Alan Blinder, writing in the Wall Street Journal on Tuesday, expresses enthusiasm about some recent hints at a possible change in the Fed’s policy on interest paid on excess reserves. The hints were contained in the minutes of the Federal Open Market Committee’s last policy meeting, which included a passage indicating that most participants in the meeting “thought that a reduction by the Board of Governors in the interest rate paid on excess reserves could be worth considering at some stage.”
Blinder has been a strong proponent of changing the current policy, so he thinks the hinted changes are of the utmost importance. “As perhaps the longest-running promoter of reducing the interest paid on excess reserves, even turning the rate negative,” he says, “I can assure you that those buried words were momentous.”
But I have always found Blinder’s arguments about the importance of the rate of interest on excess reserves to be unpersuasive, and I continue to be puzzled by his reasoning. In the recent piece he again moots the possibility of imposing a negative rate of interest on excess reserves, thus charging banks money to hold them. He then says:
At this point, you’re probably thinking: “Wait. If the Fed charged banks rather than paid them, wouldn’t bankers shun excess reserves?” Yes, and that’s precisely the point. Excess reserves sitting idle in banks’ accounts at the Fed do nothing to boost the economy. We want banks to use the money.
If the Fed turned the IOER negative, banks would hold fewer excess reserves, maybe a lot fewer. They’d find other uses for the money. One such use would be buying short-term securities. Another would probably be lending more, which is what we want.
I am unclear as to how changing the rate of interest of excess reserves could succeed in changing the quantity of excess reserves banks are holding.
Paul Krugman has yet another pair of pieces up about real interest rates, inflation rates, monetary policy “tightness” or “looseness”, and the purported theoretical connection between these phenomena and US stagnation: stagnation in US growth, employment and wages. Read them and yawn.
These discussions are a waste of time. The fundamental source of stagnation in the United States is a conservative, corrupt and intellectually deficient US government – infesting both Congress and the White House – that refuses to do its job and is incapable of thinking big. We need an industrial policy, a detailed and aggressive program of mission-driven public investment for the 21st century, a national commitment to full employment and human development, and a very substantial increase in the federal government role in our economy. And we need our democracy and its citizens to get active in charting and implementing an agenda for our future, and to seize control of that agenda from the corporate profit-seekers and the complacent affluent who are stakeholders in the existing stagnation.
I recently joined Tom O’Brien as a guest on his terrific podcast From Alpha to Omega, and the interview is now available online. We discuss many of my favorite topics: the central banking system and the role of reserves, fiscal vs. monetary policy, capital requirements, differences between the US and European systems, and the need for healthy deficits and engaged government action to promote full employment and drive transformative change. Here is the link to the podcast:
When Larry Summers said:
Even a great bubble [first in high-tech and then in housing] wasn’t enough to produce any excess of aggregate demand…. Even with artificial stimulus to demand, coming from all this financial imprudence, you wouldn’t see any excess…
He wasn’t calling for more bubbles. He was pointing out that an economy that can only attain anything like full employment with stable inflation in a bubble is an economy with something deeply and structurally wrong with it–something that needs to be fixed.
DeLong then proceeds to lambaste Crook for his intellectual dishonesty. But Crook does not actually say Summers advocates bubbles. This is the relevant passage from Crook’s piece.
I recently tried to summarize the main themes of the vision of social and economic transformation I have called “rugged egalitarianism.” But that summary was buried at the bottom of a long post covering several recent topics. So I thought it would be useful to present the key ideas of rugged egalitarianism once again for easy reference, minus the extraneous discussion.
I see rugged egalitarianism as just one part of an emerging global effort to rekindle the dream of human social and economic equality. A ruggedly egalitarian society strives to share the burdens of the work people must do to preserve and extend their prosperity, to make moral and material progress, and to govern their common lives together. And a ruggedly egalitarian society strives to share the fruits of that work as well.
I have also explained what is “rugged” about rugged egalitarianism:
The egalitarianism I will promote is rugged, because it will be difficult to achieve, difficult to keep and unavoidably imperfect in its realization. It will require challenging feats of public enterprise, a mature acceptance of the need for governance and social organization, and the willingness to confront decrepit status quo institutions and power structures.
Rugged egalitarianism is a work in progress. But these are some of its central aims:
There is a new Washington think tank on the scene. Well, actually it is just a spinoff and re-branding of an older Washington think tank: the Center for American Progress. The new think tank is called the Washington Center for Equitable Growth. Here is the organization’s self-description:
The Washington Center for Equitable Growth is a new research and grantmaking organization founded to accelerate cutting-edge analysis into whether and how structural changes in the U.S. economy, particularly related to economic inequality, affect growth. Core to our mission is helping to build a stronger bridge between academics and policymakers so that new research is relevant, accessible, and informative to the policymaking process.
