KEYNES x CRISIS II + Minsky

Wealth Creation, or a Ponzi Scheme? -Hyman Minsky’s
By Michael Hudson
Global Research, December 23, 2008


December 24, 2008, 11:37 am — Updated: 11:49 am -->
Keynes’s difficult idea
Great piece by Martin Wolf today. I particularly liked this: ...

Keynes offers us the best way to think about the financial crisis
By Martin Wolf
Published: December 23 2008 18:06 Last updated: December 23 2008 18:06
24/12/2008
Artigo: Somos todos keynesianos - Folha de São Paulo - 25-12-2008
Wolf: Keynes nos oferece a melhor forma de pensar sobre a crise
Martin WolfNós todos somos keynesianos agora. Quando Barack Obama tomar posse, ele proporá um pacote de estímulo fiscal gigantesco. Esses pacotes estão sendo oferecidos por muitos outros governos. Até a Alemanha está sendo arrastada, gritando e esperneando, para esta corrida.
O fantasma de John Maynard Keynes, o pai da macroeconomia, voltou para nos assombrar. Com ele vem seu mais interessante discípulo, Hyman Minsky. Agora todos nós conhecemos o "momento Minsky" -o ponto em que uma mania financeira se transforma em pânico.
Como todos os profetas, Keynes ofereceu lições ambíguas aos seus seguidores. Poucos ainda acreditam no ajuste fiscal que seus discípulos propuseram nas décadas após a Segunda Guerra Mundial. Mas ninguém acredita nas metas monetárias propostas por seu célebre adversário intelectual, Milton Friedman. Agora, 62 anos após a morte de Keynes, em outra era de crise financeira e ameaça de depressão econômica, é mais fácil para nós entendermos o que continua relevante em seus ensinamentos.
Eu vejo três lições gerais.
A primeira, que foi apresentada por Minsky, é que não devemos levar a sério as pretensões dos financistas. "Um banqueiro sério, a propósito, não é aquele que prevê o risco e o evita, mas aquele que, quando está arruinado, está arruinado de forma convencional, juntamente com seus colegas, para que ninguém realmente possa culpá-lo." Logo, ele não nutria a noção de "eficiência dos mercados".
A segunda lição é a de que a economia não pode ser analisada da mesma forma que uma empresa individual. Para uma empresa individual, faz sentido cortar custos. Se o mundo tentar fazê-lo, ele apenas encolherá a demanda. Um indivíduo pode não gastar toda sua renda. Mas o mundo deve.
A terceira e mais importante lição é de que não se deve tratar a economia como um conto moral. Nos anos 30, duas visões ideológicas opostas eram oferecidas: a austríaca; e a socialista. Os austríacos -Ludwig von Mises e Friedrich von Hayek- argumentavam que um purgar dos excessos dos anos 20 era necessário. Os socialistas argumentavam que o socialismo era necessário para substituir o capitalismo fracassado. Essas visões eram baseadas em religiões seculares alternativas: a primeira, na visão de que o comportamento individual em busca do interesse próprio garante uma ordem econômica estável; o segundo na idéia de que a motivação idêntica pode levar apenas à exploração, instabilidade e crise.
A genialidade de Keynes -uma bastante inglesa- foi insistir que devemos abordar um sistema econômico não como um conto moral, mas como um desafio técnico. Ele desejava preservar o máximo de liberdade possível, reconhecendo ao mesmo tempo que o Estado mínimo era inaceitável para uma sociedade democrática com uma economia urbanizada. Ele desejava preservar uma economia de mercado, sem acreditar que o laissez-faire deixa tudo melhor no melhor de todos os mundos possíveis.
Este mesmo debate moralista está presente novamente. Os "liquidacionistas" contemporâneos insistem que um colapso deve levar ao renascimento de uma economia purificada. Seus oponentes de esquerda argumentam que a era dos mercados acabou. E até mesmo eu desejo ver a punição dos alquimistas financeiros que alegavam que uma dívida cada vez maior transforma o chumbo econômico em ouro.
Mas Keynes insistia que essas abordagens eram tolas. Os mercados não são nem infalíveis nem dispensáveis. Eles são a base de uma economia produtiva e da liberdade individual. Mas eles também podem errar seriamente, de forma que devem ser administrados com cuidado. A eleição de Obama certamente reflete um desejo por esse pragmatismo. Nem Ron Paul, o libertário, nem Ralph Nader, na esquerda, chegaram a algum lugar. Logo, a tarefa para este novo governo é liderar os Estados Unidos e o mundo na direção de uma solução pragmática para a crise econômica global que enfrentamos atualmente.
A tarefa urgente é devolver a saúde à economia mundial.
O desafio a curto prazo é sustentar a demanda agregada, como Keynes teria recomendado. Também importante será o financiamento direto pelo banco central dos tomadores de empréstimos. É evidente que grande parte do fardo recairá sobre os Estados Unidos, em grande parte por causa dos europeus, japoneses e mesmo os chineses serem inertes demais, complacentes demais, ou fraco demais. Dada a correção nos gastos dos lares que está em andamento nos países deficitários, este período de altos gastos do governo provavelmente durará anos. Ao mesmo tempo, um grande esforço deve ser feito para purgar os balancetes dos lares e do sistema financeiro. Um swap de dívida por participação acionária certamente será necessário.
O desafio a longo prazo é forçar um reequilíbrio da demanda global. Os países deficitários não podem esperar gastar até a falência, enquanto os países com superávit condenam como dissipação os gastos com os quais seus exportadores se beneficiam tanto. Na tentativa necessária de reconstruir a ordem econômica global, na qual este novo governo deve se concentrar, esta será a questão central. É o que o próprio Keynes tinha em mente quando apresentou suas idéias para o sistema monetário do pós-guerra na conferência de Bretton Woods, em 1944.
Não menos pragmática deve ser a tentativa de construir um novo sistema de regulamentação financeira global e uma abordagem para apolíticas monetárias que coíbam os "booms" de crédito e as bolhas de ativos. Como Minsky deixou claro, não existe nenhuma resposta permanente. Mas o reconhecimento da fragilidade sistêmica de um sistema financeiro complexo seria um bom começo.
Como foi o caso nos anos 30, nós também temos uma escolha: é lidar com estes desafios de modo cooperativo e pragmático ou permitir que os alertas ideológicos e o egoísmo nos obstruam. O objetivo também é claro: preservar uma economia mundial aberta e razoavelmente estável, que ofereça oportunidade para o máximo possível da humanidade. Nós fizemos um trabalho perturbadoramente ruim nesta área nos últimos anos. Nós temos que fazer melhor. Nós podemos fazê-lo, desde que abordemos a tarefa em um espírito de humildade e pragmatismo, livres dos alertas ideológicos.
Como Oscar Wilde poderia ter dito, na economia, a verdade raramente é pura e nunca é simples. Esta é, para mim, a maior lição desta crise. Também é aquela que o próprio Keynes ainda ensina. Tradução: George El Khouri Andolfato
Visite o site do Financial Times

Saturday, December 27, 2008
Missing Minsky
Martin Wolf, at FT.com, wrote on December 24 that Keynes offers us the best way to think about the financial crisis:
We are all Keynesians now. When Barack Obama takes office he will propose a gigantic fiscal stimulus package. Such packages are being offered by many other governments. Even Germany is being dragged, kicking and screaming, into this race. The ghost of John Maynard Keynes, the father of macroeconomics, has returned [and] that of his most interesting disciple, Hyman Minsky.
I first heard Hy Minsky talk in the 1960s. His main message I summarize as follows:
1. Financial systems have a built-in tendency to euphoria. The financial market does not tend toward stability. The opposite is true. Bankers and other financial actors borrow more and more heavily, making the system increasingly vulnerable to panic. Lenders start after a scare by being conservative, hedging their bets. But eventually confidence returns and speculation takes hold again. Then investors get to the Ponzi phase – manic use of credit, a euphoria or bubble.
2. The credit cycle tends to manic, ends with panic. The Ponzi [Der Spiegel][Blog UOL] phase continues until some investors exit with their profits, or the central bank raises interest rates to reduce investor euphoria, and then a financial institution runs into difficulty. The failure causes a bankers' panic. Turning points in the five stages of the cycle are called “Minsky moments”.
3. The system tends to instability and must be regulated. Fashions in monetary theory have moved from a belief that Keynesian sophisticates could “fine-tune” the economy, to fear that the Fed had lost control of the ability to contain inflation, to a belief that markets work best with minimal interference. Hy rejected all these ideas, preaching consistently about the need for regulation and the importance of leaning against the excesses of what Keynes called the animal spirits of investors.
Born in Chicago, Hy taught at Brown, Berkeley and Washington University (St. Louis). He died 12 years ago in Rhinebeck, 77 years old, near Bard College’s Levy Institute, which has a special interest in business cycles and treated Hy as a star in his last six years. Hy didn’t live to see how closely this year’s meltdowns would follow his predicted scenario, with the Lehman failure being one of several clear Minsky moments.
Former Fed Governor Laurence Meyer, who spoke in New York City last week, has said of Minsky: “few have influenced my thinking about economics more than Hy.” If Hy had been listened to more than he was in a deregulatory environment, we would have seen less permissiveness – Ninja mortgages, lax SEC oversight, highly leveraged instruments and institutions, Treasury deficits – during the credit runup. Fed Chairman Alan Greenspan and then-Governor Ben Bernanke were anxious not to “pop the bubble” because (citing the Milton Friedman-Anna Schwartz history) that’s the mistake the Fed made in 1928. The Fed was concerned not to stifle financial innovation, arguing that it is ready with new weapons in the event of an asset-destroying credit freeze.
This last theory is now being tested. The stakes are high, beyond an academic debate. Whatever side one takes, any sensible person should be rooting for the outgoing and incoming Fed-Treasury teams to succeed in restoring confidence and the flow of credit.

