accept 2.5% wage increases, for the reasons you suggest, and the primary goal of union negotiations shift towards improving workplace non-wage benefits like OH&S, healthcare, flexible time etc.
I suppose though if those benefits feed through to the firm's marginal cost, then it would have the same macro-economic effect as the wage increases that they are replacing.
I cannot imagine any central bank would like to get stuck in the quagmire of attempting to quantify the benefits and costs of new OH&S or healthcare benefits...

Posted by: Zac | November 27, 2011 at 11:30 PM

Stephen: but the union leader would have to argue something harder than that.
In both cases (nominal wage target and CPI target) he wants to argue that average real wages will increase if his members get a 3.5% wage increase
1. With the Bank of Canada holding the time path of average nominal wages constant, he would have to argue that his members' above-target wage increase would cause the price level to fall.
2. If instead the Bank of Canada were holding the time path of average prices constant, he would instead have to argue that his members' above-target nominal wage increase would not decrease other workers' nominal wages.
Both arguments 1 and 2 are economically equivalent. But rhetorically, it would be easy to convince people of 2, but very hard to convince people of 1. I would hate to have to try to explain 1 to people using words, and no math or diagrams. It would be really easy to give an answer to 2 that sounded totally convincing, even if the reasoning was total BS.
"Hey, if our wages go up, and the Bank of Canada holds prices the same, that means our real wages go up, right? And if our real wages go up, that means average real wages must go up too, right?"
That argument above sounds convincing, right? But it's total rubbish.
How about this:
"Yep, if our money wages go up, that does mean that some other workers' money wages must come down. But that means the Bank of Canada will have to force prices down to makes some other workers' wages go down. So that means average real wages will go up, right?"
That argument sounds totally unconvincing. But it's much more correct than the above.

Posted by: Nick Rowe | November 27, 2011 at 11:33 PM

Zac: "Surely one equilibrium is for unions to generally accept 2.5% wage increases, for the reasons you suggest, and the primary goal of union negotiations shift towards improving workplace non-wage benefits like OH&S, healthcare, flexible time etc."
OK. Let's run with that. But, what that means is that there's a big long run non-neutrality of monetary policy, if you are right. Nominal wage targeting will lead to higher long run non-wage benefits and lower real wages than CPI targeting. Weird, huh?

Posted by: Nick Rowe | November 27, 2011 at 11:42 PM

A New Keynesian Union Boss? I should very much like to meet such a creature. Pray tell where does this species live?

Posted by: Determinant | November 27, 2011 at 11:45 PM

A macroeconomist who believes in long-run money neutrality of course subscribes to the notion that nominal levers cannot affect labour or capital's share of income. As a union boss you're supposed to have control over real factors though.
As for the optics of it, you could always hold a nice public ceremony with your favorite central banker pledging to decrease prices. Because that's what would have to happen, right?

Posted by: david | November 28, 2011 at 12:01 AM

Determinant: if one existed (and I think one once did) would he ever admit it? I think my post might explain why not.
David: neat! But I find it hard to imagine. Reminds me of Keynes' "monetary policy by the Trades Unions" bit.

Posted by: Nick Rowe | November 28, 2011 at 12:30 AM

Non-economist here. Union member, but not active in any way.
Is this an attempt to explain why Scott Sumner gave up arguing for a wage target? Or how different central bank's targets might have weird effects?
I mentioned wage targeting to someone (a non-economist I suspect) on a forum once. He didn't believe that a central bank could influence the wage level.
I suspect the union leader might take the easy route and argue against the central bank's wage target. It's up to the good guys to explain to the public why it's a good target. I doubt it will be easy. Likewise for NGDP level targeting. Why shouldn't we keep inflation and unemployment low any more?

Posted by: Peter | November 28, 2011 at 03:53 AM

Nice post Nick, I think it hits home quite nicely after Inflation Fallacy post. As a pro-labour non-economist, I think it is deeply immoral to use unemployment to fight against the worker's interest :). But it is splendid how you've highlighted that CPI targetting does the same thing.
From the perspective of 2c), would the policy choice not be more palatable if it does not so explicitly target one specific sector of the populace (i.e., workers). A clever pro-labour economist would realize that the policy choice nearly guarantees 2.5% increases in wages, which is a good thing. However, how does he or she sell it to labour, when they realize that their paychecks are being targetted during good times? Just consider the potential problems if when during the next expansion the BoC acts to restrain wage growth, while corporations and business owners are making record profits.
Whether or not the policy is unfair, it will be perceived as unfair, with the workers losing out, whether true or not.