And here are the people involved with the project on its steering committee, advisory board and staff. There are a handful of interesting folks in the lineup, including Heather Boushey, Nancy Folbre and Emmanuel Saez, economists who have an authentic, well-established research interest in issues of economic inequality. But the crew also contains a lot of Clinton and Obama administration veterans who, quite frankly, have been a giant part of the problem, and helped lay the foundations for the repulsive and dehumanizing economic order under which we currently live. And the organization is headed by John Podesta, the ultimate beltway insider.
The Financial Times called attention this weekend to one of my favorite themes: the precipitous collapse of US public investment.
Public investment in the US has hit its lowest level since demobilisation after the second world war because of Republican success in stymieing President Barack Obama’s push for more spending on infrastructure, science and education.
Gross capital investment by the public sector has dropped to just 3.6 per cent of US output compared with a postwar average of 5 per cent, according to figures compiled by the Financial Times, as austerity bites in the world’s largest economy.
The Times story dovetails with my recent piece on the postwar history of US consumption and gross investment. I argued in that piece that
The planned economy of WWII was the economic rocket that finally launched the United States out of the depression era and into the prosperous future decades that followed. That period, you might say, was America’s “great leap forward.” Americans in the postwar period, justifiably impressed with the power and success of activist government, kept up very strong levels of government economic participation and agenda-setting. We know the litany: highway programs, educational investment, a space program, and all of the many components of military-industrial complex.
I also argued that the long-term secular decline in US government economic activism and mission-driven public investment, a decline characterizing the neoliberal period, has been responsible for falling rates of US economic growth. Along these lines, I have urged people to listen to the words of Sussex University economist Mariana Mazzucato:
Mazzucato’s central message is that standard accounts of the economic role of the state are incomplete. These accounts focus on the provision of public goods and the state’s role in compensating for negative externalities and other market failures. But Mazzucato believes economists and the public need a better understanding of the role of states in driving economic innovation. She argues that government spending has been most effective when that spending is directed towards large missions, and that missions such as putting a man on the moon or tackling climate change require strong government intervention. Mazzucato builds on her account of mission-oriented investment to explain how to develop public-private partnerships that are symbiotic rather than parasitic.
So it is good to read warnings about this dangerous decline in a prestigious, opinion-leading publication like the Financial Times. Unfortunately, the Times hints at a simplistic partisan analysis of the politics of the public investment failure in America, an analysis which might mislead its readers about what will be required to turn those politics around:
Driving home from work last night here in New Hampshire, I ended up behind a man in a tidy red pickup truck. The man had written a very elaborate message on the back of the truck, carefully arranged with block letter decals of the kind you use to put a name on a mailbox. I couldn’t read the entire message without tailgating, and some of the letters toward the end of the message were smaller, but here was the part I could read:
Obama … attacking white people … Marxist ObamaCare … destroying white DNA … miscegenation … drug addicts and venereal disease.
And there was a lot more after that. But as I said, it was too small for me to read from a safe distance. The man in the red pickup truck must have spent a good deal of time purchasing the correct letters, thinking out his message and then affixing the letters carefully to his truck.
The truck had a New Hampshire license plate, but I never recall seeing anything remotely similar, and so stridently and brazenly displayed out in public, not in the 23 years I have lived here. I passed the truck to put it behind me. I had only seen the back of the man’s head, which was ordinary and unremarkable, with close-cropped gray-blonde hair. I was afraid to look at his face as I went past.
Some disturbing things are happening in this country, but it is hard to distinguish them one from another, because the many different kinds of angry thinking overlap with, and bleed into, other kinds.
Robert Skidelsky and Jan-Emmanuel De Neve debate the future of work and work as a value in this public event at the London School of Economics.
Here is the LSE description:
Why do we work almost as hard as we did 40 years ago, despite being on average twice as rich? Robert Skidelsky suggests an escape from the work and consumption treadmill. This event marks the paperback publication of Robert and Edward Skidelsky’s book How Much Is Enough?
Robert Skidelsky is emeritus professor of political economy at the University of Warwick. His three-volume biography of the economist John Maynard Keynes (1983, 1992, 2000) received numerous prizes; he also penned the critically acclaimed Keynes: The Return of the Master.
Dr Maurice Glasman is a reader in political theory at London Metropolitan University, author of Unnecessary Suffering and a Labour Peer.
Lacy Hunt reports on three recent academic studies indicating that the Fed’s unconventional asset purchasing programs have failed. Antonio Fatas is “sympathetic to the argument that Quantitative Easing has had a limited effect on GDP growth”, but takes issue with some parts of Hunt’s analysis, and argues that the way Hunt analyzes the relationship between reserves and the money multiplier “is not consistent with the conclusions reached about the lack of effectiveness of monetary policy actions.” I believe there are problems with both Hunt’s analysis and Fatas’s analysis of that analysis. My best guess is that QE has had negligible macroeconomic effects. But some of the considerations Hunt and Fatas adduce in attempting to evaluate that question are red herrings, and don’t get us closer to an answer.