MINSKY
Capa: Há dois anos, a forte contração do crédito escancarava a gravidade da crise financeira e renovava o interesse pelas ideias de um dos mais importantes economistas americanos.
A presença de Minsky
Por Márcia Pinheiro, para o Valor, de São Paulo
31/07/2009
Imagine-se o mundo sem bancos centrais. Sem o Federal Reserve. Não haveria políticas monetárias. Não teria havido Alan Greenspan, que não teria mantido os juros baixos por um tempo talvez excessivo. Wall Street não teria feito a festa especulativa que fez. Não teria acontecido o grande "boom" imobiliário americano, nem a crise dos empréstimos "subprime". E Hyman Philip Minsky (1919-1996) não teria o que fazer, com seus escritos, como explicador da desestabilização financeira que virou a economia global de pernas para o ar. Não se teria falado, portanto, em "Momento Minsky", como ficou conhecido aquele ponto em que se dá a virada da bonança em mercados financeiros movidos a crédito fácil para o pânico em que ninguém quer emprestar para ninguém e os ativos passam a valer tanto quanto pó. O fato é que em agosto, mesmo que muita gente admiradora dos mercados absolutamente livres fique contrariada, não faltará quem lembre que, nesse mês, em 2007, o Momento Minsky estava em sua plena exposição de realidade keynesiana.
O mês é o de preferência de Paul McCulley, diretor-gerente da Pacific Investment Management Company (Pimco), que criou a expressão Momento Minsky em 1998, durante a crise da dívida russa. Mas ele admite que também se poderá encontrar o Momento Minsky um tanto antes ou depois. O economista André Luís Cabral de Lourenço, professor da UFRN, estudioso da Hipótese de Instabilidade Financeira, desenvolvida por Minsky, acha que agosto de 2007, quando a crise se tornou mais evidente, com violenta contração do crédito, pode ser uma escolha, mas também entende que se podem ver vários Momentos Minsky e que talvez seja mais apropriado falar em um contexto ou em um cenário Minsky (ver pág.14).
Depois de anos em que suas ideias tiveram pouco destaque, Minsky voltou a ser mencionado em artigos e conferências. Recentemente, durante o seminário "Bancos Públicos - Financiamento ao Desenvolvimento e Regulação Bancária", organizado pelo Valor, o presidente do BNDES, Luciano Coutinho, também professor da Unicamp, citou Minsky várias vezes, ao comentar as origens e os desdobramentos da crise financeira americana, e defender a ampliação dos poderes dos bancos centrais e da regulamentação geral dos sistemas financeiros como forma de evitar a formação e a expansão de bolhas especulativas, até onde possível (a propósito: Minsky não via a ação estatal como capaz de estabilizar definitivamente a economia capitalista).
Sergio Lima / Folha
Barbosa, da Fazenda: o grande mérito dos economistas agora lembrados foi trazer as questões do conflito distributivo de volta à pauta das políticas públicas
Minsky é um dos pensadores mais caros aos economistas não ortodoxos. Nascido em Illinois, obteve graduação em Ciências na Universidade de Chicago, mestrado e doutorado em administração pública em Harvard, onde foi discípulo de Joseph Schumpeter e Wassily Leontief. Ensinou nas universidades Brown, da Califórnia e Washington. Aposentado em 1990, continuou a escrever e a lecionar no Levy Economics Institute. Do mestre Keynes, Minsky fez uma releitura criativa em seu livro "John Maynard Keynes" (1975), no qual propõe uma nova interpretação de questões relacionadas ao investimento, de inspiração keynesiana, mas com maior ênfase nos fatores determinantes de caráter financeiro. É nesse livro, aliás, segundo Lourenço, que ganham maior consolidação as bases teóricas essenciais da Hipótese de Instabilidade Financeira desenvolvida por Minsky.
Em outro economista americano também "redescoberto" por causa da crise, Irving Fisher (1867-1947), contemporâneo e amigo de Keynes (que o chamou de "bisavô" de suas próprias ideias), não é difícil encontrar similaridades com as análises de Minsky a respeito da instabilidade financeira que seria inerente ao sistema capitalista. Um pouco mais distante, mas também sugerindo premissas a Minsky, está o polonês Michal Kalecki (1899-1970).
Anna Carolina Negri / Valor
Coutinho, do BNDES, toma Minsky como paradigma teórico para defender ampliação do poder dos bancos centrais e da regulamentação dos sistemas financeiros
Minsky começou a frequentar as colunas de formadores de opinião, com mais assiduidade, no ano passado. Em setembro de 2008, Martin Wolf, o principal comentarista econômico do "Financial Times", sustentou que Minsky sempre esteve certo em sua análise da instabilidade da economia. "Um longo período de rápido crescimento e juros e inflação baixos levaram a grande complacência e vontade crescente de se tomar riscos", escreveu Wolf.
Minsky foi um seguidor "fenomenal" de Keynes na área macroeconômica, segundo Nelson Barbosa, secretário de Política Econômica do Ministério da Fazenda. O argumento mais importante de Minsky, que revela toda sua atualidade, é "a concepção do processo de fragilização dos sistemas financeiros", diz Fernando Cardim de Carvalho, professor da Universidade Federal do Rio de Janeiro (UFRJ). Para Minsky, as distorções que engendram crises são geradas espontaneamente pelos mercados, mais especialmente nos períodos de maior prosperidade.
É a "estabilidade instável". Ou seja, a experiência de estabilidade faz com que os agentes privados se tornem complacentes e diminuam as margens de segurança em suas transações, expondo-se cada vez mais a riscos. Por isso, até mesmo um pequeno choque é suficiente para fazer o castelo de cartas desmoronar. "Uma dimensão central dessa complacência é a disposição de se expor ao risco dos juros, fazendo dívidas de curto prazo para a aplicação em ativos de longo prazo, com ganhos nos 'spreads' da curva de rendimentos", diz Carvalho. Está dada a receita do colapso: com o aumento da alavancagem, mesmo pequeno choques adversos são fatais.
O grande mérito desses pensadores - Keynes, Minsky, Fisher, Kalecki - foi trazer de volta o conflito distributivo à pauta das políticas públicas, afirma Barbosa, da Fazenda. Houve uma revitalização da economia política. "Não basta controlar a inflação. Passou-se a discutir não se o Estado deveria investir, mas quanto", diz o secretário.
Barbosa bate na tecla que não há modelo único. "Os arranjos possíveis são múltiplos. Claro que nem todos são de equilíbrio. Mas não é possível mais pensar que exista só um PIB potencial ou um determinado nível de juros."
Conselheiro informal do presidente Lula, Luiz Gonzaga Belluzzo diz que a obra de todos esses economistas constitui o repertório anticíclico. "Há a percepção de que a economia capitalista se move em torno de um mercado complexo e a ação pública é redutora da complexidade", afirma. Belluzzo não descarta que o pensamento conservador ressuscite, por ter uma plateia numerosa e influente. "São os mesmos que em crises bradam para que sejam salvos pelo Estado."
A tendência de recuperação do papel do investimento público foi nítida desde a primeira gestão do presidente Lula. "Não se limita à política anticíclica, mas estrutural", alerta Belluzzo. Por muito tempo, esse papel no Brasil foi desempenhado pelas estatais. Hoje, o orçamento é a ferramenta principal. "É um equívoco sustentar que o investimento público afugenta o privado. São complementares. Em vez do 'crowding out', deveria prevalecer o 'crowding in' keynesiano."
Leda Paulani, professora da Universidade de São Paulo (USP), vai mais longe. Além de Keynes, ela diz que houve uma necessária, ainda que tardia, revisita aos escritos de Karl Marx. Não por acaso, "O Capital" foi reeditado na Alemanha e rapidamente sumiu das prateleiras. É de Marx a constatação de que a economia capitalista se move por crises.
O pensamento de Marx não é para se por em prática. É um instrumental de análise. Seus textos são excelentes fontes para o diagnóstico de como as situações de crise são geradas, diz Paulani. Já Keynes e Minsky são um prato cheio para os administradores públicos, por não economizarem em receitas de políticas econômicas, para manter o pleno emprego de recursos, com o controle das atividades financeiras.
A professora diz que a redescoberta desses autores, tão benquistos pelos economistas denominados desenvolvimentistas, não deveria causar espanto. "Os Estados Unidos praticam o keynesianismo há uma década. As medidas de [Barack] Obama apenas explicitaram o caráter intervencionista do governo americano na economia." Segundo Leda, no Brasil, as pontas mais visíveis do pensamento do autor da "Teoria Geral" são o Programa de Aceleração Econômica (PAC) e o pacote de estímulo à construção, pelo forte efeito multiplicador no nível de emprego.
Para Simão Silber, da Universidade de São Paulo (USP), seguidor de outras paragens conceituais, o grande nome pouco lembrado atualmente é Irving Fisher, que tem uma explicação alternativa à de Keynes sobre a crise. "Ele explica a crise pela deflação de ativos e aumento real das dívidas." Mesmo com juros nominais próximos de zero, a crise de crédito manifestou-se abertamente nos Estados Unidos 2008, da mesma forma que em 1933.
De acordo com Silber, ao contrário do cardápio keynesiano, o fisheriano sustenta que de nada vale a política fiscal. A ordem para evitar o pior é não deixar os preços caírem, sanear o sistema financeiro e reduzir dramaticamente a concessão de crédito, para que a recessão não se aprofunde.
Alargando o leque da literatura, Barbosa, da Fazenda, reintroduz os autores que fizeram a ponte entre a economia e a psicologia. Seus favoritos são Herbert Simon, Daniel Kanehman, Robert Shiller e Matthew Rabin, que, grosso modo, defendem que a rotina da satisfação pode superar, na dinâmica da economia, a maximização do lucro. "Não há mais o predomínio das expectativas racionais. Os objetivos hoje são fundamentalmente do bem-estar aliado às decisões econômicas."
Belluzzo enxerga algum avanço, mas não muito, no governo Lula em direção às políticas não neoliberais. No primeiro mandato, houve uma sensível redução da vulnerabilidade externa do país, "ajudada pelas mudanças estruturais no mundo". Segundo o economista, o trabalho "foi muito bem feito e até o conservadorismo do Banco Central contribuiu para a maior solidez".
As políticas sociais compensatórias, como o Bolsa Família, foram outro grande passo adiante, na visão de Belluzzo. Ele nota que tais práticas foram criticadas tanto pela direita como pela esquerda, uma vez que, para estes últimos, somente a criação maciça de empregos resolveria a questão social. Por fim, com o PAC, vê-se uma recuperação do papel do investimento público.
Em que pese a volatilidade do "in and out", sobe e desce, quando se trata de economia, o fato é que os pensadores contemporâneos estão mais afeitos a políticas que combinem o que de melhor a história do pensamento econômico produziu. Atualmente, há um outro consenso latente, ainda sem nome, uma vez que governos e instituições multilaterais têm convergido para uma visão mais intervencionista e menos ideológica a respeito das virtudes do mercado.
Hoje, a bíblia é outra: "Uso mais agressivo de políticas fiscais para sustentar a demanda agregada, lançar mão de meios não convencionais para expandir a liquidez da economia e endurecer a regulação financeira, pois a hipótese dos mercados eficientes, tão cara ao pensamento mais ortodoxo, levou ao desastre", sintetiza Cardim, da UFRJ. Do lado neoclássico, dito ortodoxo, afirma-se o contrário: a crise aconteceu por que o governo americano, via Fed, interferiu no que seria a dinâmica natural dos mercados, facilitando a especulação e a expansão da grande bolha financeira.
O fato é que boa parte das posições reformistas têm-se originado nos Estados Unidos, o que não é pouca coisa. Ainda vai demorar para o mundo assistir ao decantado declínio do império americano. Profecia improvável, aliás. O país continua a ser o paradigma fundamental quando o assunto é economia, para o bem ou para o mal.


LUIZ GONZAGA BELLUZZO - 7-3-2010
O momento Minsky
Quando a maré sobe, não há prudência nem conselho capazes de resistir à liberação das forças da ambição
O ECONOMISTA norte-americano Hyman Minsky, outrora obscuro entre seus colegas da "corrente principal", virou moda nos Estados Unidos. Depois da crise, um coro de carpideiras entoa o cantochão do "momento Minsky" para lamentar a vida e a morte da finança desregulamentada.
Minsky construiu uma hipótese "keynesiana" sobre a formação de preços de ativos numa economia em que prevalece a moeda de crédito criada pelos bancos. Enquanto a teoria convencional cuida de examinar as condições de equilíbrio no intercâmbio de mercadorias, Minsky coloca o crédito e a finança no centro da economia capitalista. (O modelo da feira livre versus o "paradigma de Wall Street".) Para ele, a concorrência em busca da maximização do ganho privado determina resultados que a ação dos indivíduos racionais não pode antecipar. As decisões privadas são tomadas em condições de incerteza radical e, por isso, estão sempre sujeitas à subavaliação do risco e à emergência de comportamentos coletivos de euforia que conduzem à fragilidade financeira e a crises de liquidez e de pagamentos. Minsky descreve as etapas do ciclo crédito e formação de preços dos ativos em que as interações subjetivas entre os participantes do mercado não raro provocam a má precificação de ativos e distorções na alocação de recursos.De nada adianta iludir-se com o conhecimento do passado ou com as toadas do presente, projetando essas tendências para o futuro. Tampouco é possível atribuir probabilidades às trajetórias prováveis da economia. O mundo dos homens e de seus negócios não está sujeito a um comportamento probabilístico.
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De repente, um momento de provação para o capitalismo
Cyro Andrade, de São Paulo
31/07/2009
Marisa Cauduro / Valor
Belluzzo: "Há a percepção de que a economia capitalista se move em torno de um mercado complexo e a ação pública é redutora da complexidade"
É regra essencial do capitalismo: sem risco não há recompensa. Mas pode haver momentos em que ninguém quer correr riscos. É quando os mercados param. É o capitalismo em transe. É um "Momento Minsky". Nesse instante, os preços dos ativos, inflados por especulação levada a extremos de risco, até então abrigada numa bolha que parecia não conhecer limites de expansão, desabam, tornando imperiosa a desalavancagem. É a hora do pânico. Tempos de ganhos fáceis, que pareciam estabelecidos em absoluta perenidade, ficam para trás.
Hyman Philip Minsky explica essa transição cíclica da bonança para o desastre com sua Hipótese da Instabilidade Financeira (HIF), constituída por estas proposições principais, listadas pelo economista André Luís Cabral de Lourenço em artigo que escreveu em 2005 ("O pensamento de Hyman Minsky: Alterações de percurso e atualidade"): (1) uma economia capitalista que possui um sistema financeiro sofisticado, complexo e em contínua evolução alterna períodos de comportamento estável com períodos turbulentos/caóticos: (2) esses comportamentos são endógenos à economia capitalista, pois decorrem da busca de interesses próprios pelos agentes e podem ser gerados mesmo a partir de situações de estabilidade; (3) os períodos turbulentos/caóticos podem assumir a forma de inflações interativas, bolhas especulativas ou deflações de débitos inter-relacionadas; (4) à medida que essas turbulências se estabelecem, vão adquirindo movimento próprio, que, porém, tenderá a ser revertido (por restrições colocadas por instituições, por políticas que afetem a estrutura institucional ou mesmo por autoorganização dos mercados); (5) surgem, assim, condições propícias à emergência de um novo regime de estabilidade; (6) é provável que esse novo regime se caracterize por baixo nível de atividade econômica, mas a busca do interesse próprio pelos agentes acabará por gerar um novo ciclo expansivo, acompanhado de nova onda especulativa; (7) com o passar do tempo, novos regimes de expansões incoerentes e contrações desastrosas se sucederiam.
Minsky se orientava, no dizer de Lourenço, por "um princípio organizador, uma visão pré-analítica", que fazia a ponte de sua identificação com a essência do pensamento de Keynes. Para Minsky, "a economia de Wall Street" - correspondente às forças financeiras mostradas por Keynes em interação com a produção e o consumo para determinar o produto, o emprego e os preços - explicaria tudo, inclusive a instabilidade do sistema capitalista.
Bloomberg
McCulley, da Pimco, acha que o "Momento Minsky" aconteceu em agosto de 2007, mas, como Cabral de Lourenço, também vê possíveis ocorrências tanto antes, como depois
Na crise financeira nascida dos excessos de especulação nos Estados Unidos, quando se dá o Momento Minsky?
Paul McCulley, diretor-gerente da Pacific Investment Management Company (Pimco), que inventou a expressão quando da crise da dívida russa, em 1998, acha que foi em agosto de 2007. No dia 9, o medo paralisou os mercados de crédito no mundo, como se viu quando o BNP Paribas, terceiro maior banco francês, anunciou que suspendia o resgate de três fundos por que não conseguia avaliar o preço dos seus ativos.
Ao Valor, Lourenço disse que, "mais importante que datar com precisão o início da crise é lembrar que, para Minsky, esta é apenas a manifestação ruidosa de um silencioso (e muito antecedente) processo de fragilização financeira". Este seria um fenômeno recorrente na história da economia mundial, que se desenvolveria nas fases de expansão do ciclo de negócios que comumente antecede a crise. "É claro que vários elementos específicos podem ter transformado o que seria uma crise cíclica 'normal' em uma crise aparentemente mais pronunciada: a desregulamentação financeira (ativa e passiva), as inovações financeiras associadas à securitização das hipotecas, as políticas empregadas no tratamento da bolha financeira anterior, e assim por diante. Todos esses elementos constituem, por assim dizer, 'momentos Minsky'. Então, talvez fosse mais apropriado falar em um 'contexto' ou em um 'cenário Minsky', cuja construção, alicerçada nesses elementos, foi obra de anos."
No lado não keynesiano do pensamento econômico afirma-se que, ao contrário do que o modelo de Minsky pode sugerir, não há nada de errado com o capitalismo. O que não dá certo, e provoca situações de crise como a originária do fabuloso "boom" hipotecário americano, é a ingerência do governo, através, por exemplo, de políticas monetárias lenientes, como a praticada pelo Fed de Alan Greenspan.
Na verdade, explica Lourenço, "no campo liberal, à direita, acredita-se que as crises financeiras refletiriam comportamentos privados distorcidos pela expectativa de ação estatal". Ou seja, "a expectativa de que o Estado salvaria as empresas financeiras em caso de crise as levaria a agir de forma distorcida, anormalmente imprudente, descuidando da análise de riscos e se excedendo na concessão de crédito, na expectativa de obterem maiores lucros". A crise seria, afinal, uma manifestação da inconsistência de tais ações e, na ausência da expectativa de socorro do Estado, tais anomalias - e, portanto, a crise - não ocorreriam. "A solução definitiva para todas as crises financeiras estaria, então, na abstenção de ações de salvamento por parte do Estado, mesmo que ao custo de permitir que a presente crise avançasse ainda mais. Isso por que, em seu caráter supostamente salutar, a crise ensinaria aos agentes econômicos que eles deveriam seguir outro padrão de comportamento, compatível, em tese, com um crescimento econômico estável."
No campo heterodoxo, mais à esquerda, no qual Minsky se situa, a leitura é bem outra. A crise, "entre outros males econômicos", explica Lourenço, constituiria o resultado normal do funcionamento anárquico e inconsistente da economia capitalista liberal, que o mero funcionamento do sistema de preços não seria capaz de solucionar. As empresas não agiriam de forma imprudente por causa apenas da expectativa de ação salvadora do Estado. O próprio sucesso das fases de crescimento, com seus lucros polpudos, "pavimentaria o caminho para o desastre, com a excitação das expectativas e a opção por atitudes financeiras mais agressivas e arriscadas, que explicariam as loucuras financeiras que acompanham a formação das bolhas especulativas e desembocam em crises". Assim, "já que a causa da crise residiria na própria lógica do lucro privado, a abstenção de ação salvadora pelo Estado não seria remédio adequado. Poderia, ao contrário, desestabilizar ainda mais as expectativas e tornaria as crises financeiras mais virulentas e socialmente perversas - e, no limite, mataria o paciente."
Ao contrário de outros economistas de esquerda, lembra Lourenço, Minsky não vê a ação estatal como capaz de estabilizar definitivamente a economia capitalista (que seria inerentemente instável), já que a raiz da instabilidade repousaria na coração do sistema, a lógica do lucro. Qualquer ação estabilizadora teria eficácia temporária, apenas evitando o aprofundamento da crise. "Pior, carregaria em si a semente das crises financeiras futuras, na medida em que não somente sinalizaria um ambiente mais estável para os agentes privados - o qual tende por si só a ganhar mais instabilidade - mas também aumentaria a munição disponível para uso no cassino das apostas especulativas, soprando bolhas futuras, por assim dizer."
A única terapia com mais chance de sucesso - e mesmo assim também temporária - seria uma regulamentação financeira mais forte, que atuasse de forma preventiva, tentando evitar os exageros especulativos. Se essa intervenção der certo, crises financeiras mais severas poderão ser evitadas, tornando desnecessária a ação de salvação financeira direta pelo Estado. "Minsky aponta, porém, a possibilidade de a regulação tornar-se periodicamente insuficiente, pois sua própria existência tende a incentivar a busca, pelas instituições financeiras, de inovações capazes de contorná-la. O cenário, portanto, seria de uma incessante corrida entre a norma do regulador e inovação do regulado, na qual, sempre que o regulado conseguisse abrir muita vantagem, a estabilidade econômica seria posta em risco. Existe também a possibilidade de o regulado ser politicamente poderoso, a ponto de conseguir controlar o regulador."
Essa experiência de cooperação e confronto, ao mesmo tempo, vai entrando em nova fase nos Estados Unidos e outros países centrais, com ensaios de regulamentação mais restritiva. Começa aí o que poderá ser, então, um novo campo aberto à avaliação das qualidades empíricas das ideias de Hyman Minsky.