Posted by: Kosta | November 28, 2011 at 04:08 AM

Suppose you managed to get an above-target 3.5% wage increase for your members. Everyone might then say: "Oh, that's great for your group of workers, but it simply means that some other group of workers are going to have to accept a 1.5% wage increase, to keep the average at 2.5%, and the Bank of Canada is going to have to make sure there's enough unemployment to force some other group of workers to only get 1.5%!".
To be *really* cynical, the other group doesn't get to vote in my re-election, so the point is moot (obviously this is more appropriate if you have craft unions rather than OBU).

Posted by: Alex | November 28, 2011 at 05:33 AM

Peter: "Is this an attempt to explain why Scott Sumner gave up arguing for a wage target? Or how different central bank's targets might have weird effects?"
I don't know why Scott gave up, but this is one reason why any central bank would think twice before targeting wages. (And why the Bank of Canada never talks about the natural rate of unemployment, but instead talks about "potential output").
But that point is sort of obvious. It's more about how different central bank targets might have weird effects.
Kosta: "But it is splendid how you've highlighted that CPI targetting does the same thing."
All monetary policies would do the same thing. Therefore none can be immoral.
Alex: "To be *really* cynical, the other group doesn't get to vote in my re-election, so the point is moot (obviously this is more appropriate if you have craft unions rather than OBU)."
Most economists would react: that's not being really cynical; that's obviously how it is.

Posted by: Nick Rowe | November 28, 2011 at 06:29 AM

I'm pretty sure the divide here is a theory and practice divide. Nominal wage increases are the result of relative bargaining power between "labor" and "management" over the returns to productivity gains. Asking to target nominal wages is asking to further neuter labors ability to bargain.
The reason you get effective price level targeting from wage targeting is becuase in New Keynsian/DSGE models wages are effectively the only "variable" that determines price labor unions bosses know that's not true. Anyway, I agree that we should not be using DSGE models to bullshit about politics.

Posted by: Andrew Bossie | November 28, 2011 at 09:08 AM

nick,
it is probably one of your easiest post for non-macro economist. You often use ad curves and stuff like that...
student in first year intro class learn the difference between nominal and real wage.
I think 2b is exagerated. I think many people can be educated about the difference between real and nominal wages. 2a is correct.

Posted by: John | November 28, 2011 at 10:04 AM

As an economist ( eclectic Keynesian, too old to be new) and labor boss ( yes Determinant, they exist), I agree with Nick... There is even an college economics professor, a long= term friend of mine, on the Board of the Confédération des Syndicats Nationaux CSN). He gave up long ago on explainig economics to his members.
The way I gave up explaining why it would good for workers to raise Hydro rates and use the proceeds to hire nurses instead of paying C$ 100 K to high school dropouts working in a subsidized aluminum plant ( that's where I lose them....)
Economics and political science were long the same thing . In Canada they officially separated in 1958 IIRC.
If you think it is hard to explain sound economic policy, try vaccinating against cervical cancer in Texas.

Posted by: Jacques René Giguère | November 28, 2011 at 10:29 AM

my point as an attack trained macronaut
the diference between targets for core inflation and targets for some wage rate index
are matters of fine tuning
the core target is a fig leaf for what in esence is a control of the rate of change of wage rate
overt control would be completely non PC
'nough said
btw
target wage rate not wage rate change
use policy to follow a path of nominal wage rates
get knocked off return to path asap

Posted by: paine | November 28, 2011 at 10:36 AM

"Suppose you managed to get an above-target 3.5% wage increase for your members. Everyone might then say: "Oh, that's great for your group of workers, but it simply means that some other group of workers are going to have to accept a 1.5% wage increase, to keep the average at 2.5%, and the Bank of Canada is going to have to make sure there's enough unemployment to force some other group of workers to only get 1.5%!"."
excellent point
and precisely why price targets are prefered by us pro union nitwits
now if you had a nominal value added per hour target ....then the "bossdes" might take the loses " eh ???

