tag:blogger.com,1999:blog-2499715909956774229.post287006134600919583..comments2024-03-09T02:22:57.289-08:00Comments on Stephen Williamson: New Monetarist Economics: Question of the DayStephen Williamsonhttp://www.blogger.com/profile/01434465858419028592noreply@blogger.comBlogger45125tag:blogger.com,1999:blog-2499715909956774229.post-83134616578292045622014-02-05T11:21:00.729-08:002014-02-05T11:21:00.729-08:00CA,
Thank you very much for the explanation. As a...CA,<br /><br />Thank you very much for the explanation. As a beginner economics student I was wondering that excess saving relative to investment was a possibility. Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-27780940596483917862014-02-05T10:36:58.869-08:002014-02-05T10:36:58.869-08:00It is an identity. It must hold by definition. For...It is an identity. It must hold by definition. For example, for a closed economy (e.g. the world economy if there is not interplanetary trade) saving is defined as the total income (Y) not spent by households on consumption (C) or by the government on various goods and services (G). In math: S = Y - C - G. Also, world income (world GDP) is measured as the sum of private consumption expenditure, private expenditure on investment goods, and expenditure on goods and services by households. In math: Y = C + I +G. If you solve for investment you get: I = Y - C - G. Notice that the right-hand side is the same as the right-hand side in the saving equation. Therefore, it must be true that I = S. There are different ways in which this equality can be maintained. 1) If saving increases the real interest rate will decline so investment will rise by an equal amount. 2) Suppose this cannot happen. Then prices may decline so that even though nominal spending is lower, in real terms nothing will change. 3) If this is not possible either, then the increase in saving will result in a decrease in production and therefore income (Y). Even though people want to save more, they cannot because their income has declined. In fact, total saving may actually fall (the so-called paradox of thrift, popularized by Keynes). So, you see, for the world as a whole it should always be the case that S = I. CAnoreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-57735533526828914122014-02-05T05:58:16.106-08:002014-02-05T05:58:16.106-08:00If most countries preferred to save more, by impos...If most countries preferred to save more, by imposing austerity, isn't world saving higher than world investment? Why should I=S for the whole world?Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-73554969549395684252014-02-04T15:27:22.928-08:002014-02-04T15:27:22.928-08:00If we did, you would arguably be out of the econom...If we did, you would arguably be out of the economics blogging business, although you might be able to eke out a living in the Unjustified Snark market segment.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-73034420019000520232014-02-03T07:15:34.432-08:002014-02-03T07:15:34.432-08:00Careful when you go outside, your tinfoil hat migh...Careful when you go outside, your tinfoil hat might singe your hair.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-48189365067608867722014-02-02T05:37:31.028-08:002014-02-02T05:37:31.028-08:00Even if the secular stagnation issue hypothesis is...Even if the secular stagnation issue hypothesis is wrong it is obvious that there are ample of public investments which lead to a return that is far above the financing cost (low yields on government bonds plus the efficiency losses due to distortionary taxation), e.g. infrastructure.<br /><br />But the political problem is neoliberalism aka lemon socialism, i.e. private companies use the state to create returns: cost-plus contracts during the Iraq War, more explicit subsidies of all kinds, private prisons and school and so on. Rent seeking gone crazy. By the way, this is not a US-only issue, it starts to happen on the other side of the big pond as well.<br /><br />So in my opinion and contrary to Krugman and other Old Keynesians the problem is not that G is too small. The problem is that G includes too little rational (return > costs) public investment.<br /><br />So no matter whether you approach the subject from my rent-seeking angle, the secular stagnation or e.g. the climate change angle (if we had a worldwide Pigouvian tax on CO2 there would be many more new investment opportunities), it is clear that there is a problem of too little investment (in the first world). But Krugman errs in two respects: this is a long-run issue and it can be solved not merely via more public investment.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-86626331520944826742014-02-01T15:03:05.562-08:002014-02-01T15:03:05.562-08:00So, the real rate should be low, but it shouldn...So, the real rate should be low, but it shouldn't be low, and the only solution is more G?Stephen Williamsonhttps://www.blogger.com/profile/01434465858419028592noreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-88605098060083430042014-02-01T12:43:30.813-08:002014-02-01T12:43:30.813-08:00PK is just saying what Delong wrote last month: t...PK is just saying what Delong wrote last month: the required real yield on private investments low enough to induce enough investment to balance savings at full employment is too low a yield to properly discourage bubbles and overleverage.Anonymoushttps://www.blogger.com/profile/02956200582225410181noreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-52879289134008434912014-01-31T18:12:48.948-08:002014-01-31T18:12:48.948-08:00JP: it's a device some economists use to jump ...JP: it's a device some economists use to jump the economy from one equilibrium to another when there are multiple equilibria. It is some random event that everyone observes (and it is common knowledge that everyone observes it) but which has no intrinsic relevance.