« The Fear of Secular Stagnation Home Tough Times Indeed »
From: TPMCafe Book Club
Depression Economics: Normal Rules Don't Apply
By Mark Thoma - December 16, 2008, 4:45PM
Paul Krugman is trying to get us to understand that depression economics is different from the economics of good times, that "normal rules don't apply."
Let me try to illustrate this point by looking at some objections to depression economics policy measures, in particular two recent objections to fiscal policy.
Tyler Cowen says that when it comes to fiscal policy, new research shows that deficit financed tax cuts are far more powerful than increased government spending at stimulating the economy.
But when I read the paper, I didn't think the results applied to depression economies because of the following sentence: .......... .......... ..............



Confessions of a crass Keynesian
December 13, 2008


Which is Best, Monetary Policy, Government Spending, or Tax Cuts?
Keynes did not have much faith in the ability of monetary policy to lift an economy out of a recession:
The Remedist, by Robert Skidelsky, NY Times Magazine:
"Among the most astonishing statements to be made by any policymaker in recent years was Alan Greenspan’s admission ... that the regime of deregulation he oversaw ... was based on a “flaw”... The “whole intellectual edifice,” he said, “collapsed...”
What was this “intellectual edifice”? ... Greenspan must have believed ... that financial markets always price assets correctly. Given that markets are efficient, they would need only the lightest regulation. ...
Today, [John Maynard] Keynes is justly enjoying a comeback. For the same “intellectual edifice” that Greenspan said has now collapsed was what supported the laissez-faire policies Keynes quarreled with in his times. Then, as now, economists believed that all uncertainty could be reduced to measurable risk. So asset prices always reflected fundamentals...
Keynes ... starting point was that not all future events could be reduced to measurable risk. There was a residue of genuine uncertainty, and this made disaster an ever-present possibility, not a once-in-a-lifetime “shock.” Investment was more an act of faith than a scientific calculation of probabilities. And in this fact lay the possibility of huge systemic mistakes.
The basic question Keynes asked was: How do rational people behave under conditions of uncertainty? ... People fall back on “conventions”.... The chief of these are ... that the future will be like the past... Above all, we run with the crowd. ...
But any view of the future based on what Keynes called “so flimsy a foundation” is liable to “sudden and violent changes” when the news changes. Investors do not process new information efficiently because they don’t know which information is relevant. Conventional behavior easily turns into herd behavior. Financial markets are punctuated by alternating currents of euphoria and panic.
Keynes’s prescriptions were guided by his conception of money... The “desire to hold money as a store of wealth is a barometer of the degree of our distrust of our own calculations and conventions concerning the future. . . . The possession of actual money lulls our disquietude; and the premium we require to make us part with money is a measure of the degree of our disquietude.” ...
It is this flight into cash that makes interest-rate policy such an uncertain agent of recovery. If the managers of banks and companies hold pessimistic views about the future, they will raise the price they charge for “giving up liquidity,” even though the central bank might be flooding the economy with cash. That is why Keynes did not think that cutting the central bank’s interest rate would necessarily — and certainly not quickly — lower the interest rates charged on ... loans. This was his main argument for the use of government stimulus to fight a depression. There was only one sure way to get an increase in spending..., and that was for the government to spend the money itself. Spend on pyramids, spend on hospitals, but spend it must. ...
Keynes’s ... purpose, as he saw it, was not to destroy capitalism but to save it from itself. He thought that the work of rescue had to start with economic theory itself. Now that Greenspan’s intellectual edifice has collapsed, the moment has come to build a new structure on the foundations that Keynes laid."
You can take this a step further. Even if the central bank could lower the loan rate, with such a pessimistic and uncertain future outlook, will firms be induced to build new factories and install new equipment? Will consumers suddenly buy more cars and houses, or purchase new appliances on revolving credit as they worry about keeping their jobs and see their housing equity plummeting? Maybe a few, but not enough to matter much to the overall economy. Will the fall in the interest rate cause financial capital to flow out of the US in search of higher returns elsewhere thereby causing the dollar to fall and increasing net exports? Not if every other economy is suffering similar problems and hence cannot offer more attractive investment opportunities.
In short, as you go through the individual right-hand side items in AD=C+I+G+NX, it's hard to make an argument about how, in recession conditions, a fall in the loan rate - if one can even be brought about - can generate substantial changes in C, I, or NX. That leaves G. Some people argue that we can stimulate C by changing taxes, and that may be true, but then we have to worry about getting the design right so that the tax change isn't mostly saved rather than flowing into new consumption. There is not as much uncertainty with G since it is part of aggregate demand - when the government purchases a new desk, there's no uncertainty about its effect on the demand for desks (there is some uncertainty about the total impact through the multiplier, which incorporates crowding out and crowding in, but estimates of multipliers in recessions of less than one are rare, they are often closer to two, so we can be pretty sure of at least a one-to-one impact and be fairly hopeful for an even larger effect).
Thus, the tax cuts versus government spending choice comes down to an argument about whether potential inefficiencies that are generated with government spending are more costly than the higher level of uncertainty about the impact on aggregate demand associated with tax cuts. Right now, providing a stimulus to the economy that we can count on is what is needed most, and I am willing to sacrifice any potential inefficiency associated with government spending to purchase the increased certainty in terms of stimulating aggregate demand that government spending provides (and that is true even if the multiplier is only 1.4 as in Ramey, that just advises us about how much spending is needed to be relatively sure the impact is of a particular magnitude).
One reason I am not as concerned with the efficiency aspect as others is that I believe there are a lot of public goods - goods the private sector won't invest in on its own due to market failures - that we need to repair or put into place that are crucial to our long-run growth potential. Cutting taxes won't bring these goods about, only the government can accumulate the needed funds - some of these investments are sizable - and then supply these public goods. For this reason, I don't think government spending loses to tax cuts on either the efficiency or certainty margins.
The only potential basis for tax cuts, then, as I see it, is to provide an immediate boost to spending - a cut in the payroll tax starting Monday morning would potentially do that - but that choice is mainly a consequence of waiting too long to do anything. Many of us have been saying monetary policy won't work and calling for infrastructure and other government spending for months and months now, and had that spending been put into place long ago (instead of, say, one shot tax rebates that theory says are ineffective) immediacy would not be the issue at present. But we did wait, it seems we can't be convinced to buy recession insurance in advance - we have to see the disaster in front of us before acting - and tax cuts may therefore be needed as part of the recovery package. But that does not mean that, in general, tax cuts are preferred, only that if you wait this long to act, and fierce resistance to government action until the carnage is evident may make waiting too long inevitable, you may have no other choice but to use tax policy as part of any attempt to revive the economy.


November 30, 2008, 1:05 pm — Updated: 1:05 pm --> blog KRUGMAN
The greatness of Keynes …
… is illustrated by the trouble people who consider themselves well informed have, to this day, in understanding the basic principles of how a depressed economy works.
The key to Keynes’s contribution was his realization that liquidity preference — the desire of individuals to hold liquid monetary assets — can lead to situations in which effective demand isn’t enough to employ all the economy’s resources. When you don’t understand that principle, you end up writing stuff like this:
Obama’s “rescue plan for the middle class” includes a tax credit for businesses “for each new employee they hire” in America over the next two years. The assumption is that businesses will create jobs that would not have been created without the subsidy. If so, the subsidy will suffuse the economy with inefficiencies — labor costs not justified by value added.
That is, if the private sector wouldn’t have created a job on its own, that job shouldn’t have been created — whereas the real choice is between having workers doing something and being uselessly, destructively unemployed.
From the same article, we have this:
In a forthcoming paper, Ohanian argues that “much of the depth of the Depression” is explained by Hoover’s policy — a precursor of the New Deal mentality — of pressuring businesses to keep nominal wages fixed.
I’ve already pointed out how Keynes disposed of the money-wage argument, way back in 1936.
Why do people still fail to get Keynes, after all these years? Keynes might have said that it’s the inherent difficulty of the concepts:
For—though no one will believe it—economics is a technical and difficult subject.
But there’s also the Upton Sinclair theorem:
It is difficult to get a man to understand something, when his salary depends upon his not understanding it.


Saturday, November 29, 2008
Lessons from the Crisis - blog Mankiw (saída classe)
As seen by Michael Spence.
Mike says a lot of smart stuff in this article. But this sentence seems to veer off in the wrong direction, or at the very least could be easily misinterpreted:
we need a commission of top industry professionals and academics to address the challenge of measuring and detecting systemic risk and provide the underpinning of an effective “early warning” system.
I see little hope of creating any kind of "early warning" system, if by that Mike means better forecasting. Crises like the current one are inherently unpredictable. If they were predictable, hedge funds and other money managers would not lose so much money during them.
True, a few people were sounding an alarm in advance of the current crisis: Nouriel Roubini, in particular, comes to mind. And a few hedge funds have made money during the crisis. Yet that fact is not very meaningful. Given the diversity of opinion at any point in time, someone will always look right ex post. The key question is whether the event is reliably predictable ex ante.
Policymakers at the Fed and Treasury cannot do better than rely on the consensus judgment of experts, and a couple years ago the consensus opinion was not predicting anything like what is now occurring. To suggest a regulatory system that gives an "early warning" is like saying we need to find a better crystal ball. Good luck with that.
In my view, the key to regulatory reform is not trying to predict the future with more accuracy but, instead, making the system more robust so that the economy functions better when the unpredictable inevitably occurs. In other words, our focus needs to be not on what will happen but on what might happen.


Saturday, November 29, 2008
A Keynesian Moment - blog MANKIW (saída classe)
Click here to read my essay appearing in tomorrow's New York Times.


http://noticias.uol.com.br/midiaglobal/nytimes/2008/12/02/ult574u8994.jhtm
02/12/2008
os gastos de hoje prejudicarão a economia de amanhã?
Paul Krugman
Neste momento há um debate intenso sobre a agressividade com a qual o governo dos Estados Unidos deveria procurar reverter o rumo da economia. Muitos economistas, incluindo eu, estão pedindo uma expansão fiscal bem grande para impedir que a economia entre em queda livre. Outros, no entanto, preocupam-se com o peso que os grandes déficits fiscais representarão para as futuras gerações.
Mas estes últimos não entenderam nada. Nas circunstâncias atuais, não há uma dinâmica equilibradora entre aquilo que é bom no curto prazo e o que é benéfico no longo prazo. Uma robusta expansão fiscal na verdade melhoraria as perspectivas de longo prazo da economia.
A alegação de que os déficits orçamentários tornam a economia mais pobre no longo prazo baseia-se na crença de que o fato de o governo pegar dinheiro emprestado afasta o investimento privado - ao emitir lotes de dívidas, o governo inflacionaria as taxas de juros, o que faria com que o empresariado não se dispusesse a investir em novas fábricas e equipamentos, e isto por sua vez reduziria o índice de crescimento de longo prazo da economia. Sob circunstâncias normais, este argumento faz bastante sentido.
Mas as circunstâncias atuais estão muito longe de serem normais. Pensem no que aconteceria no ano que vem se o governo Obama cedesse aos inimigos dos déficits e reduzisse os seus planos fiscais.
Será que isso levaria a uma redução das taxas de juros? Tal iniciativa certamente não conduziria a uma redução das taxas de juros no curto prazo, que são mais ou menos controladas pelo Federal Reserve (Fed, o banco central dos Estados Unidos). O Fed já está mantendo essas taxas no menor valor que consegue - praticamente zero -, e não modificará essa política a menos que enxergue sinais de que existem sinais de que a economia possa sofrer um superaquecimento. E, ao que parece, esta não será uma perspectiva realista por um bom tempo.
E quanto as taxas de longo prazo? Essa taxas, que já estão no seu patamar mais baixo em meio século, refletem principalmente taxas futuras de curto prazo. A austeridade fiscal poderia empurrá-las ainda mais para baixo - mas somente por meio da geração de expectativas a economia permaneceria profundamente deprimida por um longo período, o que reduziria, ao invés de aumentar, o investimento privado.
A idéia de que uma política fiscal rigorosa quando a economia encontra-se deprimida na verdade reduz os investimentos privados não é apenas um argumento hipotético: foi exatamente isso o que ocorreu em dois importantes episódios da história.
O primeiro aconteceu em 1937, quando Franklin Roosevelt acatou erroneamente o conselho de indivíduos da sua própria era que temiam o déficit. Ele reduziu drasticamente os gastos governamentais, cortando, entre outras coisas, a Administração de Progresso de Trabalhos (WPA) pela metade, e também elevando os impostos. O resultado foi uma grave recessão, e uma queda drástica dos investimentos privados.
O segundo episódio ocorreu 60 anos mais tarde, no Japão. Em 1996-1997, o governo japonês tentou equilibrar o seu orçamento, reduzindo gastos e elevando impostos. E, novamente, a recessão que se seguiu provocou uma queda acentuada dos investimentos privados.
Apenas para esclarecer, eu não estou argumentando que a tentativa de redução do déficit orçamentário é sempre ruim para o investimento privado. É possível apresentar, como exemplo razoável, o fato de a restrição fiscal de Bill Clinton na década de 1990 ter ajudado a alimentar o maior boom de investimentos dos Estados Unidos naquela década, o que, por sua vez, ajudou a provocar a retomada do crescimento da produtividade.
O que fez da austeridade fiscal uma idéia tão ruim tanto para os Estados Unidos de Roosevelt quanto para o Japão da década de 1990 foram circunstâncias especiais: em ambos os casos, o governo recuou face a uma armadilha de liquidez, uma situação na qual a autoridade monetária cortou o mais que pôde as taxas de juros, mas, ainda assim, a economia continuou operando bem abaixo da capacidade.
E atualmente estamos metidos no mesmo tipo de armadilha - e é por isso que os temores em relação ao déficit são equivocados.
Mais uma coisa: a expansão fiscal será ainda melhor para o futuro norte-americano se uma grande parcela dessa expansão se der na forma de investimentos públicos - com a construção de estradas, reforma de pontes e desenvolvimento de novas tecnologias, todos estes fatores que, no longo prazo, tornam a nação mais rica.
Será que o governo deveria ter uma política permanente de trabalho com grandes déficits orçamentários? Claro que não. Embora a dívida pública não seja algo tão ruim quanto muita gente acredita - ela é basicamente dinheiro que devemos a nós mesmos -, no longo prazo, o governo, assim como indivíduos privados, precisa implementar um equilíbrio entre os seus gastos e a sua renda.
Mas neste momento temos uma carência fundamental de gastos privados: os consumidores estão redescobrindo as virtudes da poupança ao mesmo tempo em que o empresariado, chamuscado pelos excessos do passado e semi-paralisado pelos problemas do sistema financeiro, está reduzindo os investimentos. Essa lacuna será cedo ou tarde fechada, mas até que isso aconteça, o investimento governamental deve compensá-la. Caso contrário, o investimento privado e a economia como um todo despencarão ainda mais.
Então, a questão fundamental é que as pessoas que acham que a expansão fiscal atual é ruim para as futuras gerações entenderam tudo errado. A melhor linha de ação, tanto para os trabalhadores de hoje quanto para os filhos deles, é fazer o que quer que seja necessário para que a economia retome a rota da recuperação.
Tradução: UOL
Visite o site do The New York Times