Posted by: paine | November 28, 2011 at 10:41 AM

are you really an economist with only a BA?
I think to really understand througly issues, you need at least an MA

Posted by: question | November 28, 2011 at 10:52 AM

the changes in unit output per hour ie real output per hour change
is a second dimension to wage rate change
perhaps the union claims we had higher unit output so our impaact on unit cost is zero or just 1% and under the target etc
price indexes correct for changes in out put
are you correcting for changes in output per hour ????
i'm sure others have made all these points in comments above
just wanted to second these points in a sloppy way
this post is exactly what i like to see academic macrotoons doing nick

Posted by: paine | November 28, 2011 at 10:54 AM

using the term "wage inflation" may compress to much content

Posted by: paine | November 28, 2011 at 10:59 AM

"are you really an economist with only a BA?
I think to really understand througly issues, you need at least an MA"

that is dangerously off course
i think the ranks of macronaut cadets trained in graduate schools after say 1982 got brain washed
of course 101 texts have aught up with the brain wash more or less
samuelson first edition would lead to better macro then most current graduate courses
i recall my own course under phelps at columbia
occured during the expectations revolution
and already this
plus the so called wage push inflation of the 70's
created a generation of half wits
shuttering in the shadow of inflation

Posted by: paine | November 28, 2011 at 11:04 AM

unless your micro foundations have ample room for both heterogenious firms and firm pricing power
you have modeled a wonderland again

Posted by: paine | November 28, 2011 at 11:06 AM

"that point is sort of obvious. It's more about how different central bank targets might have weird effects"
weird as in primary signifigant different effects
if as you have you abstract for real target numbers you remove the debate
i suspect you share the pair of knocking knees the words wage inflation trigger in those "effectively " conditioned in grad school post 1979
lets look for weird secondary effetcs of changes in target type
not changes in target numbers
ya the monk and his conjury of an infinitude of extensionless angels
making a nice practical field like macronautics
into a semblance of the philosophy of mind
lets get to it brothers and sisters
the point is selecting the right target level
whether its inflations of prices or wages
and given shocks and internal eruptions that number changes from contect to context from major event to major event
we now have a rising debt to gdp ratio
i suggest that pushes higher targets onto the agenda
nick seems to think he wants a for all time and contexts rate on the safe side of zero
imagine suggesting deflation even in one sector given current debt loads
look at the giips
they need germany to raise its wage rates yes acclerate wage inflation
in a community of brains orbiting the rowe sun
this is monstrous it violates optimal rate change norms
btw
this is nicely brief aand sharp
"...And why the Bank of Canada never talks about the natural rate of unemployment, but instead talks about
"potential output"..."
yes they are one and the same
much to the misdirecting of the populace
if we look to the arsenal of democracy years ghere in the states 1940-1944
we see the huge elastcity of actual "potential output

in the global north as presently arranged institutionally ...

can there really be a sustainable profit squeeze ????

when it comes to macro models no micro foundations at all are far better then the wrong micro foundations

stiglitz
"nothing wrong with seking micro foundations ..its just for the last 30 years
 the dominant  academic economist schools have used the wrong micro economics "

"In EU trade-defence law (antidumping and anti-subsidies), there is provision for different treatment between those exporting countries which are considered to have the status of being a market economy and those which are not. If a country does not have market-economy status it is easier to construct the normal value of the exported goods. The constructed normal value will normally be based on costs and prices from outside the exporting country and thus are likely to be higher. This means that when the comparison is made between the normal value and the export price the level of dumping is likely to be higher."

those are rules that make market status key

is china a market system or non market system???


" WTO rules  allow national authorities to take into consideration
 the non-comparability of costs and prices
 when the exporting country is
                                                     not a market economy

or where the exporting economy is distorted in some way."



euro anti dumping  rules :

"Does the government influence the operative decisions of firms or are they made in response to market signals?

Does the legacy of the command economy, in terms of public ownership, barter trade and so on, affect firms' operations?

Do firms have effective accounting standards?

Do firms operate under an effective framework of bankruptcy regulation and property-rights protection?

Do firms convert currency at standard market rates?"


the time to use market economy status  as  leverage  on china's trade assault is .....NOW

November 30 Strike: Will Britain Shutdown?

a big test of the  gub broad axe moves in britain  moves of exactly the  same ilk
as our own piecemeal state based attacks

can the pub sec unions throw off the cuts ???

what of
popular support for the action ??

polled at  below half  ..... already ???

nick rowe is wasting time playing with himself

" Blue sky money one - the dual mandate

Leland Yeager's (ed.) "In search of a monetary constitution" was the book that most excited my thinking about monetary economics as a PhD student. He asked the contributors to the volume to design a monetary system from scratch. He told them to think "blue sky". I can't remember all the contents. The answers given were less important than the question he asked. It forced you to think deeply about what you wanted a monetary system to do.
I may do more posts like this, so I have called this post "Blue sky money one". I will explain the "dual mandate" bit later."