<br /><br />The Diamond Dybvig model of bank runs is a sunspot model. When a sunspot happens, there is a run on the bank.<br /><br />(Originally, in Jevons, sunspots were very different, because they do in fact affect the climate, and so were a real exogenous shock to supply of corn.)Nick Rowehttps://www.blogger.com/profile/04982579343160429422noreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-35279920122053382702014-01-31T17:10:54.703-08:002014-01-31T17:10:54.703-08:00What exactly is a sunspot? (I know what a seashell...What exactly is a sunspot? (I know what a seashell is).JP Koninghttps://www.blogger.com/profile/02559687323828006535noreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-19426888629236617852014-01-31T15:34:28.318-08:002014-01-31T15:34:28.318-08:00"What Krugman has in mind is a picture in whi..."What Krugman has in mind is a picture in which S and I intersect at an interest rate of zero with multiple equilibria"<br /><br />Then it is still true that S = I (with sticky prices because output adjusts). Here is Krugman:<br />"too much saving chasing too few good investment opportunities". <br />Does this sound to you like S = I? Are you sure you understand what he is saying?The other anonymousnoreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-81394802450641915912014-01-31T15:26:31.871-08:002014-01-31T15:26:31.871-08:00I said "low, probably negative natural rate o...I said "low, probably negative natural rate of interest" and never claimed that I am sure about whether the natural rate of interest is negative. I also already said what the natural rate of interest is: "the interest rate at which there would be full employment". How come that a guy without a PhD knows this basic stuff while a professor does not? Willful ignorance?<br /><br />What Krugman has in mind is a picture in which S and I intersect at an interest rate of zero with multiple equilibria. Economically this means that a large chunk of savings flows into money which is not invested aka liquidity trap.<br /><br />As I said, Krugman is doing basic stuff. Now you can disagree with it (like I partially do) or do something less basic and more elaborate. But to pretend to not understand is slightly pathetic ... and if you do not feign to not understand it but actually do not understand it this is embarrassing.<br /><br />Seriously, if tenured folks do not understand the 101s of a liquidity trap while we are actually in one for years we truly do live in a dark dge of macro.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-2963492662364707882014-01-31T14:45:28.277-08:002014-01-31T14:45:28.277-08:00A possible model of secular stagnation:
http://inf...A possible model of secular stagnation:<br />http://informationtransfereconomics.blogspot.com/2013/11/secular-stagnation-and-eu.html<br /><br />Concept: Diminishing marginal utility of adding money to the economy to capture AD and translate it into NGDP. Based on information theory.Jason Smithhttps://www.blogger.com/profile/12680061127040420047noreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-22534987769321586962014-01-31T13:47:48.261-08:002014-01-31T13:47:48.261-08:00"...but good enough for a blog..."
As I..."...but good enough for a blog..."<br /><br />As I've stated before, it looks like we need higher standards for economics blogging.Stephen Williamsonhttps://www.blogger.com/profile/01434465858419028592noreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-59651895757777117742014-01-31T12:49:45.672-08:002014-01-31T12:49:45.672-08:00"In the world as a whole, savings=investment...."In the world as a whole, savings=investment."<br /><br />Right, and it seems that, for this reason, PK is adding a qualifier and saying: saving > good investment. But what the heck does "good" mean? CAnoreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-62438909037406266612014-01-31T11:38:31.885-08:002014-01-31T11:38:31.885-08:00"So you have a simple "theory" that..."So you have a simple "theory" that matches three stylized facts: low interest rates / low, probably negative natural rate of interest + the increase of total saving and the decline of total investment in the first world."<br /><br />1. A low "natural rate of interest" is not a fact, as you need a theory to define "natural rate."<br />2. In the world as a whole, savings=investment.Stephen Williamsonhttps://www.blogger.com/profile/01434465858419028592noreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-56347306514912155412014-01-31T10:23:45.932-08:002014-01-31T10:23:45.932-08:00Same troll, different day!Same troll, different day!Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-65177919910783030272014-01-31T10:16:42.832-08:002014-01-31T10:16:42.832-08:00Land and demographics doesn't sound like secul...Land and demographics doesn't sound like secular stagnation to me. This is basic stuff (unlike you I do not dislike Krugman but I'd say it is clear that he mostly writes about fairly basic stuff), secular stagnation simply means that the savings curve shifts outwards while the investment curve shifts inwards.