Op-Ed Columnist
Deficits and the Future
By PAUL KRUGMAN
December 1, 2008
Right now there’s intense debate about how aggressive the United States government should be in its attempts to turn the economy around. Many economists, myself included, are calling for a very large fiscal expansion to keep the economy from going into free fall. Others, however, worry about the burden that large budget deficits will place on future generations.
But the deficit worriers have it all wrong. Under current conditions, there’s no trade-off between what’s good in the short run and what’s good for the long run; strong fiscal expansion would actually enhance the economy’s long-run prospects.
The claim that budget deficits make the economy poorer in the long run is based on the belief that government borrowing “crowds out” private investment — that the government, by issuing lots of debt, drives up interest rates, which makes businesses unwilling to spend on new plant and equipment, and that this in turn reduces the economy’s long-run rate of growth. Under normal circumstances there’s a lot to this argument.
But circumstances right now are anything but normal. Consider what would happen next year if the Obama administration gave in to the deficit hawks and scaled back its fiscal plans.
Would this lead to lower interest rates? It certainly wouldn’t lead to a reduction in short-term interest rates, which are more or less controlled by the Federal Reserve. The Fed is already keeping those rates as low as it can — virtually at zero — and won’t change that policy unless it sees signs that the economy is threatening to overheat. And that doesn’t seem like a realistic prospect any time soon.
What about longer-term rates? These rates, which are already at a half-century low, mainly reflect expected future short-term rates. Fiscal austerity could push them even lower — but only by creating expectations that the economy would remain deeply depressed for a long time, which would reduce, not increase, private investment.
The idea that tight fiscal policy when the economy is depressed actually reduces private investment isn’t just a hypothetical argument: it’s exactly what happened in two important episodes in history.
The first took place in 1937, when Franklin Roosevelt mistakenly heeded the advice of his own era’s deficit worriers. He sharply reduced government spending, among other things cutting the Works Progress Administration in half, and also raised taxes. The result was a severe recession, and a steep fall in private investment.
The second episode took place 60 years later, in Japan. In 1996-97 the Japanese government tried to balance its budget, cutting spending and raising taxes. And again the recession that followed led to a steep fall in private investment.
Just to be clear, I’m not arguing that trying to reduce the budget deficit is always bad for private investment. You can make a reasonable case that Bill Clinton’s fiscal restraint in the 1990s helped fuel the great U.S. investment boom of that decade, which in turn helped cause a resurgence in productivity growth.
What made fiscal austerity such a bad idea both in Roosevelt’s America and in 1990s Japan were special circumstances: in both cases the government pulled back in the face of a liquidity trap, a situation in which the monetary authority had cut interest rates as far as it could, yet the economy was still operating far below capacity.
And we’re in the same kind of trap today — which is why deficit worries are misplaced.
One more thing: Fiscal expansion will be even better for America’s future if a large part of the expansion takes the form of public investment — of building roads, repairing bridges and developing new technologies, all of which make the nation richer in the long run.
Should the government have a permanent policy of running large budget deficits? Of course not. Although public debt isn’t as bad a thing as many people believe — it’s basically money we owe to ourselves — in the long run the government, like private individuals, has to match its spending to its income.
But right now we have a fundamental shortfall in private spending: consumers are rediscovering the virtues of saving at the same moment that businesses, burned by past excesses and hamstrung by the troubles of the financial system, are cutting back on investment. That gap will eventually close, but until it does, government spending must take up the slack. Otherwise, private investment, and the economy as a whole, will plunge even more.
The bottom line, then, is that people who think that fiscal expansion today is bad for future generations have got it exactly wrong. The best course of action, both for today’s workers and for their children, is to do whatever it takes to get this economy on the road to recovery.


November 29, 2008
Why I Was Wrong...
Calculated Risk issues an invitation:
Calculated Risk: Hoocoodanode?: Earlier today, I saw Greg "Bush economist" Mankiw was a little touchy about a Krugman blog comment. My reaction was that Mankiw has some explaining to do. A key embarrassment for the economics profession in general, and Bush economists Greg Mankiw and Eddie Lazear in particular, is how they missed the biggest economic story of our times.... This was a typical response from the right (this is from a post by Professor Arnold Kling) in August 2006:
Apparently, the echo chamber of left-wing macro pundits has pronounced a recession to be imminent. For example, Nouriel Roubini writes, "Given the recent flow of dismal economic indicators, I now believe that the odds of a U.S. recession by year end have increased from 50% to 70%." For these pundits, the most dismal indicator is that we have a Republican Administration. They have been gloomy for six years now...
Sure Roubini was early (I thought so at the time), but show me someone who has been more right! And this brings me to Krugman's column: Lest We Forget
... Why did so many observers dismiss the obvious signs of a housing bubble, even though the 1990s dot-com bubble was fresh in our memories? Why did so many people insist that our financial system was “resilient,” as Alan Greenspan put it, when in 1998 the collapse of a single hedge fund, Long-Term Capital Management, temporarily paralyzed credit markets around the world? Why did almost everyone believe in the omnipotence of the Federal Reserve when its counterpart, the Bank of Japan, spent a decade trying and failing to jump-start a stalled economy?
One answer to these questions is that nobody likes a party pooper.... There’s also another reason the economic policy establishment failed to see the current crisis coming. The crises of the 1990s and the early years of this decade should have been seen as dire omens, as intimations of still worse troubles to come. But everyone was too busy celebrating our success in getting through those crises to notice...
[I]n addition to looking forward, I think certain economists need to do some serious soul searching. Instead of leaving it to us to guess why their analysis was so flawed, I believe the time has come for Mankiw, Kling and many other economists to write a post titled "Why I was wrong".
Let me say what things I was "expecting," in the sense of anticipating that it was they were both likely enough and serious enough that public policymakers should be paying significant attention to guarding the risks that it would create:
(1) A collapse of the dollar produced by a panic flight by investors who recognized the long-term consequences of the U.S. trade deficit.
or:
(2) A fall back of housing prices halfway from their peak to pre-2000 normal price-rental ratios.
I was not expecting (2) plus:
(3) the discovery that banks and mortgage companies had made no provision for how the loans they made would be renegotiated or serviced in the event of a housing-price downturn.
(4) the discovery that the rating agencies had failed in their assessment of lower-tail risk to make the standard analytical judgment: that when things get really bad all correlations go to one.
(5) the fact that highly-leveraged banks working on the originate-and-distribute model of mortgage securitization had originated but had not distributed: that they had held on to much too much of the risks that they were supposed to find other people to handle.
(6) the panic flight from all risky assets--not just mortgages--upon the discovery of the problems in the mortgage market.
(7) the engagement in regulatory arbitrage which had left major banks even more highly leveraged than I had thought possible.
(8) the failure of highly-leveraged financial institutions to have backup plans for recapitalization in place in the case of a major financial crisis.
(9) the Bush administration's sticking to a private-sector solution for the crisis for months after it had become clear that such a solution was no longer viable.
We could have interrupted this chain that has gotten us here at any of a number of places. And I still am trying to figure out why we did not.
Posted at 08:43 AM in Economics, Economics: Finance, Sorting: Front Page, Sorting: Pieces of the Occasion Comments (30) Permalink



Op-Ed Contributors Transitions
The Challenges of the Economic Crisis
Published: November 29, 2008
Over the course of the next month, the Opinion section will publish a series of Op-Ed articles by experts on the challenges facing Barack Obama when he takes office. Foremost among these challenges is the economic crisis. It was the focus of the president-elect’s appointments last week and it is the subject of today’s articles.
Bursting the Bubble
By MICHAEL BOSKINBad news needs to get through to the president.
Keep Your Distance
By WILLIAM E. LEUCHTENBURGHow F.D.R. avoided Hoover’s traps.
A $1 Trillion Answer
By JOSEPH E. STIGLITZBarack Obama needs a more ambitious stimulus plan.
Forget State vs. Treasury
By ROBERT HORMATS and DAVID M. KENNEDYFiscal policy and foreign policy are entwined.
Delegating to the Center
By LAWRENCE B. LINDSEYBarack Obama’s economic team should set his policy.



Op-Ed Contributors Transitions
The Challenges of the Economic Crisis
Published: November 29, 2008
Over the course of the next month, the Opinion section will publish a series of Op-Ed articles by experts on the challenges facing Barack Obama when he takes office. Foremost among these challenges is the economic crisis. It was the focus of the president-elect’s appointments last week and it is the subject of today’s articles.
Bursting the Bubble
By MICHAEL BOSKINBad news needs to get through to the president.
Keep Your Distance
By WILLIAM E. LEUCHTENBURGHow F.D.R. avoided Hoover’s traps.
A $1 Trillion Answer
By JOSEPH E. STIGLITZBarack Obama needs a more ambitious stimulus plan.
Forget State vs. Treasury
By ROBERT HORMATS and DAVID M. KENNEDYFiscal policy and foreign policy are entwined.
Delegating to the Center
By LAWRENCE B. LINDSEYBarack Obama’s economic team should set his policy.


Why I Was Wrong...
Calculated Risk issues an invitation:
Calculated Risk: Hoocoodanode?: Earlier today, I saw Greg "Bush economist" Mankiw was a little touchy about a Krugman blog comment. My reaction was that Mankiw has some explaining to do. A key embarrassment for the economics profession in general, and Bush economists Greg Mankiw and Eddie Lazear in particular, is how they missed the biggest economic story of our times.... This was a typical response from the right (this is from a post by Professor Arnold Kling) in August 2006:
Apparently, the echo chamber of left-wing macro pundits has pronounced a recession to be imminent. For example, Nouriel Roubini writes, "Given the recent flow of dismal economic indicators, I now believe that the odds of a U.S. recession by year end have increased from 50% to 70%." For these pundits, the most dismal indicator is that we have a Republican Administration. They have been gloomy for six years now...
Sure Roubini was early (I thought so at the time), but show me someone who has been more right! And this brings me to Krugman's column: Lest We Forget
... Why did so many observers dismiss the obvious signs of a housing bubble, even though the 1990s dot-com bubble was fresh in our memories? Why did so many people insist that our financial system was “resilient,” as Alan Greenspan put it, when in 1998 the collapse of a single hedge fund, Long-Term Capital Management, temporarily paralyzed credit markets around the world? Why did almost everyone believe in the omnipotence of the Federal Reserve when its counterpart, the Bank of Japan, spent a decade trying and failing to jump-start a stalled economy?
One answer to these questions is that nobody likes a party pooper.... There’s also another reason the economic policy establishment failed to see the current crisis coming. The crises of the 1990s and the early years of this decade should have been seen as dire omens, as intimations of still worse troubles to come. But everyone was too busy celebrating our success in getting through those crises to notice...
[I]n addition to looking forward, I think certain economists need to do some serious soul searching. Instead of leaving it to us to guess why their analysis was so flawed, I believe the time has come for Mankiw, Kling and many other economists to write a post titled "Why I was wrong".
Let me say what things I was "expecting," in the sense of anticipating that it was they were both likely enough and serious enough that public policymakers should be paying significant attention to guarding the risks that it would create:
(1) A collapse of the dollar produced by a panic flight by investors who recognized the long-term consequences of the U.S. trade deficit.
or:
(2) A fall back of housing prices halfway from their peak to pre-2000 normal price-rental ratios.
I was not expecting (2) plus:
(3) the discovery that banks and mortgage companies had made no provision for how the loans they made would be renegotiated or serviced in the event of a housing-price downturn.
(4) the discovery that the rating agencies had failed in their assessment of lower-tail risk to make the standard analytical judgment: that when things get really bad all correlations go to one.
(5) the fact that highly-leveraged banks working on the originate-and-distribute model of mortgage securitization had originated but had not distributed: that they had held on to much too much of the risks that they were supposed to find other people to handle.
(6) the panic flight from all risky assets--not just mortgages--upon the discovery of the problems in the mortgage market.
(7) the engagement in regulatory arbitrage which had left major banks even more highly leveraged than I had thought possible.
(8) the failure of highly-leveraged financial institutions to have backup plans for recapitalization in place in the case of a major financial crisis.
(9) the Bush administration's sticking to a private-sector solution for the crisis for months after it had become clear that such a solution was no longer viable.
We could have interrupted this chain that has gotten us here at any of a number of places. And I still am trying to figure out why we did not.
Posted at 08:43 AM in Economics, Economics: Finance, Sorting: Front Page, Sorting: Pieces of the Occasion Permalink Comments (49) TrackBack (0)