"The blue sky monetary system here is loosely based on: James Buchanan's proposal for "brick money" in the Yeager volume; something Brad DeLong once said in passing about the unemployed panning for gold; and various MMT economists (I've forgotten exactly who, but I don't feel I have to stick to what anyone else said)."


"Imagine an economy in which physical gold was used as the medium of exchange and medium of account. Gold is money. And imagine that every household had access to a nearby stream where anyone could pan for gold, and the average worker could collect one ounce of gold per day, using labour only, with no diminishing returns."

this amounts to assuming labor can produce money..apparently enough mone to live on indefinitely
and one guesses reproduc as well .. ..right there why bother to go on
its such a silly reactionary pocket pool assumption

"Any unemployed worker would go panning for gold and earn a wage of 1 ounce per day"

now the assumption abolishes the basic harrow of capitalis
job scarcity and jobless catastrophe

". If wages in regular jobs ever fell below 1 ounce per day, workers would quit their jobs to go panning for gold. If wages in regular jobs ever rose above 1 ounce per day, workers would stop panning for gold and get a regular job instead."

produce commodities for me
or go home and find money

"This monetary system has some very nice equilibrating properties."

so reified this is reified reifying
here equilibrating isn't an analytic convenienc
its something platonically "real"

" It would be a "full employment" economy, in the sense that anyone who wanted a job and was prepared to work for 1 ounce of gold per day would have a job, even if it was panning for gold. "

"The economy would also have a nominal anchor, in that the long run equilibrium level of money wages for unskilled labour would be pinned down to 1 ounce of gold per day."

really how ???
is the supply of gold pan types endless enough to hold down the "unskilled" laboring wage rate ??

"The flow supply of new money responds automatically to: unemployment; and the level of nominal wages. If regular unemployment increased, more workers would pan for gold, and so the money stock would automatically grow, which would increase demand for goods and labour, and so increase regular employment."

" If regular unemployment fell, fewer workers would pan for gold, so the money stock would grow more slowly. If this were a growing economy, with a growing demand for gold, either as money or for industrial use, this would mean the supply of money would grow more slowly than demand, and so regular unemployment would rise again. In equilibrium, there would be just enough workers panning for gold to make the supply of gold grow at the same speed as the demand for gold."

what can growing economy mean here ?


"The flow supply of new money also responds automatically to money wages. If money wages fell below 1 ounce per day, the flow supply of new money would increase, pushing money wages back up. If money wages rose above 1 ounce per day, the flow supply of new money would fall, pushing money wages back down."

this is like watching a pendulum

"It's a bit like a "dual mandate" monetary policy, with both a full employment target and a price level (or rather wage level) target. Except, and this is critically important, "full employment" is not defined in the normal way. Rather, "full employment" is defined as every worker who is willing to work at the target nominal wage has a job."
target nominal wage ???

"Normally we follow Phelps and Friedman in saying that any monetary policy that targets "full employment" is doomed to either accelerating inflation or deflation, because there is no nominal anchor. But this monetary system escapes the Phelps/Friedman problem because "full employment" is defined relative to the nominal anchor. If you aren't working, and are searching for a job, but are unwilling to work panning for gold at 1 ounce per day, then you are not "unemployed", by this definition of the full employment target."

"Maybe it's not a very efficient system, because a lot of workers would be panning for gold, even in full equilibrium, when paper money would work just as well and with far less effort wasted to produce the money. And we don't all have a gold stream just down the street either."

we change wonder lands

"So suppose the central bank creates an artificial gold mine, where workers can pan for paper money. Why not just call it Employment Insurance. Any unemployed worker can collect EI benefits, whether they lost their job, were fired, or just quit. And EI benefits are financed by newly-printed money, which is the only way new money can be created. It's exactly like a paper gold mine."

