Wednesday, January 16, 2013

Jon Stewart vs. Paul Krugman

Jon Stewart and Paul Krugman have been butting heads over the trillion-dollar coin idea. Stewart concludes that it is a "dumb f*****g idea," and Krugman thinks Stewart is "lazy" and "unprofessional." You can find the video here.

As someone who has called Krugman lazy in the past, I'm quite willing to offer you my opinion on this contoversy. Krugman is on shaky ground here. It's a bit much for Krugman to be criticizing Stewart for not getting all the subtleties of the idea behind #mintthecoin. In fact, many economists seem confused about it, and Krugman himself does not entirely get it (see this post). I think we can cut Stewart some slack - he's one of the more intelligent human beings on the tube, and he's trying to get a laugh. Obviously Krugman does not have much patience for people who don't take him seriously.

More to the point, #mintthecoin is interesting in that it draws attention to monetary economics and the relationship between monetary and fiscal policy. Other than that, Stewart has it nailed as a dumb f******g idea. The key problem is that this vehicle for circumventing the federal debt ceiling threatens central bank independence. Wherever the trillion-dollar coin is deposited, it constitutes a monetary policy action, and our institutions are set up so as to keep the Fed at arm's length from the Treasury. This would be like having President Obama show up for an FOMC meeting. Bad idea.

21 comments:

  1. Uuhh, central bank independence is threatened. I love it when a dubious theoretical story (the time-inconsistency weak central bankers will put too much weight ex-post on employment and thus drive-up inflation expactations idea) is used to rationalize an anti-democratic institutional setup.

    No word in here about Republican extortion or the fact that expansionary monetary policy is the least of our worries. Employment is, except of course to right-wing inflation hawks who do not care one iota about unemployment or whether their inflation fears match the data.

    In other words, they are utterly immoral and unscientific.

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    1. "...a dubious theoretical story..."

      There certainly are theories about why central bank independence is a good idea. I think practice bears this out as well. In the U.S., under the Federal Reserve Act, the Fed has independence, but of course there are checks on the Fed's power through appointments and congressional control. If the trillion dollar coin were minted and deposited with the Fed, how do you think the Republican Party, and Ron Paul in particular, would use that?

      Delete
  2. Republicans are trying hard to undermine conventional budget design procedures in order to implement tax cuts for the rich and austerity for the rest in the name of fiscal conservatism (which is obviously wrong).
    The major problem are the horrible implications of this policy upon people (even people who do not like moderated capitalism, social democracy or however you wanna call a moderate welfare state that goes hand in hand with demand management and blatantly ignore all the evidence that supports this basic political-economical standpoint should support it as there is a Golden Dawn in Greece, unfettered capitalism makes fascism appear on the political menu) and the minor problem is that you cannot allow the Republicans to get away with this (the usual tit-for-tat game, i.e. if somebody stops playing nicely you do the same) lest they try it again in the future.

    From this other side of the big pond the coin seems to be the only option that solves both problems. As long as it is clearly communicated by the Democrats that they use the coin trick in order to get things back to normal there is also no reputation problem à la "oh my God, now the Dems are as crazy as the Reps".


    About what do do with the money? Any sane economist would advocate the powers that be to invest it into public goods with interest rates being so low and most definitely below the returns of investments of public investment like returning rotten infrastructure and so on. European-style multiple-equilibria stories (interest rates might be low now but tomorrow the bond vigilantes will strike) don't apply as long as the central bank is committed to purchase government debt and prevent such speculative attacks. Not something hard-money folks wanna hear but the job of a central bank is not merely to maintain inflation and inflation volatility low but also to care about employment and the stability of the financial system. The latter was one of the main reasons central banks were created in the first place.

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    1. I think you need to separate the issue of appropriate monetary policy from this debt-ceiling issue. I know it's infuriating that people would use the debt ceiling as a threat in budget negotiations, but short of getting rid of the debt ceiling entirely, which seems impossible, I think the costs of circumventing it are too high. The executive branch should just be tough and refuse to negotiate under the threat. Further, the costs in the event that Congress refuses to raise the ceiling are not as high as some people make out. I think we can avoid default, for example. The disruption would of course be significant, mainly in terms of government services, and it would get worse the longer the crisis lasts. But disruption gets the public riled up, and legislators pay attention to that. The Republicans may just be bluffing.

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  3. I think Krugman is trolling us, Steve

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  4. You know Stephen, coming in I really was in doubt as to whose side you were going to take: I thought there was a 50-50 chance you'd be on Krugman's side. LOL.

    Tim Duy's piece seemed to suggest that the reson for opposing the platinum coin was that while it might not be a problem at lesat now, it would get it in some people's heads that maybe the big districntion that's supposed to exist between the Fed and the Treasury-their Chinese Wall-is more a illusion than reality.-

    I note that Krugman actually insisted that it's only during ZLB that it would be ok. Duy thought it would give the wrong appearnces at. while Krugman doesn't worry about that

    For my part it's an abstract-though interesting-economic debate.

    What matters is that Obama was right politically speaking in dismissing the coin idea. The GOP has effectively backed off there appalling hostage taking.

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  5. Nice article, thanks for the information.

    ReplyDelete
  6. I was wondering what you thought of this blog post and article in The Economist:

    http://www.economist.com/blogs/freeexchange/2013/01/brief-history-macro
    http://www.economist.com/news/finance-and-economics/21569752-efforts-are-under-way-improve-macroeconomic-models-new-model-army

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    Replies
    1. That article is the worst kind of misrepresentation.

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  7. A simple question, as this is supposed to be an MMT blog, albeit Rush says its a low information blog.

    Any response to the following blog

    Dolan, Debt Sustainability, Growth, Interest Rates, and Inflation: Some Charts for Discussion and Some Inconvenient Truths for MMT


    http://www.economonitor.com/dolanecon/2013/01/28/debt-sustainability-growth-interest-rates-and-inflation-some-charts-for-discussion-and-some-inconvenient-truths-for-mmt/?utm_source=contactology&utm_medium=email&utm_campaign=EconoMonitor%20Highlights%3A%20Not%20the%20Retiring%20Type

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    Replies
    1. You seem confused. Steve does New Monetarist stuff. MMT is crackpot internet lunacy.

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    2. Oddly, I see that MMT, Modern Monetary Theory, is not limited to comments on Free Republic but includes books, by Wray, etc.

      Now, if there is some high, drone patrolled boarder between New Monetarist and Modern Monetarist, it would be informative to hear from Mr. Williamson exactly what this line is, as well as some refutation or agreement with the very interesting charts of Mr. Dolan.

      I realize there are a number of low information comments here, and Mr. Williamson is famous for never saying, "It seems to me that if we wanted to get several million people back to work, this is what I would do: 1, 2, 3 ...

      But, there is no harm in asking.

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    3. If that is supposed to be witty retort, you've failed miserably. Wray is very much the bannerman of internet crackpot lunacy.

      And the word is "border" not "boarder". I don't think anyone renting a room is interested in your ramblings.

      Delete
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