November 30, 2008
Paul Krugman Sets the Bar Far too Low...
...when he says that Keynes's greatness is illustrated by the fact that he understood things that George F. Will does not. A six year old child could write more intelligent columns about economics than George F. Will. The fact that Fred Hiatt has not yet fired George F. Will and replaced him with a six year old child is yet another piece of the wreckage of the crashed-and-burned Washington Post detritus scattered around the landscape.
Paul:
The greatness of Keynes...: ...is illustrated by the trouble people who consider themselves well informed have, to this day, in understanding the basic principles of how a depressed economy works. The key to Keynes’s contribution was his realization that liquidity preference — the desire of individuals to hold liquid monetary assets — can lead to situations in which effective demand isn’t enough to employ all the economy’s resources. When you don’t understand that principle, you end up writing stuff like this [from George F. Will]:
Obama’s “rescue plan for the middle class” includes a tax credit for businesses “for each new employee they hire” in America over the next two years. The assumption is that businesses will create jobs that would not have been created without the subsidy. If so, the subsidy will suffuse the economy with inefficiencies — labor costs not justified by value added.
That is, if the private sector wouldn’t have created a job on its own, that job shouldn’t have been created... [never mind that] the real choice is between having workers doing something and being uselessly, destructively unemployed....
Why do people still fail to get Keynes, after all these years? Keynes might have said that it’s the inherent difficulty of the concepts: "For—though no one will believe it—economics is a technical and difficult subject." But there’s also the Upton Sinclair theorem:
It is difficult to get a man to understand something, when his salary depends upon his not understanding it.
But George F. Will's salary doesn't depend on his not understanding that we are now for the first time since 1982 faced with the prospect of a depression, or upon his not understanding that if Amity Shlaes disagrees with Ben Bernanke on the Great Depression one would be well-advised to bet on Ben Bernanke.
Why oh why can't we have a better press corps?
Posted at 05:37 PM in Economics, Economics: Great Depression, Economics: History, History, Information: Better Press Corps/Journamalism, Sorting: Front Page, Sorting: Pieces of the Occasion Permalink Comments (0) TrackBack (0)
November 29, 2008
John Maynard Keynes Is Very Much Alive
Paul Krugman cites Greg Mankiw:
The Keynesian moment: Greg has this exactly right:
IF you were going to turn to only one economist to understand the problems facing the economy, there is little doubt that the economist would be John Maynard Keynes. Although Keynes died more than a half-century ago, his diagnosis of recessions and depressions remains the foundation of modern macroeconomics. His insights go a long way toward explaining the challenges we now confront.
I think it’s worth saying a bit more about why, exactly, we’re in such a Keynesian moment. If Keynes receded in our consciousness over the past few decades, it wasn’t mainly because of uninformed criticisms from the right; it was because central bankers seemed to have everything under control. Uncle Alan and his counterparts, by controlling the money supply, could do the job of stabilizing the economy, and Keynesian fiscal policy seemed irrelevant. Now, Keynes understood the role of monetary policy quite well, and believed that it had been effective in the past. What he argued, however, was that there were situations in which monetary policy could do no more — and that the world economy he lived in was facing such a situation:
To-day and presumably for the future the schedule of the marginal efficiency of capital is, for a variety of reasons, much lower than it was in the nineteenth century. The acuteness and the peculiarity of our contemporary problem arises, therefore, out of the possibility that the average rate of interest which will allow a reasonable average level of employment is one so unacceptable to wealth-owners that it cannot be readily established merely by manipulating the quantity of money. So long as a tolerable level of employment could be attained on the average of one or two or three decades merely by assuring an adequate supply of money in terms of wage-units, even the nineteenth century could find a way. If this was our only problem now—if a sufficient degree of devaluation is all we need—we, to-day, would certainly find a way.
Archaic language, but he was describing a situation very much like the one we face now. To be sure, Keynes failed to foresee the postwar rise of the “marginal efficiency of capital” — the way that economic growth combined with inflation would create an environment in which interest rates were high enough in normal times that monetary policy was effective at fighting slumps. Hence the long era in which Keynes didn’t seem all that relevant. But his analysis remained as valid as ever, under the right conditions. Those conditions reappeared first in Japan during the 90s; now they’re everywhere.
And in the long run, it turns out, Keynes is anything but dead.




1: The General Theory
As promised, here’s the first instalment of what could be many on Keynes’ General Theory. My main purpose in writing this is to understand rather than criticise, though I’ll also flag things I have a problem with.
This first chapter is so short I can quote it in full:
I have called this book the General Theory of Employment, Interest and Money, placing the emphasis on the prefix general. The object of such a title is to contrast the character of my arguments and conclusions with those of the classical [1] theory of the subject, upon which I was brought up and which dominates the economic thought, both practical and theoretical, of the governing and academic classes of this generation, as it has for a hundred years past. I shall argue that the postulates of the classical theory are applicable to a special case only and not to the general case, the situation which it assumes being a limiting point of the possible positions of equilibrium. Moreover, the characteristics of the special case assumed by the classical theory happen not to be those of the economic society which we actually live, with the result that its teaching is misleading and disastrous if we attempt to apply it to the facts of experience.
I’m not going to look this gift horse in the mouth by picking over it word by word. But a couple of points. First, the idiosyncratic way Keynes defines ‘classical’ economics - as everything that came before him. He is the epistemic break. It’s interesting that the footnote refers to Marx as the originator of the term:
[1] “The classical economists” was a name invented by Marx to cover Ricardo and James Mill and their predecessors, that is to say for the founders of the theory which culminated in the Ricardian economics. I have become accustomed, perhaps perpetrating a solecism, to include in “the classical school” the followers of Ricardo, those, that is to say, who adopted and perfected the theory of the Ricardian economics, including (for example) J. S. Mill, Marshall, Edgeworth and Prof. Pigou.
Marx also saw himself as the epistemic break - if he didn’t include Mill and the other post-Ricardians as ‘classical’ it was because he didn’t think they were much good, hacks in fact, not because they made a major break with Ricardo.
But generally today the epistemic break is seen to come between Mill and Marshall, and Marshall is a representative of a larger group including Walras, Jevons, Edgeworth, etc. - the marginalists. Thus ‘the marginalist revolution’. These are the people who brought the differential calculus into economics, who started with all those demand and supply curves, elasticities and equilibria, and on the whole made logical rigour more important than realism. Before them, ‘classical’, after them, ‘neoclassical’.
Keynes’ reference point is clearly the neoclassicals, but it’s interesting that he lumps Ricardo in with them. This is valid in some ways, in that Ricardo’s method was rationalist rather than empirical (more so than Marshall in fact), but his overall vision was a world apart. (Incidentally, classical revivalists of the 20th century like Joan Robinson considered Marx a classical, and meant it as a compliment. It is true that Marx had much more in common with Ricardo than with the neo-classicals, but he was also right in seeing his own work as an epistemic break with Ricardo.) I don’t want to go on about this any more, since Keynes defines ‘the postulates of the classical economists’ in the next chapter.
The other thing to note is Keynes’ characteristic lack of modesty shining through. Aren’t ‘general’ and ’special’ theories meant to remind us of Einstein? Before the publication of the General Theory Keynes wrote to George Bernard Shaw that his book would “largely revolutionise… the way the world thinks about economic problems.”
It’s interesting, then, that he chose to limit his general theory to “employment, interest and money”, rather than ‘economics’. An awful lot of economics doesn’t fall into those categories. He seems to be signalling a focus on the monetary dimension of economics in particular, and its relationship with employment. But we’ll wait and see.
Published in:
Keynes
political economyon 4 October, 2007 at 11:06 am Comments (5)

Reading Keynes
Where are the lefty economics blogs? I find myself haunting the philosophy and cultural studies segments of the blogosphere, which is possibly more fun than economics, especially when I need to divert myself from an economics thesis. The web is full of humming radical philosophy and cultural studies blogs, but a radical political economy community just isn’t there. Or maybe I’m just not aware of it?
Anyway, a reading group I’ve been part of in real life is about to turn to Keynes’ General Theory of Employment, Interest and Money. I’ve read tons of the secondary literature but never read it right through. It seems important to do so for my thesis at some point, too, so that’s a bonus. So I thought I’d use this spot as a place to work through it, and if anybody wants to join me, great. It’s about 400 pages including the index, and I’ve got a month to get through it for the reading group. So the plan is to do a chapter each working day, starting Thursday. The chapters are not too long - hell, the first one is half a page. But it is dense in places.
You can read it online here: http://www.marxists.org/reference/subject/economics/keynes/general-theory/index.htm



Wednesday, December 03, 2008
AS, AD, and the New Deal
Paul Krugman has posted a nice note analyzing New Deal wage policies using the model of aggregate supply and aggregate demand familiar to teachers of undergraduate macroeconomics. The essence of Paul's argument is that the economy of the Great Depression was in a liquidity trap, which implies that the AD curve is vertical, which in turn implies that policies that adversely shift the AS curve do not affect equilibrium output in the short run. Thus, a policy that under normal circumstances would be bad, such as cartelizing the supply of labor, is not bad under the extraordinary circumstances of the 1930s. (See Gauti Eggertsson for a more sophisticated version of this line of argument.)
Even staying within the AD-AS model, it seems possible to argue the opposite point of view. Imagine you are a firm considering a long-term investment project. The President has just announced a policy to encourage your workers to form a cartel. How does that influence your decision to proceed with the project? Very likely, it deters you. Investment spending, however, is part of aggregate demand (in fact, one of the most volatile components). Thus, the policy could shift the AD curve, as well as the AS curve, in a contractionary direction.
As a general matter, the state of aggregate demand depends on an amorphous variable called confidence. Anything that threatens to screw up AS in the long run most likely reduces confidence and AD in the short run. The textbook separation of AD and AS is useful for focusing discussion in the undergraduate classroom, but events in the real world are rarely so clean.



How to avoid the horrors of 'stag- deflation'
The US and the global economy are at risk of a severe stagdeflation, a deadly combination of economic stagnation/recession
Dec 03 2008, By Nouriel Roubini, Financial Times

How to avoid the horrors of 'stag-deflation'
The US and the global economy are at risk of a severe stag-deflation, a deadly combination of economic stagnation/recession
Dec 02 2008, By Nouriel Roubini, FT.com site

Video: Nouriel Roubini
The legendary bearish economist on the prospect of a long US recession and the problem with the US housing
May 26 2008, FT.com site

FOLHA, 04-12-2008
ARTIGO Os horrores da "estagdeflação"
NOURIEL ROUBINIESPECIAL PARA O "FINANCIAL TIMES" A ECONOMIA dos EUA e mundial corre o risco de uma severa "estagdeflação", uma combinação mortífera de estagnação/recessão econômica e deflação.
Uma recessão mundial severa resultará em pressões deflacionárias. A queda na demanda resultará em inflação mais baixa, à medida que as empresas cortem preços para reduzir seus estoques excedentes. A folga nos mercados de trabalho gerada pelo desemprego ajudará a controlar os custos de mão-de-obra e os salários. A folga nos mercados de commodities devido à queda de preços também conduzirá a uma queda acentuada na inflação. Assim, o nível de inflação nas economias avançadas deve rumar ao patamar de 1%, que costuma despertar temores de deflação.
A deflação é perigosa porque resulta em armadilhas de liquidez, de deflação e de deflação de dívidas: as taxas de juros nominais não podem cair abaixo de zero, e com isso a política monetária perde a efetividade. Já estamos vivendo numa armadilha de liquidez, porque a taxa de fundos federais do Federal Reserve (o BC dos EUA) ainda é de 1%, mas a taxa efetiva está perto de zero, porque a instituição inundou o sistema financeiro com liquidez. Além disso, nas deflações a queda nos preços significa que o custo real do capital é elevado a despeito de taxas de juros próximas de zero, e isso resulta em novas quedas no consumo e no investimento. A queda na demanda e nos preços gera um círculo vicioso: a renda e o número de empregos caem, e isso gera novas quedas de demanda e preços (uma armadilha de deflação); e o valor real das dívidas nominais sobe (uma armadilha de deflação de dívida), o que torna os problemas dos devedores mais severos e leva a um risco crescente de inadimplência domiciliar e empresarial, o que exacerba os prejuízos das instituições financeiras com o crédito.
Como a política monetária tradicional está perdendo a efetividade, outras medidas não ortodoxas vêm sendo usadas: oferta maciça de liquidez aos bancos (para superar a perda de liquidez e reduzir o "spread" entre as taxas de juros de curto prazo no mercado e as taxas de juros oficiais) e políticas quase fiscais de resgate a investidores, devedores e credores. E ações políticas "malucas", ainda menos ortodoxas, tornam-se necessárias para reduzir o crescente "spread" entre as taxas de juros de longo prazo sobre os títulos do governo e as taxas de juros determinadas pela política monetária, bem como o alto "spread" entre as taxas de curto e de longo prazo e os títulos de curto e de longo prazo do governo.
Os bancos centrais são tradicionalmente o emprestador de último recurso, mas agora estão se tornando o primeiro e único recurso, porque os bancos comerciais não estão emprestando. Com o colapso no consumo domiciliar e nos gastos empresariais, os governos em breve se tornarão o último recurso também na ponta dos gastos, e os déficits fiscais dispararão.
A crise financeira já ganhou alcance mundial, porque os elos dos mercados financeiros transmitiram a todo o mundo o choque dos Estados Unidos. As perdas gerais de crédito provavelmente estão próximas de atordoantes US$ 2 trilhões. Assim, a menos que as instituições financeiras sejam rapidamente recapitalizadas pelos governos, a compressão de crédito se tornará ainda mais severa, caso os prejuízos cresçam mais rápido do que a recapitalização.
Mas, com os governos e bancos centrais incorporando aos seus balanços as perdas do setor privado, o déficit fiscal dos Estados Unidos superará o US$ 1 trilhão nos dois próximos anos. O Fed e o Tesouro estão assumindo imensos riscos de crédito, o que coloca em risco a solvência do governo dos Estados Unidos no longo prazo.
Nos próximos meses, o fluxo de notícias sobre resultados empresariais e sobre a macroeconomia será muito pior que o esperado. A compressão de crédito vai se agravar, e a desalavancagem continuará à medida que fundos de "hedge" e outras instituições se virem forçados a vender ativos em mercados desprovidos de liquidez e ainda abalados. Isso gerará uma nova queda em cascata dos preços, a quebra de novas instituições financeiras insolventes e crises financeiras abertas em algumas das economias de mercado emergente.
Ainda não superamos o pior período. 2009 será um ano doloroso de recessão mundial, deflação e falências. Apenas ações políticas muito agressivas e bem coordenadas poderão garantir que a economia mundial se recupere em 2010, em lugar de enfrentar estagnação e deflação prolongadas.
NOURIEL ROUBINI é professor de Economia na Escola Stern de Administração de Empresas, na Universidade de Nova York, e presidente da RGE Monitor, uma consultoria econômica.
Tradução de PAULO MIGLIACCI