The key point is that EI benefits must not be indexed to inflation. The unemployed can mine a fixed 1 ounce of gold per day, or a fixed $W of paper dollars per day. If EI benefits were indexed to (price) inflation, you would lose the nominal anchor in the system. Instead, the level of EI benefits must be fixed in nominal terms. Or else rise at some fixed rate like 3% per year (for 1% equilibrium real wage growth plus 2% price inflation).
That system should work just like the original gold panning system. It has a nominal anchor. Any rise in unemployment or slowdown in wage inflation will set in motion a faster growth in the money supply that will tend to reduce unemployment and increase wage inflation. Any fall in unemployment or rise in wage inflation will set in motion a slower growth in the money supply that will tend to increase unemployment and reduce wage inflation.
But those equilibrating forces could be slow to act. Why not have the central bank speed them up by using open market operations? Otherwise a sudden large increase in demand for money will cause a prolonged period of unemployment while the unemployed produce enough new money to match the increased demand.
Here's a revised proposal. EI benefits still grow at some fixed path like 3% per year. But the central bank has a target rate of unemployment, say 6%. If more than 6% of the labour force is collecting EI, the central bank does open market purchases and creates as much money as is needed to push unemployment back down to 6% as soon as is reasonably possible. (I'm leaving that targeting horizon unspecified). If less than 6% of the labour force is collecting EI, the central bank does open market sales and destroys as much money as is needed to push unemployment back up to 6% as soon as is reasonably possible.
Why 6%? What happens if the central bank targets a lower or higher level of unemployment? And isn't there some natural rate of unemployment out there somewhere? What happens if the natural rate is above or below 6%?

"There is a natural rate out there somewhere."


" But the natural rate of unemployment depends on real (inflation adjusted) EI benefits. The higher are real EI benefits, the lower the penalty to being unemployed, and the higher will be the natural rate of unemployment."

the pea is produced !!1

Now in this monetary system it is nominal EI benefits that are fixed exogenously. Given that level of nominal EI benefits, if the central bank chooses a lower unemployment target, the consequence will be a rise in the equilibrium price level, and a fall in equilibrium real EI benefits. If the central bank sets too low a target for unemployment, the price level would rise, and real EI benefits would fall, until workers were desperate enough to take any job rather than starve on EI. A civilised level of real EI benefits would require a higher target unemployment rate."


"It's a theoretically interesting monetary system."

 It shows that it is possible, at least in principle, for a central bank to have a dual mandate
. It can target a particular level of unemployment and have a nominal anchor at the same time.

" It is the exogenously fixed path of nominal (unindexed for inflation) EI benefits that provides the nominal anchor for the monetary system. (Government make-work projects with a fixed nominal wage could also play the same role as the EI paper gold mine.)
But I'm not sure if it's a good monetary system. Any exogenous real shock to employment might require large changes to the equilibrium price level and real EI benefits for the system to re-equilibrate itself"

delong goes sugar pop

for our bradskin
months of goggle eying   graphs like these  two below
must be like a jack ass  munching loco weed

the damn porcine pundit
looks like to  be morphing  his left neolib   meme  train wreck
into  the people's bank  polar express





its a computer game fans  of course
no real neck is sticking out here
but....
but brad is doing a very public what if...
as in
what if bradford dillman delong esquire phd
    ran the fed ??????

sez brad his fed  will
"... keep short-term Treasury interest rates low not just as long as the economy is depressed"

....." but even afterwards when the economy has recovered" !!!!!!

" ..when it would normally be raising interest rates (:the delong  fed )... is going to keep short-term Treasury interest rates low until it generates an inflationary boom,"


heard that  right hoss

   INFLATIONARY BOOOOOOOOM !!

this isn't damn the inflation  full speed ahead

its  damn real  returns  full speed ahead
so corporate players
" better start building capacity now"
or  during the delong  boom
" your competitors will ... take your profits."

that not being in itself more then enough
here's bronco delong's  second barrel blast:

"Not just announcing but actually bailing-in the taxpayers of the United States of America
as the risk-bearing partners of American financial institutions"

 translation
already bought 3 trillion of it
 but delong's fed will be buying up even  more
 of the big banks junk paper piles.... to the tune of 3 to 5 more ....that's 3 to 5  trillions more  ...

reasoning:
": with the taxpayers as their risk-bearings partners,
 financial institutions that were previously tapped-out on their risk-bearing capacity
will now have the ability and the incentive
 to make more loans at more attractive terms to more potentially-expanding businesses."


wow  inflation forward till we're back to full employment

plus ...plus

massive socialization of now" privately held" ultra   risky paper

this isn't your high 90's  bobby rubin brad here anymore..... is it ???

errr .for the moment ...this is a brand new brad
running clear of rubinomics

errr that is unless bondage bobby veteran QB  of  team "sunny wall street"
facing the  recent restacking   of the front line
by the stagonauts of grim grim
  just called an automatic

" I'm throwin'  the bomb "

one euro..... two zones : teutonic versus latin macro

" “honest” opportunism is perhaps the most dangerous of all"

"Longer stretches of economic growth imply greater leverage and complacency and thus, greater financial problems when recessions do occur."

