For those who can stomach some straight shooting by a smart macro economist, read Stephen Williamson’s post about future Fed policy.
For those who like watching Youtube videos about environmental economics, watch these.
Posted: Tuesday, November 20th, 2012 at
7 Comments »
I don’t know Williamson but read his comments on Yellen very differently from the way Matthew does. I see them as closer to snark than straight shooting. Williamson clearly is a committed monetarist. Fine. But sweeping statements like “modern economics tells us” that monetary policy is not an effective policy tool are more the product of ideology than serious confrontation with economic evidence. Other parts of Williamson’s commentary smart of the widely discredited “rational expectations” excesses of several decades gone by.
I have seen Janet Yellen teach economics and I know that her approach is to build frameworks for analysis that are inclusive of different viewpoints. In other words in looking at the issues Williamson raises her instinct would be to show his viewpoint and hers as different cases within an overall framework, and to identify the theoretical and empirical differences that would say in which regions of the common framework the different views (models and policy implications) would obtain. So for example if a particular elasticity were high then Williamson would be right and if it were low she would be right. That is what you want in both an economics teacher and a policy economist, not someone like Williamson who on the evidence of this piece is someone who goes around saying that people with another perspective are just ignorant.
So as a non-economist, Williamson’s case against Yellen seems to be that:
1. She will take the Fed’s dual mandate seriously, instead of focusing single-mindedly on inflation;
2. She will return to the Keynesian IS/LM model, instead of the hodgepodge “any excuse to keep from letting inflation rise” modeling that Fed hawks have been operating under;
3. She wants to keep the Fed funds rate low for a long time, as opposed to raising it at the first sign of recovery (inflation);
4. She will side with Charles Evans and Kocherlakota 2.0 against Charles Plosser;
5. She thinks monetary policy can influence real economic activity;
6. She thinks that the financial crisis of 2008 (and, I might add, the resulting depression and feckless reaction to it) will still be making its effects felt in 2016;
7. She opposes the Plosser view that current attempts to help the real economy will cause problems due to “moral hazard, future inflation, and loss of institutional credibility” — in other words, if the Fed doesn’t tank the economy in order to prevent the smallest smidge of inflation now, no one will trust it in the future, even though it will still be able to raise rates when inflation gets out of hand.
This isn’t something I have to stomach. This is delicious monetary pie. Reading this makes me feel more optimistic about the economy than I ever have been.
As for Williamson, he might want to go back and watch that panel from 2009 where that smug ignoramus Niall Ferguson lectures Paul Krugman and a lot of other people who are smarter than him about how they’re going to get the 1970s for fear of the 1930s. (Ferguson’s speech starts an hour and sixteen minutes in.) Of course we got the 1930s for fear of the 1970s.* Williamson and Plosser sound like they prefer the 1930s to the 1970s.
*Well, the UK did; the US only half-did, because we didn’t fully take on Ferguson’s advice.
Plosser is one of the originators of a patently false theory of business cycles, Real Business Cycle theory. Therefore he has no business being on the FOMC and nothing he says deserves to be taken seriously.
How likely is it really that Obama would pick Janet Yellen for Chairman? That would mean two confirmations, as opposed to only one if he were to select, oh, I don’t know, perhaps a well-known professor of economics at Princeton. An alternative I suppose would be for Bernanke to continue to serve as a governor after his chairmanship ends, until his term ends in 2020, although that would be unprecedented.
Republican Bernanke’s failure to comply with the Fed’s mandate to seek maximum employment has kept the U.S. economy mired in a little depression and nearly cost Obama the reelection. Clearly Bernanke should not be rewarded for his failure with a second term.
I´ll concede that Williamson is smart. The kind of smart that can write this:
¨the unemployment rate is a poor summary statistic for economic welfare¨.
I´d much rather see human beings like Ms Yellen in positions of authority.
Stephen Williamson? You mean the guy who defended the efficient market hypothesis by saying that it’s not wrong, just useless?
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