Embracing inflation
This once-in-a-lifetime global economic recession requires a unique response. Inflation is needed to combat the crisis
Comments (55)
Kenneth Rogoff
guardian.co.uk, Tuesday December 2 2008 22.00 GMT Article history
It is time for the world's major central banks to acknowledge that a sudden burst of moderate inflation would be extremely helpful in unwinding today's epic debt morass.
Yes, inflation is an unfair way of effectively writing down all non-indexed debts in the economy. Price inflation forces creditors to accept repayment in debased currency. Yes, in principle, there should be a way to fix the ills of the financial system without resorting to inflation. Unfortunately, the closer one examines the alternatives, including capital injections for banks and direct help for home mortgage holders, the clearer it becomes that inflation would be a help, not a hindrance.
Modern finance has succeeded in creating a default dynamic of such stupefying complexity that it defies standard approaches to debt workouts. Securitisation, structured finance and other innovations have so interwoven the financial system's various players that it is essentially impossible to restructure one financial institution at a time. System-wide solutions are needed.
Moderate inflation in the short run – say, 6% for two years – would not clear the books. But it would significantly ameliorate the problems, making other steps less costly and more effective.
True, once the inflation genie is let out of the bottle, it could take several years to put it back in. No one wants to relive the anti-inflation fights of the 1980s and 1990s. But right now, the global economy is teetering on the precipice of disaster. We already have a full-blown global recession. Unless governments get ahead of the problem, we risk a severe worldwide downturn unlike anything we have seen since the 1930s.
The necessary policy actions involve aggressive macroeconomic stimulus. Fiscal policy should ideally focus on tax cuts and infrastructure spending. Central banks are already cutting interest rates left and right. Policy interest rates around the world are likely to head toward zero; the United States and Japan are already there. The United Kingdom and the euro zone will eventually decide to go most of the way.
Steps must also be taken to recapitalise and re-regulate the financial system. Huge risks will remain as long as the financial system remains on government respirators, as is effectively the case in the US, UK, the euro zone and many other countries today.
Most of the world's largest banks are essentially insolvent, and depend on continuing government aid and loans to keep them afloat. Many banks have already acknowledged their open-ended losses in residential mortgages. As the recession deepens, however, bank balance sheets will be hammered further by a wave of defaults in commercial real estate, credit cards, private equity and hedge funds. As governments try to avoid outright nationalisation of banks, they will find themselves being forced to carry out second and third recapitalisations.
Even the extravagant bail-out of financial giant Citigroup, in which the US government has poured in $45bn of capital and backstopped losses on over $300bn in bad loans, may ultimately prove inadequate. When one looks across the landscape of remaining problems, including the multi-trillion-dollar credit default swap market, it is clear that the hole in the financial system is too big to be filled entirely by taxpayer dollars. Certainly, a key part of the solution is to allow more banks to fail, ensuring that depositors are paid off in full, but not necessarily debt holders. But this route is going to be costly and painful.
That brings us back to the inflation option. In addition to tempering debt problems, a short burst of moderate inflation would reduce the real (inflation-adjusted) value of residential real estate, making it easier for that market to stabilise. Absent significant inflation, nominal house prices probably need to fall another 15% in the US, and more in Spain, the UK and many other countries. If inflation rises, nominal house prices don't need to fall as much.
Of course, given the ongoing recession, it may not be so easy for central banks to achieve any inflation at all right now. Indeed, it seems like avoiding sustained deflation, or falling prices, is all they can manage.
Fortunately, creating inflation is not rocket science. All central banks need to do is to keep printing money to buy up government debt. The main risk is that inflation could overshoot, landing at 20% or 30% instead of 5-6%. Indeed, fear of overshooting paralysed the Bank of Japan for a decade. But this problem is easily negotiated. With good communication policy, inflation expectations can be contained, and inflation can be brought down as quickly as necessary.
It will take every tool in the box to fix today's once-in-a-century financial crisis. Fear of inflation, when viewed in the context of a possible global depression, is like worrying about getting the measles when one is in danger of getting the plague.
In cooperation with Project Syndicate, 2008.


FOLHA DE SÃO PAULO, 05DEZ2008
LUIZ CARLOS MENDONÇA DE BARROS O espírito animal do capitalismo
Não há como escapar de uma queda do PIB no 4º trimestre deste ano e, provavelmente, no 1º de 2009
KEYNES É muito mal compreendido. Duas de suas fascinantes contribuições não têm o destaque necessário entre os economistas. A primeira é a visão de que o investimento (e não o consumo) é o condicionante principal da demanda, estando especialmente sujeito a mudanças bruscas no "espírito animal" dos agentes. A segunda é a descrição dos mecanismos usados por empresas e investidores, no período de bonança, para multiplicar o crédito no sistema. É um processo que permeia o tecido econômico de variadas formas, mas que fragiliza progressivamente a economia conforme o período de expansão matura.
A interação entre o espírito animal do empresário (e do consumidor) e a capacidade da economia de multiplicar o crédito é o mecanismo a partir do qual se gera a semente da crise. Quando o otimismo domina, o espírito empreendedor leva as pessoas a correrem riscos, com aumento do endividamento, em razão da perspectiva de geração de lucros maiores e do aumento dos salários.
A valorização das ações também atua para aumentar o potencial de endividamento do sistema.
Em algum momento, por qualquer razão, muda-se a percepção sobre a capacidade desses fluxos em sustentar o edifício de dívida e ocorre o desmonte. Faço essas observações para contextualizar a mudança de dinâmica ocorrida no Brasil na passagem de setembro para outubro. Essa data coincide com o agravamento da crise financeira nos EUA, após a quebra do banco Lehman Brothers.
Gosto muito da imagem que associa a crise de hoje, e sua propagação, a um processo de metástase no corpo humano. A quebra do Lehman representou o momento em que a interrupção do crédito se espalhou e tomou conta de segmentos da economia que ainda estavam preservados. E o Brasil fazia parte desse grupo.
Isso porque o elemento crucial para o funcionamento da moderna economia capitalista -a confiança- deixou de existir. Durante os últimos dois anos, vivemos um período de grande confiança, com o consumo crescendo muito acima da capacidade de produção das empresas brasileiras. Não por outra razão as importações cresceram de forma vigorosa, ocupando um espaço nunca visto em nossos mercados. O espírito animal dos empresários brasileiros os levou a aumentar a capacidade de produção de suas empresas e o investimento privado cresceu a taxas quase inacreditáveis para o padrão dos últimos 20 anos. A aceleração de nosso crescimento nos últimos trimestres foi motivada claramente por esse movimento.
Mas, com a metástase da crise do "subprime", o quadro mudou. Se a produção industrial em outubro surpreendeu mesmo o analista mais pessimista, a de novembro deve provocar um ruído ainda maior. Basta olhar para os números já divulgados pela Anfavea em relação à produção de veículos. Não há como escapar de uma queda do PIB no quarto trimestre deste ano e, provavelmente, no primeiro de 2009. As previsões já estão sendo revistas para baixo, deixando a estimativa do governo de um crescimento de 4% no campo da chacota.
Nestes momentos de insegurança em relação ao futuro, o governo deve liderar, com autoridade e responsabilidade, a sociedade. Tentar enfrentar tempos mais bicudos escondendo da opinião pública a realidade dos fatos sempre acaba muito mal. O presidente Lula e seus ministros estão fazendo uma aposta de alto risco ao vender uma economia que não existe mais.
LUIZ CARLOS MENDONÇA DE BARROS, 66, engenheiro e economista, é economista-chefe da Quest Investimentos. Foi presidente do BNDES e ministro das Comunicações (governo Fernando Henrique Cardoso).



December 05, 2008 - blog Rodrik
Does mercantilism work in a Keynesian world?
Yes it does. And not just in theory, but also in practice.
The evidence comes from the 1930s, and from the work of Ben Bernanke himself (along with other scholars like Barry Eichengreen). The important finding is that countries that devalued their currencies by getting off the gold standard were able to recover more quickly, thanks in part to an increase in their net exports relative to countries that stayed on gold. Note that a currency depreciation amounts to a policy of combining import tariffs with export subsidies--hence the mercantilist intent and effect.
Interestingly, Bernanke finds that the increase in net exports came from the increase in exports, while imports did not decline more than it did in countries remaining on the gold standard. He speculates that the reason has to do with the increase in income (thanks to the depreciation) which pushed demand for imports higher and offset the substitution effects.
I am writing all this partly in response to Tyler Cowen's comment that any theory that suggests import protection can be a good thing must be a deeply flawed theory. The experience with currency devaluations during the 1930s shows that the theory is in fact quite OK.
What the theory does not consider fully, which was rather my point, is that mercantilist policies--Keynesianism in one country--has adverse effects on others. My net exports can increase only at the expense of yours. Similarly, the worse thing about Smoot-Hawley was that it led to a vicious cycle of protectionism everywhere.
So the implication is not that we throw the theory overboard, but that we foresee its global implications and apply the requisite remedy: a globally coordinated fiscal stimulus, which requires in turn that we provide the developing countries with the liquidity and fiscal resources needed to get on board.
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December 04, 2008

Some unpleasant Keynesian arithmetic
How much of a boost to economic activity will a fiscal stimulus provide? For those who believe that we have entered a Keynesian world of shortage of aggregate demand--me included--the answer depends on the Keynesian multiplier. The size of this multiplier depends in turn on three things in particular, the marginal propensity to consume (c), the marginal tax rate (t), and the marginal propensity to import (m). If c=0.8, t=0.2, and m=0.2, the Keynesian multiplier is 1.8 (=1/(1-c(1-t)+m)). A $1 trillion fiscal stimulus would increase GDP by $1.8 trillion.
Now suppose that we had a way to raise the multiplier by more than half, from 1.8 to 2.8. The same fiscal stimulus would now produce an increase in GDP of $2.8 trillion--quite a difference. Nice deal if you can get it.
In fact you can. It is pretty easy to increase the multiplier; just raise import tariffs by enough so that the marginal propensity to import out of income is reduced substantially (to zero if you want the multiplier to go all the way to 2.8). Yes, yes, import protection is inefficient and not a very neighborly thing to do--but should we really care if the alternative is significantly lower growth and higher unemployment? More to the point, will Obama and his advisers care?
Being the open economy that it is, I fear that the U.S. will have to confront this dilemma sooner or later. In an environment where the dollar has already appreciated against the Euro and even more significantly against emerging market currencies, fiscal stimulus here will produce an even larger current account deficit. If American consumers decide to spend 40 cents of a dollar of additional income on cheap imports from China and other foreign countries, the multiplier will be a mere 1.3. How long will it take before politicians of all stripes cry foul over the leakage through the trade account and the "gift to foreigners" that this represents? And they will have Keynesian logic on their side.
The way out of this dilemma is to get the rest of the world to engage in fiscal expansion at the same time--so that the gift is returned. The good news here is that China is playing along and hopefully the Europeans will too (if they can convince Germans to get over their weird obsession with fiscal conservatism).
But most developing nations are constrained by weak fiscal fundamentals. They cannot play the fiscal stimulus game because their borrowing capacity is limited: external finance is drying up and domestic financial markets cannot absorb the increase in public debt without a sharp rise in interest rates.
So unless we come up with a solution to the credit constraints in the developing world, we are going to either endanger the effectiveness of Keynesian policies in the U.S. and other advanced nations, or risk a sharp increase in protectionism. Not a pleasant choice.
Two solutions suggest themselves. One is to enlarge global liquidity by creating new SDR allocations and handing them over to developing nations to increase their spending. The other is to institute a Tobin tax on foreign currency transactions and pass the proceeds on to the developing nations.
Exceptional times, exceptional measures.
Posted at 09:13 PM Permalink Comments (17) TrackBack




December 05, 2008
Things to Read by Keynes
Tyler Cowen writes:
Marginal Revolution: New MR book club - Keynes's General Theory: I will go through the book [Keynes's General Theory], chapter by chapter, with an eye toward a deeper understanding of what Keynes wrote and why it is, as Greg says, so important. I'm not yet sure what kind of pace I can maintain but order your copy here, now. The Kindle version is only $3.96. We'll do chapters 1 and 2 by next Monday, eight days from now.
The Marxists.org version of the General Theory is free: http://www.marxists.org/reference/subject/economics/keynes/general-theory/
I am of a different view than Tyler. I think that the most important things by Keynes to read do not include the General Theory. My list of General Theory-length reading from Keynes is this:
Keynes (1919), The Economic Consequences of the Peace http://www.gutenberg.org/files/15776/15776-8.txt
Keynes (1924), A Tract on Monetary Reform No etext
Keynes (1932), Essays in Persuasion No etext
Keynes (1919), "Inflation"
Keynes (1923), "Social Consequences of Changes in the Value of Money"
Keynes (1925), "The Economic Consequences of Mr. Churchill"
Keynes (1926), "The End of Laissez-Faire" http://www.panarchy.org/keynes/laissezfaire.1926.html
Keynes (1930), "The Great Slump of 1930" http://www.gutenberg.ca/ebooks/keynes-slump/keynes-slump-00-h.html
Keynes (1931), "The Consequences to the Banks of the Collapse in Money Values"
Keynes (1932), "The World Economic Outlook" http://www.theatlantic.com/unbound/flashbks/budget/keynesf.htm
Keynes (1933), "An Open Letter to President Roosevelt" http://newdeal.feri.org/misc/keynes2.htm
Keynes (1938), "A Private Letter to President Roosevelt" http://delong.typepad.com/egregious_moderation/2008/12/john-maynard-ke.html
and I am tremendously annoyed at the absence of etext versions of the Tract on Monetary Reform and Essays in Persuasion.
Special bonus:
Jacob Viner (1936), "Mr. Keynes on the Causes of Unemployment" http://www.jstor.org/stable/pdfplus/1882505.pdf
Posted at 03:41 PM in Books, Economics, Economics: Economists, Economics: History, Economics: Macro, Sorting: Front Page, Sorting: Pieces of the Occasion Permalink Comments (2) TrackBack (0)