William Dudley and Edward McKelvey

the fed on the fed : why the ny fed blew the call on the hifi credit implosion... the underlying lot plop .....and.... the rapid and deep contraction of 08-09

"Three main failures in  real-time forecasting stand out:

Misunderstanding of the housing boom. Staff analysis of the increase in house prices did not find convincing evidence of overvaluation (see, for example, McCarthy and Peach [2004] and Himmelberg, Mayer, and Sinai [2005]). Thus, we downplayed the risk of a substantial fall in house prices. A robust approach would have put the bar much lower than convincing evidence.

   A lack of analysis of the rapid growth of new forms of mortgage finance. Here the reliance on the assumption of efficient markets appears to have dulled our awareness of many of the risks building in financial markets in 2005-07.


 However, a March 2008 New York Fed staff report by Ashcraft and Schuermann provided a detailed analysis of how incentives were misaligned throughout the securitization process of subprime mortgages—meaning that the market was not functioning efficiently."




Insufficient weight given to the powerful adverse feedback loops between the financial system and the real economy. Despite a good understanding of the risk of a financial crisis from mid-2007 onward, we were unable to fully connect the dots to real activity until 2008. Eventually, by building on the insights of Adrian and Shin (2008), we gained a better grasp of the power of these feedback loops.

    However, the biggest failure was the complacency resulting from the apparent ease of maintaining financial and economic stability during the Great Moderation. Perhaps most important, as noted by some analysts as early as the 1990s, these adverse consequences of the Great Moderation were most likely to arise from the actions, judgments, and decisions of financial market participants:

fed in april misses the likelihood of the 2011 slow down

never overestimate the importance of this relationship...at any one moment !!!!!

all over the place and back again..... in 60 years

but note tips rate its headed south as the gdp to fed ddebt heads north

  not good.... macronaut sailors take warning

the debt load is expected to intensify  thru  ultra low inflation

   even as primary deficits continue  

for a sceurity " representing a claim against nothing in particular may have its advantages. In particular, the return to fiat money is not directly linked to any information that relates to the underlying fundamentals of a private asset"

this is a new monetarist finding a way to have insight without escaping his  capitalist bindings


surely the logic of this leads on to universal default innsurance
the bedrock of frictionless securitrization of obligatory payments

the immediate work of the waged masses

to push thru the bourgeois  reforms the bourgeois themselves shy away  from

like....... full employment !!!!!

like........ a coherent pour soi robust social dividend  !!!!!!
like........ a    fully socialized and universaized
     l credit and insurance system

like balanced international trade and a global forex policy
that enforces fair exchange

The ancient world was dominated by Fatum, Heimarmene, inescapable mysterious fate. These were the names given by the Greeks and Romans to that impalpable omnipotence which frustrated all human will and effort, which led all human deeds to results quite other than those intended, that irresistible force which has since then been called providence, predestination, etc. This mysterious force has slowly taken on a more palpable form, and for this we may thank the rule of the bourgeoisie and capital, the first system of class rule which seeks to find clarity about the causes and conditions of its own existence, thus opening the door to the recognition of the inevitability of its own imminent fall. Fate, providence – that we know now – consists of the economic conditions under which production and exchange take place, and these combine today in the world market.

endless litany of inequality

"between 1979 and 2005 the inflation-adjusted, after-tax income of Americans in the middle of the income distribution rose 21 percent. The equivalent number for the richest 0.1 percent rose 400 percent"
pk

given THE FACTS
the 99er movement now seems inevitable eh ??


at some point reaction to this torrent of toxic data
had to move beyond  libohwull indignation
yup just had to   morph
into a  mass based ground swell
ah but can it roil enough to scare up legislation??

notions like a wealth based tax to cover the servicing of the federal debt

"the richest one-thousandth of Americans account for half of all income from capital gains"

that's pk the blood hound again
yelping and arfing after our betters

more ?


"... 43 percent of the super-elite are executives at nonfinancial companies, 18 percent are in finance and another 12 percent are lawyers or in real estate. "


more ??