<br /><br />So you have a simple "theory" that matches three stylized facts: low interest rates / low, probably negative natural rate of interest + the increase of total saving and the decline of total investment in the first world.<br />And every "secular stagnationist" neglects to look at development countries where investment/GDP has slightly increased during the last years.<br /><br />I don't wanna imply that it is totally useless to speculate about the lack of large technological breakthroughs in the near future or the decline of the rate of technological progress (here you could directly test the hypothesis but then again I think that if you do not just measure the Solow residual but use something more elaborate there might be ambiguous results) but it is fairly blind guesswork. And the other stuff behind this "theory" is just ordinary macro: looking at aggregate data like current accounts and capital movements over the worlds.Carlosnoreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-656153928547199922014-01-31T08:54:52.328-08:002014-01-31T08:54:52.328-08:00Thanks Steve! But yes, on second thoughts, I'm...Thanks Steve! But yes, on second thoughts, I'm not sure if that is the sort of thing Paul had in mind. My agents (I think) are rational. I think (not sure) Paul is talking about irrational beliefs?<br /><br />Good point about picking up shells being measured as investment.<br /><br />It's not so much houses (which depreciate) but land. Why can't useful land replace shells? Dunno.Nick Rowehttps://www.blogger.com/profile/04982579343160429422noreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-27532566080857824062014-01-31T08:39:20.850-08:002014-01-31T08:39:20.850-08:00Stephen
I think your quest to understand what he ...Stephen<br /><br />I think your quest to understand what he is saying will ultimately be futile. But you probably knew that already, given that you promised a million dollar prize.<br /><br />The problem with trying to understand PK is that he uses a lot of fancy terms, none of which can be measured. In particular, this means that there is no *rule* or *definition* that he can provide that will tell you what each term means in terms of the data. What is "secular stagnation"? When are we in a "bubble"? Ex post rationalisations are not useful. This is why Fama doesn't take Shiller's protestations of "bubbles" seriously.<br /><br />It seems that only a select few like Shiller, PK, etc, can look at current data, and diagnose things exactly. Mind you, they won't (can't?) give you a policy rule to follow, precisely because there are so many undefined terms and things that any sentient being cannot measure.<br /><br />This also points towards why SW (and the profession at large) likes models with microfoundations. All terms are well defined. <br />Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-79473027502087133272014-01-31T08:14:28.415-08:002014-01-31T08:14:28.415-08:00I was thinking that the allocation is inefficient,...I was thinking that the allocation is inefficient, alright, but what about the savings and investment part of the story? If time spent on the beach picking up shells is measured as investment, we have too much investment, not too little. Even better, extend the model a bit, call the shells houses (with different colors) and suppose people get a utility flow from them.Stephen Williamsonhttps://www.blogger.com/profile/01434465858419028592noreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-35545285728461294402014-01-31T07:35:26.763-08:002014-01-31T07:35:26.763-08:00That line seemed perfectly understandable. It'...That line seemed perfectly understandable. It's one person's summary of events and what caused them. Not a fully worked out rigorous peer-reviewed theory, or by any means the final word, but good enough for a blog.Wonks Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-51900888529868862522014-01-31T06:48:41.833-08:002014-01-31T06:48:41.833-08:00Nick,
Actually, that's not bad. Jumping from ...Nick,<br /><br />Actually, that's not bad. Jumping from one bubble to the next. You should tell Krugman, and see what he says.Stephen Williamsonhttps://www.blogger.com/profile/01434465858419028592noreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-52935530895371980262014-01-31T06:40:31.066-08:002014-01-31T06:40:31.066-08:00I think the idea is in Alvin Hansen's work, an...I think the idea is in Alvin Hansen's work, and not in Keynes. I could be wrong, but I think Hansen just used words to describe what it is, and the idea seems to focus on demographics and territorial acquistion. So, now Krugman is discussing the idea, but he seems to be talking about something different. I'm trying to figure out what it is.Stephen Williamsonhttps://www.blogger.com/profile/01434465858419028592noreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-8055273955106368352014-01-31T06:36:07.660-08:002014-01-31T06:36:07.660-08:00"...in a secular stagnation. "
Which is..."...in a secular stagnation. "<br /><br />Which is what, exactly?Stephen Williamsonhttps://www.blogger.com/profile/01434465858419028592noreply@blogger.com