December 05, 2008
"What Would Keynes Do?"
Bruce Bartlett explains why a stimulus package is needed, and why it must involve government purchases of goods and services:
What Would Keynes Do?, by Bruce Bartlett, Forbes: Every day that goes by makes clearer the parallels between the current financial crisis and the one that led to the Great Depression. Then, as now, the core problem was one of deflation... What few people understood at the time was that the Federal Reserve was primarily responsible for the deflation...
In its initial stages, the Fed might have been able to prevent a full-blown depression by being a lender of last resort. It should have been aggressive about buying every financial asset it could lay its hands on and created as much money as necessary to do so. But it ... was passive and, as the value of financial assets collapsed, banks closed and vast amounts of wealth simply vanished.
The money simply disappeared, because there was no federal deposit insurance in those days. According to ... Milton Friedman and Anna Schwartz, the nation's money supply fell by one-third between 1929 and 1933, which induced a 25% fall in price levels...
As prices fell, businesses were forced to sell goods for less than they cost to produce. They couldn't cut costs easily because that meant reducing wages, which workers naturally resisted. Layoffs were the only way to cut costs, but this meant workers didn't have any income with which to buy goods, since there was no unemployment compensation either. This created a downward spiral that proved very difficult to stop. ...
» Continue reading ""What Would Keynes Do?""
Posted by Mark Thoma on Friday, December 5, 2008 at 02:07
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Policy Lags
There are lags in the implementation of macroeconomic policy because of:
1. Data lags: Many macroeconomic data series such as GDP are only available with a considerable lag, and they are subject to big revisions. Because of this, information policy makers use is retrospective, not contemporaneous. Getting information about the current state of the economy is difficult, we don't have good information until months after the economy has already changed course.2. Recognition lag: Once the data are finally available it takes time to figure out what they are saying. Is the downturn in employment in this month's data temporary, or the beginning of a longer term trend? If it's temporary, no need to act, but if it's permanent, then action may be needed. 3. Legislative lag: Once we've obtained the necessary data and concluded something must be done, there can be considerable lags in the legislative process as legislators debate the exact form of the package, or oppose it altogether.4. Implementation lag: Once a policy is passed, it takes time to put it into place, e.g. to set up the administration of the money, to deliver it to the right agencies, to make the plans needed to spend it, etc.5. Effectiveness lag: After all of that, and the policy is finally put into place, it takes time for policy to hit the economy and take effect. For monetary policy if can be a year to a year and a half before the peak effect of the policy is felt (though the legislative lages are much shorter since the FOMC can act faster than congress). The effectiveness lag for fiscal policy is a bit shorter, but still considerable, six months at least.
It took some people awhile to get past the recognition lag stage, but I don't think anyone is in denial any longer. The problem now is legislative lag - we may have to wait for a new administration to do what is needed - and even after the transition the policy won't be put into place immediately. Thus, we could be looking at eight months or more - optimistically - until fiscal policy can have the needed effect. It's possible that some policies, e.g. a suspension of the payroll tax for people earning under a certain amount would take effect faster, the most recent tax rebate seems to have hit the economy fairly fast once the checks were finally mailed (which didn't happen overnight), and that is why I have advocated some type of tax cut or rebate as part of any stimulus package (which should also include infrastructure spending for a more sustained impact the economy, including the long-run benefits to growth from such expenditures).
Economists have been calling for aggressive action for some time now (with some exceptions, and to the extent those exceptions have delayed policy, they have done real harm to people's lives, people whose jobs could have been saved through earlier, aggressive action that was being called for).
It's not too late to do something, but we're getting there, and there's no room for further delay. More delay means more unemployment and more ruined lives. Congress needs to take this with the same degree of urgency that it showed during the financial crisis. We needed a package to be in place yesterday not two months from now.
Posted by Mark Thoma on Friday, December 5, 2008 at 09:46
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The economic lessons of World War II
by John Quiggin on December 7, 2008
As it has become evident that the financial crisis is comparable, in important ways, to the early stages of the Great Depression, there has been a lot of debate about the lessons to be learned from the responses to the Depression in the US, most notably the various policies that made up the New Deal. There’s a lot to be learned there, but it’s also important to remember that the Depression, in the US and elsewhere, continued throughout the 1930s before being brought to an abrupt end by the outbreak of World War II.[1]
Not only did the slump end when the war began, it did not return when the war ended – a huge difference from previous major wars. Instead the three decades beginning in 1940 were a period of unparalleled prosperity for developed countries, with economic growth higher and unemployment lower than at any time before or since.
What lessons can we learn from this experience?
In the immediate aftermath of the war, the lesson seemed obvious. Planning had succeeded where capitalism had failed, and more planning was needed to maintain that success. As the White Paper on Full Employment (Commonwealth of Australia 1945) put it
Despite the need for more houses, food, equipment and every other type of product, before the war not all those available for work were able to find employment or to feel a sense of security in their future. On the average during the twenty years between 1919 and 1939 more than one-tenth of the men and women desiring work were unemployed. In the worst period of the depression well over 25 per cent were left in unproductive idleness. By contrast, during the war no financial or other obstacles have been allowed to prevent the need for extra production being satisfied to the limit of our resources.
Over time, as the difficulties of planning became apparent, emphasis shifted to the idea that the war had provided a Keynesian stimulus to aggregate demand, and that, with careful management, unemployment (or inflation) due to inadequate (excessive) aggregate demand could be avoided. Thirty years of success seemed to confirm that view.
After the failure of Keynesian economic management in the 1970s, this explanation appeared less adequate, but no adequate alternative was proposed. Given the apparent success of monetary policy in stabilising output and inflation, and reducing unemployment, from 1990 onwards, the issue seemed largely academic, and given the focus of US economists on the New Deal, even academic attention to the question has been limited.
Perhaps stimulatory fiscal policy will produce a rapid and complete recovery from the current crisis, and a restoration of the postwar Keynesian orthodoxy. But given the damage that has already been done to the global financial system, and the prospect of much more to come, this is far from certain. The experience of Japan in the 1990s is not encouraging, and this crisis is far worse in important respects. Perhaps when the collapse of financial intermediation is as near-complete as it was in the Depression, a large element of central direction is needed to restore trade and ensure necessary flows of credit. In the absence of a rapid recovery, questions like this will assume increased urgency over the next year or two.
fn1. In most respects, a continuation of the Great War that began in 1914, but in economic terms a completely different kind of conflict, based on comprehensive planning and mobilisation of economic and labour resources.
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Options for Stimulating the Economy
In 2009, GDP in the U.S. is expected to be about $900 billion below its normal growth path. The ideal stimulus would have most of its effect in 2009 and would close a reasonable fraction of that gap. We see five general strategies for stimulus:
Further expansion by the Fed
Income tax cuts with rebates, as earlier this year
Tax cuts that reduce the prices of consumer goods temporarily
Tax cuts that reduce the cost of labor to businesses
Increase in purchases of goods and services by state and local governments
Expansion by the Fed
The Fed controls short-term interest rates by adjusting the quantity of reserves it supplies to the banking system. To lower rates, the Fed buys securities and pays for them with reserves, thus increasing the total quantity of reserves at banks. Banks then try to alter their portfolios to move out of reserves and into higher-paying assets, including loans. The increased demand for these assets reduces their interest rates and stimulates investment and consumer spending. The Fed and other central banks have been using procedures based on the principle that the central bank can adjust overall conditions in an economy to keep it on an even keel, with low stable inflation and relatively mild booms and busts. The principle has worked well in most countries over the past 25 years. The main exception was Japan in the 1990s, where the principle broke down in the same way as in the U.S. today.
The logic above indicates that thre is no scope for further expansion in this way. The reason is that the Fed pays 1 percent interest on reserves, which is above the rates that banks can obtain from other similarly safe short-term investments. An expansion of reserves leaves banks with more of an asset they crave because banks prefer reserves at 1 percent to loans at a higher rate; it does not set in motion any process that would result in expanded lending and lower rates for business and consumer borrowers. For reasons we are unable to explain, the Fed raised the rate it pays on reserves recently. The standard analysis of the payment of interest on reserves by central banks makes it clear that increases in the attractiveness of reserves are contractionary. Because the Fed has also increased the quantity of reserves enormously over the same period, we are not saying that the net effect was contractionary, only that the increase in the reserve interest rate went in the wrong direction. (We should add, but only in parentheses, that we support paying interest on reserves at a rate somewhat below other safe rates as a general principle of central banking in normal times.)
Although we believe that restoring the Fed’s interest rate paid on reserves to its traditional level of zero would be a good idea as a temporary stimulus, we do not believe that it would have much expansionary effect in an economy where safe short-term rates are already very close to zero
Fed Chairman Ben Bernanke gave a speech on December 1 explaining the Fed’s plans for further expansion. Oddly, he explained the new policy of paying 1 percent interest on reserves as a way of elevating short-term rates up to the Fed’s target level of 1 percent. This amounts to a confession of the contractionary effect of the reserve interest policy. More importantly, he stated that the Fed might start buying longer-term Treasury securities. He did not describe how the Fed would pay for them. If the Fed expands reserves further, it would be taking the long-term Treasuries out of the market and replacing them with short-term federal debt, namely reserves. If the Fed and the Treasury cooperated, as they have for many other asset purchase and lending by the Fed, the Treasury would issue new debt, place the proceeds in its Fed account, and the Fed would use the funds to buy the long-term Treasuries. In any case, the effect would be the same as if the Treasury by itself retired long-term debt and replaced it with short-term debt. There is much to be said for this policy. Based on current interest rates, it would give investors what they want, more short-term Treasury debt, for which they require interest rates close to zero, and less long-term, for which interest rates are rather higher. The policy would probably save the taxpayers a lot of money. But nobody thinks that it would have much effect on interest rates. Notice that any downward effect on long-term rates would be offset by an upward effect on short-term rates.
Although Chairman Bernanke did not use the term, the policy of substituting short- for long-term debt through the central bank is called “quantitative easing.” There are good reasons to go ahead with the policy, but it seems quite unlikely to give much net stimulus to the economy.
Income tax cuts with rebates
Last summer, consumers enjoyed a moderate tax cut paid out to most people as an immediate rebate. The experience demonstrated that the federal government is capable of a speedy fiscal action, but it also showed that consumers don’t go out and spend rebate money when they receive it. Instead, just as the received theory of consumption predicts, consumers smooth the spending increase, reserving most of it for future consumption, by saving it or using it to pay down debt. It raises their standard of living more than their immediate spending. It’s good news that most Americans do not have their backs to the wall financially, but it makes an income- tax rebate ineffective as a stimulus concentrated at the time most needed. Rather, rebates result in consumption incrases spread well into the future. The following graph, created by John Taylor in a recent op-ed, shows what happened last summer:

Tax cuts that reduce the prices of consumer goods temporarily
The most desirable time-concentrated stimulus would raise consumer spending during 2009 without changing it much in future years. The government lacks the power to compel consumers to spend more, so it must rely on a incentives. Britain has just cut its sales tax (VAT) by 2.5 percentage points for the next 13 months to provide a small incentive concentrated in the period when the recession is expected to be most severe.
Because the U.S. lacks a national sales tax or VAT, the logistics of a temporary consumption subsidy would be a little more complicated. The Kotlikoff-Leamer proposal would operate through state sales taxes. All but a few small states have sales taxes–the exceptions are Alaska, Delaware, Montana, New Hampshire and Oregon. Under the plan, the federal government would buy out sales taxes for the period of the needed stimulus, say the year 2009. The states without sales taxes or with low sales taxes would receive comparable federal funds to cut other types of taxes. Sales tax revenue is currently $440 billion per year, so the proposal would cost around half of what the Obama administration appears to be planning to spend on stimulus.
The plan needs to take effect soon after it is announced. The announcement will cause consumers to defer purchases until the tax cut takes effect. Similalry, toward the end, they will accelerate purchases and then buy less after the sales tax resumes. Phasing in the resumption might be a good idea.
Critics of consumer subsidies point out that some consumer goods are imported, so the stimulus benefits the producing country, not the U.S. Often that country is said to be China, though Japan is also a major source because of its dominance of the world car market. Given that the U.S. has pledged to engage in joint stimulus with its major trading partners, including China, the stimulus to the import source countries is entirely appropriate. But imports of consumer goods are only 18 percent of consumer spending on goods (excluding services), so the leakage into import stimulus is not a major consideration anyway.
We feel that a temporary elimination or reduction in sales taxes would be an effective stimulus to consumer spending, concentrated in the period when it is needed most and phased out later. It should be part of the stimulus plan.
Tax cuts to reduce the cost of labor
If the objective of a stimulus is to lift employment, why not operate directly on that margin, by lowering the cost of labor to employers? The federal government has a completely straightforward way to do this, because it levies a 7.65 percent rate on payrolls for virtually all employment. The tax yields just under $500 billion per year. Elimination of the tax for the year 2009 would provide a substantial incentive to employment concentrated during the year. As with the temporary removal of sales taxes, both anticipation effects and ending effects would occur.
One problem with the employment stimulus is that the funds go in the first instance to the owners of businesses and not to consumers generally. Ownership is highly concentrated in the U.S., so the distribution of the immediate benefits is skewed. By contrast, the consumer rebate can be directed to lower-income consumers because it is part of the income tax and the sales tax reduction at least is in proportion to purchases rather than business ownership.
If the response of employment to the payroll tax cut were strong enough, its contribution to the incomes of workers might be enough to overcome the disadvantage of its business-subsidy character. If business hiring responded aggressively to the subsidy, profits would decline as business put more output on the market and the winners would be workers rather than owners. Everything turns on the strength of the employment effect. But, alas, the strength of the effect depends on one of the most unsettled issues in macroeconomics, the role of supply increases in raising the quantity of output produced in the short run. One line of thought treats this issue just as one would in a standard market, where an increase in supply raises the quantity sold by the principles of the standard supply-and-demand diagram of elementary economics. Another line believes that special principles operate in the short run that makes demand the controlling factor–an increase in supply has little effect on the quantity sold in the short run in this view. We are among the few economists who regard this issue as still open. Most are doctrinaire believers in one or the other view. We are sufficiently concerned about the potential validity of the demand-limiting view that we are reluctant to state with confidence that a supply-based stimulus such as the payroll-tax suspension would have a large effect on employment.
Increase in construction spending by state and local governments
President-elect Obama supports federal funds for state and local construction projects as an element of a stimulus package. Increases in spending are plainly attractive because the response of state and local governments to the federal willingness to support projects is likely to be enthusiastic. Government units have backlogs of projects waiting for funding. The questions are how big are the backlogs, how quickly spending can accelerate, and how beneficial are the projects.
State and local construction spending is currently $300 billion per year. The Obama team is hard at work trying to find out how much of a backlog is “shovel-ready” in the President-elect’s neat phrase. We are not aware of any easy source for this information.
Timing may be a problem, as it was in the old days when these kinds of projects were called public works. Complicated projects take time to ramp up to high spending and employment levels. Some interstate repairs can be executed in a year, as was the case in rebuilding the collapsed I-35 bridge in Minneapolis last year and in re-opening earthquake-damaged freeways in Los Angeles in 1994, while it took many years to reopen all the damaged roads in San Francisco after the 1989 earthquake.
The president-elect has also mentioned less conventional spending programs, including broadband facilities and online medical records facilities.
All of these proposals for stimulating state and local spending suffer from a common problem–they will end up generating employment for highly specialized businesses and workers, rather than stimulating economic activity more broadly. The consensus of macroeconomists across the spectrum is that a spending stimulus raises total spending by between 1.0 and 1.5 times the amount of the direct increase in spending. The follow-on or multiplier effects are between zero and half the driect increase in spending. Thus a program that funnels money to construction firms and their workers mainly raises their incomes and employment levels and has relatively little effect elsewhere. Rebuilding aging interstates and upgrading the energy efficiency of public buildings calls for highly specialized skills. A large-scale infrastructure program will drive up the profits of the limited number of firms capable of doing this type of work and drive up the wages of the skilled workers who know how to do the work.
It’s hard to imagine that a significant fraction of the large stimulus under consideration for 2009 will take the form of state and local construction and other infrastructure spending. We are hoping that discussion of stimulus will not become sidetracked over this part of the program and neglect the opportunities to stimulate consumer spending broadly without complicated, detailed, and time-consuming decisions.
Conclusions
We foresee a mixture of stimulus policies for the coming year. Monetary policy can only a small further contribution. Income-tax rebates seem to have little support and would probably have relatively small effects within the year, with undesirable continuing effects in later years. We are enthusiastic about removing sales taxes for the year and perhaps somewhat longer, with a phaseout. We are not sure that an employment stimulus from a reduced business payroll tax would raise employment enough to be a contender as a stimulus and to prevent the flowing through of the funds to business owners rather than workers. We believe that some federal subsidies to state and local spending would make sense, but are concerned that too large a program would result in stimulus continuing past the time when it would be needed and that it would create excessive rents for contractors and skilled workers. Thus the sales-tax buyout seems to be the best way to spend the bulk of the stimulus dollars.
Possibly related posts: (automatically generated)
The Stimulus Package and the Prudent Man
The Great Depression - The Sequel ?
Experts: Economy Needs More Government Help
Middle-class tax cut may come soon
This entry was posted on December 8, 2008 at 9:33 am and is filed under Uncategorized. You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.