".in 2007, before the Great Recession depressed everyone’s income, the top 0.1% had around $1 trillion in taxable income"

idiotic sanctimonious meme poison

Princeton, N.J.
CHRISTMAS is nearly upon us. Americans, once again, are told that it’s our civic duty to shop. The economy demands increased consumer spending. And it’s true. The problem is that millions of lower- and middle-income households have lost their capacity to spend. They lack savings and are mired in debt. Although it would be helpful if affluent households spent more, we shouldn’t be calling upon a struggling majority to do so. In the long run, the health of the economy depends on the financial stability of our households.
What might we learn from societies that promote a more balanced approach to saving and spending? Few Americans appreciate that the prosperous economies of western and northern Europe are among the world’s greatest savers. Over the past three decades, Germany, France, Austria and Belgium have maintained household saving rates between 10 and 13 percent, and rates in Sweden recently soared to 13 percent. By contrast, saving rates in the United States dropped to nearly zero by 2005; they rose above 5 percent after the 2008 crisis but have recently fallen below 4 percent.
Unlike the United States, the thrifty societies of Europe have long histories of encouraging the broad populace to save. During the 19th century, European reformers and governments became preoccupied with creating prudent citizens. Civic groups founded hundreds of savings banks that enabled the masses to save by accepting small deposits. Central governments established accessible postal savings banks, whereby small savers could bank at any post office. To inculcate thrifty habits in the young, governments also instituted school savings banks. During the two world wars, citizens everywhere were bombarded with messages to save. Savings campaigns continued long after 1945 in Europe and Japan to finance reconstruction.
All this fostered cultures of saving that endure today in many advanced economies. The French government attracts millions of lower-income and young savers with its Livret A account available at savings banks, postal savings banks and all other banks. This small savers’ account is tax free, requires only a tiny minimum balance, and commonly pays above-market interest rates. In German cities, one cannot turn the corner without coming upon one of the immensely popular savings banks, called Sparkassen. Legally charged with encouraging the “savings mentality,” these banks offer no-fee accounts for the young and sponsor financial education in the schools.
Supported by public opinion, policy makers in European countries have also restrained the expansion of consumer and housing credit, lest citizens become “overindebted.” Home equity loans are rare in Germany, and Belgians, Italians and Germans are rarely offered an American-style credit card that allows the user to carry an unpaid balance.
How did America arrive at its widely divergent approach to saving and consumption? Seldom over the past two centuries has the federal government promoted saving; it left matters to the states or the market. In the 19th century, savings banks and building and loan associations did thrive in the Northeastern and Midwestern states; where they existed, working people saved at high rates. However, the vast majority of Americans in the Southern and Western states lacked access to any savings institution as late as 1910. Most Americans became regular savers only after the federal government decisively intervened to institute the Federal Deposit Insurance Corporation in 1934 and mass-market United States savings bonds in World War II.
The United States emerged from the war with unparalleled prosperity and hardly needed further savings campaigns. Instead politicians, businessmen and labor leaders all promoted consumption as the new driver of economic growth. Rather than democratize saving, the American system rapidly democratized credit. An array of federal housing and tax policies enabled Americans to borrow to buy homes and products as no other people could.
But from the 1980s, financial deregulation and new tax legislation spurred the growth of credit cards, home equity loans, subprime mortgages and predatory lending. Soaring home prices emboldened the financial industry to make housing and consumer loans that many Americans could no longer repay. Still, Americans wondered, why save when it is so easy to borrow? Only after housing prices collapsed in 2008 did they discover that wealth on paper is not the same as money in the bank.
As we seek to restore a balance between saving and consumption, what aspects of other nations’ experiences might we adapt to our circumstances? The new Consumer Financial Protection Bureau, while politically besieged, possesses broad powers to curb predatory lending. The bureau might also promote the creation of financial education programs in every school. Congress should consider ending costly tax incentives for wealthier savers and homebuyers while creating new incentives to encourage low- and middle-income people to save. Finally, federal intervention is needed to stop the banks from fleecing and driving away their poorest customers. If the banks cannot be encouraged to offer low-fee accounts for young and lower-income customers, the government might consider creating postal savings accounts for small savers.
To improve the balance sheets of America’s households, we must approach saving in a more forthright manner — not an easy thing to do when again and again we hear that individual prudence acts to impair the economy.

Sheldon Garon, a professor of history and East Asian studies at Princeton, is the author of “Beyond Our Means: Why America Spends While the World Saves