Keynes, o retorno
Luiz Gonzaga Belluzzo
09/12/2008
Dizem por aí que Keynes voltou à moda. Quando vejo e ouço alguns dos patrocinadores dessa ressurreição sinto calafrios. Nos anos 50, a professora Joan Robinson profligou o keynesianismo "bastardo", responsável pela divulgação de um Keynes caricatural, ideólogo dos déficits orçamentários e das políticas monetárias permissivas. Esse "straw man" está a exibir sua figura grotesca nas páginas de alguns manuais de macroeconomia e ou nas cabeças dos praticantes do ecocomics, o humorismo econômico de cheiro duvidoso.
Para compreender as recomendações de política macroeconômica - numa perspectiva keynesiana - é necessário examinar o processo de formação da renda, dos lucros, bem como a manutenção das condições de liquidez e de crédito. Consideremos a questão de forma simplificada: em momento de expectativas moderadamente otimistas e orçamento público equilibrado do ponto de vista intertemporal, um conjunto de empresas e de famílias, apoiado na expansão do crédito, realiza gastos de consumo e de investimento. Este conjunto de empresas e famílias está incorrendo em "déficit" financiado pelos bancos e por outros intermediários financeiros. O aumento do gasto promove o crescimento da renda da comunidade. Assim, um outro conjunto de empresas e famílias pode realizar um "superávit", expresso na acumulação de lucros, no aumento da poupança e, no caso de governos prudentes, no superávit fiscal.
O fluxo de lucros e a poupança, privada e pública, cuidam de garantir o serviço e estabilidade do valor das dívidas e dos custos financeiros. As poupanças decorrentes do novo fluxo de renda constituem o funding do sistema bancário e do mercado de capitais, que, em sua função de intermediários, promovem a validação do crédito e da liquidez (criação de moeda) "adiantados" originariamente para viabilizar os gastos de investimento e de consumo.
O aumento do investimento, do consumo e do endividamento enseja a hierarquização dos títulos de dívida e dos direitos de propriedade conforme os preços, à vista e futuros, estabelecidos diariamente nos mercados secundários. Isto significa que a economia deve gerar "déficit" e liquidez no presente para que as dívidas (novas e já existentes), assim como os direitos de propriedade, possam ser "precificados" conforme o estado de convenções prevalecente.
Os bons resultados do presente aplacam o medo do futuro. Embalados pelo otimismo quanto aos resultados dos novos empreendimentos, os espíritos animais atropelam qualquer consideração de prudência no afã de produzir nova riqueza e fontes de trabalho. O sucesso não acalma, senão excita o desejo, acelerando a febre de investimentos excessivos e mal dirigidos, bolhas especulativas nos mercados de ativos, tudo isso apoiado no endividamento imprudente e na inovação financeira. Os balanços se aproximam das posições "Ponzi" e a economia aderna para a "ruptura de expectativas". Nos mercados "securitizados" o sinal é dado pela contração da liquidez e, conseqüentemente, pela queda abrupta dos preços dos ativos.
Keynes escreveu a Teoria Geral para explicar um momento de "ruptura de expectativas" - a Grande Depressão - e não a ocorrência de simples flutuações cíclicas da economia capitalista. Nas flutuações cíclicas, a contração do investimento e do consumo deprime a acumulação interna das empresas e a renda das famílias, suscitando problemas de endividamento e risco que podem ser resolvidos com mudanças suaves na política monetária e na velocidade e intensidade do gasto público.
Nas crises, ocorre o colapso dos critérios de avaliação da riqueza que vinham prevalecendo. As expectativas de longo prazo capitulam diante da incerteza e não é mais possível precificar os ativos. Os métodos habituais que permitem avaliar a relação risco/rendimento dos ativos sucumbem diante do medo do futuro. A obscuridade total paralisa as decisões e nega os novos fluxos de gasto. Em tais circunstâncias, a tentativa de redução do endividamento e dos gastos de empresas e famílias em busca da liquidez e do reequilíbrio patrimonial é uma decisão "racional" do ponto de vista microeconômico, mas danosa para o conjunto da economia, pois leva necessariamente à ulterior deterioração dos balanços. É o paradoxo da "desalavancagem".
A riqueza concentra-se, agora, na posse do dinheiro em si (ou substitutos próximos, os títulos da dívida pública). Essa corrida privada para as formas imaginárias, mas socialmente necessárias, do valor e da riqueza vai afetar negativamente a valorização e a reprodução da verdadeira riqueza social, ou seja, a demanda de ativos reprodutivos e de trabalhadores. Diante da busca coletiva pela liquidez, os preços inflados dos direitos sobre a riqueza real - ações e dívidas privadas - despencam e, não raro, arrastam os preços de bens e serviços.
Para Keynes, a estabilização do investimento e a regulação da finança - com o propósito de impedir as flutuações agudas da renda e do emprego - deveriam estar inscritas de forma permanente nas políticas do Estado. A propósito das políticas de pleno emprego, diz ele numa resposta a James Meade: "Você acentua demais a cura e muito pouco a prevenção. A flutuação de curto prazo no volume de gastos em obras públicas é uma forma grosseira de cura, provavelmente destinada ao insucesso".
A geração de déficits monumentais e as políticas exasperadas de liquidez são "formas grosseiras" e danosas de sustentação do lucro macroeconômico e de proteção dos portfólios privados. A isso se resume o "keynesianismo" dos cobiçosos da finança e dos bonecos de ventríloquo do mercadismo. Empenhados, com suas arengas ineptas e interesseiras, em satanizar a intervenção preventiva do Estado, lançaram a economia global na voragem da desconfiança.
Diante da fuga desatinada para a liquidez e para a segurança, tornam-se inevitáveis o desequilíbrio fiscal, a ampliação do espectro de ativos privados a serem absorvidos pelo balanço do Banco Central e o crescimento do débito público na composição dos patrimônios privados. Resta torcer para que essas "formas grosseiras" impeçam o avanço do credit crunch, o aprofundamento da deflação de ativos e a queda da produção e do emprego.
Luiz Gonzaga de Mello Belluzzo, ex-secretário de Política Econômica do Ministério da Fazenda, e professor titular do Instituto de Economia da Unicamp, escreve mensalmente às terças-feiras. E-mail: BelluzzoP@aol.com


Monday, December 15, 2008
The Logic of Keynes in Today's World
Not long ago I was talking to someone who once had been a deficit hawk but the current recession had turned into a full-blooded Keynesian. He wanted a stimulus package in the range of $500 to $700 billion. "Consumers are dead in the water," he said, fervently, "so government has to step in." I agreed. But I didn’t tell him his traditional Keynesianism is based on two highly-questionable assumptions in today’s world, and the underlying logic of Keyenes leads us toward something bigger and more permanent than he has in mind.The first assumption is that American consumers will eventually regain the purchasing power needed to keep the economy going full tilt. That seems doubtful. Median incomes dropped during the last recovery, adjusted for inflation, and even at the start weren’t much higher than they were in the 1970s. Middle-class families continued to spend at a healthy clip over the last thirty years despite this because women went into paid work, everyone started working longer hours, and then, when these tactics gave out, went deeper and deeper into debt. This indebtedness, in turn, depended on rising home values, which generated hundreds of billions of dollars in home equity loans and refinanced mortgages. But now that the housing bubble has burst, the spending has ended. Families cannot work more hours than they did before, and won’t be able to borrow as much, either.The second assumption is that, even if Americans had the money to keep spending as before, they could do so forever. Yet only the most myopic adherent of free-market capitalism could believe this to be true. The social and environmental costs would soon overwhelm us. Even if climate change were not an imminent threat to the planet, the rest of the world will not allow American consumers to continue to use up a quarter of the planet’s natural resources and generate an even larger share of its toxic wastes and pollutants.This would be a problem if most of what we consumed during our big-spending years were bare necessities. But much was just stuff. And surely there are limits to how many furnishings and appliances can be crammed into a home, how many hours can be filled manipulating digital devices, and how much happiness can be wrung out of commercial entertainment.The current recession is a nightmare for people who have lost their jobs, homes, and savings; and it’s part of a continuing nightmare for the poor. That’s why we have to do all we can to get the economy back on track. But most other Americans are now discovering they can exist surprisingly well buying fewer of the things they never really needed to begin with.What we most lack, or are in danger of losing, are the things we use in common – clean air, clean water, public parks, good schools, and public transportation, as well as social safety nets to catch those of us who fall. Common goods like these don’t necessarily use up scarce resources; often, they conserve and protect them.Yet they have been declining for many years. Some have been broken up and sold as more expensive private goods, especially for the well-to do – bottled water, private schools, security guards, and health clubs, for example. Others, like clean air, have fallen prey to deregulation. Others have been wacked by budget axes; the current recession is forcing states and locales to axe even more. Still others, such as universal health care and pre-schools, never fully emerged to begin with.Where does this logic lead? Given the implausibility of consumers being able to return to the same level of personal spending as before, along with the undesirability of our doing so even if we could, and the growing scarcity of common goods, there would seem only one sensible way to restore and maintain aggregate demand. That would be through government expenditure on the commons. Rather than a temporary stimulus, government would permanently fill the gap left by consumers who cannot and should not be expected to resume their old spending ways. This wouldn’t require permanent deficits as long as, once economic growth returns, revenues from a progressive income tax refill the coffers.My friend the born-again Keynesian might not like where the logic of Keynesianism leads in today’s world, but the rest of us might take heart.
posted by Robert Reich 1:55 PM 27 comments



Saturday, December 20, 2008
Let the Rent Seeking Begin - mankiw
The Institutional Economics blog points to this story:
The Association of Zoos and Aquariums (AZA) today called for shovel-ready zoo and aquarium infrastructure projects to be eligible for Federal stimulus funding....Many zoos have their roots in the Great Depression, when the Federal Work Projects Administration (WPA) helped build many zoos across America.Of course, this lobbying is part of the political process. Whether the AZA gets the money it wants for new zoos will be up to the new administration and Congress. I am sure that the Obama transition team is now carefully evaluating many hundreds of billions of dollars of proposed spending projects and will, over the next few weeks, determine precisely which of these pass a cost-benefit test.As for me, I think dropping money out of a helicopter is looking better and better. (Or, more seriously, consider my federalist fiscal stimulus.)
permanent link



Roosevelt mostra caminho a Obama
São Paulo, sábado, 27 de dezembro de 2008
OS TEMPOS mudaram.Em 1996, o presidente Bill Clinton, sob ataque da direita, declarou que "a era do governo grande acabou".
Op-Ed Columnist - December 26, 2008
Barack Be Good
By PAUL KRUGMAN


Paul Krugman: Barack Be Good
How can the incoming administration manage to navigate the "treacherous political waters safely" as it attempts to rescue the economy?:



Op-Ed Columnist - Life Without Bubbles
Fred R. Conrad/The New York Times. Paul Krugman .... Clinton Moves to Bolster Role of State Department · Life Without Bubbles ...December 22, 2008 - By PAUL KRUGMAN - Opinion
23/12/2008
A vida sem bolhas
Paul Krugman
Independentemente do que o novo governo fizer, teremos pela frente meses, e talvez até mesmo um ano inteiro, de inferno econômico. Depois disso, a situação deverá melhorar, à medida que o plano de estímulo do presidente Obama - ok, me disseram que atualmente o termo politicamente correto é "plano de recuperação econômica" - for ganhando força. No final do ano que vem, a economia deverá começar a se estabilizar, e eu estou bastante otimista quanto a 2010.
Mas o que acontecerá depois disso? Neste momento todos estão falando a respeito de dois anos de estímulo econômico - o que faz sentido em termos de planejamento. Grande parte dos comentários econômicos que tenho lido parece dar a entender, no entanto, que isto é de fato tudo do que necessitamos. Que tão logo uma injeção de verbas modifique a direção da economia, nós retornaremos rapidamente à normalidade econômica.
Na verdade, porém, não há como as coisas simplesmente voltarem a ser como eram antes da crise atual. E eu espero que a turma de Obama entenda isso.
A prosperidade experimentada alguns anos atrás, da forma como era - os lucros eram ótimos, os salários nem tanto -, dependeu de uma enorme bolha imobiliária, que substituiu as bolhas anteriores do mercado de ações. E, como a bolha imobiliária não retornará, os gastos que sustentaram a economia nos anos anteriores à crise também não retornarão.
Ou, para ser mais específico: a grave crise do setor imobiliário que enfrentamos no momento um dia acabará, mas o imenso boom neste setor experimentado na era Bush não se repetirá. Os consumidores acabarão recuperando parte da confiança, mas eles não gastarão mais daquela forma que gastaram de 2005 a 2007, quando muita gente usou as suas casas como caixas eletrônicos, e os níveis de poupança caíram para quase zero.
Assim, o que sustentará a economia caso os consumidores cautelosos e os construtores de imóveis escaldados não estejam à altura da tarefa?
Há alguns meses, uma manchete no jornal nova-iorquino satírico "The Onion", como sempre sintonizado com os fatos, ofereceu uma possível resposta: "Nação flagelada pela recessão exige nova bolha na qual investir". Alguma coisa nova poderia surgir para alimentar a demanda privada, quem sabe gerando um boom em investimentos empresariais.
Mas um tal boom precisaria ser enorme, elevando os investimentos empresariais até uma percentagem historicamente sem precedentes do produto interno bruto, a fim de preencher o vazio deixado pelo recuo dos consumidores e do setor imobiliário. Embora isto possa acontecer, a impressão que se tem é de que não é algo com o qual se possa contar.
Uma rota mais plausível para a recuperação sustentada seria uma redução drástica do déficit da balança comercial dos Estados Unidos, que disparou ao mesmo tempo em que a bolha imobiliária crescia. Vendendo mais para outros países e gastando uma parcela maior da nossa renda com produtos feitos nos Estados Unidos, poderíamos alcançar o emprego pleno sem um boom de consumo ou de gastos em investimentos.
Mas provavelmente demorará muito até que os déficits da balança comercial diminuam o suficiente para compensar o estouro da bolha imobiliária. Até porque o crescimento das exportações estacionou após vários anos de bom desempenho, em parte porque os nervosos investidores internacionais, correndo em busca de ativos que consideram seguros, provocaram uma elevação do dólar em relação a outras moedas - tornando a produção estadunidense bem menos competitiva.
Além do mais, mesmo se o dólar cair novamente, de onda viria a capacidade para uma disparada da produção competitiva no setor de exportação e importação? Apesar da tendência de crescimento no setor de serviços, a maior parte do comércio mundial ainda se dá com mercadorias, especialmente produtos manufaturados - e o setor manufatureiro dos Estados Unidos, após ter sido negligenciado durante os vários anos nos quais o setor imobiliário e a indústria financeira foram favorecidos, terá que se empenhar muito para recuperar o tempo perdido.
De qualquer maneira, o resto do mundo pode não estar pronto para lidar com um déficit comercial norte-americano drasticamente menor. Conforme observou recentemente o meu colega Tom Friedman, grande parte da economia chinesa, em particular, baseia-se na exportação para os Estados Unidos, e terá muita dificuldade para transferir-se para outras ocupações.
Resumindo, chegar a um ponto no qual a nossa economia seja capaz de prosperar sem apoio fiscal pode ser um processo difícil e demorado. Conforme eu já disse, espero que a equipe de Obama entenda isso.
Neste momento, com a economia em queda livre e todo mundo apavorado com a possibilidade de uma Grande Depressão 2.0, os oponentes de uma vigorosa resposta federal estão encontrando dificuldade para obter apoio. John Boehner, o líder republicano na câmara, viu-se reduzido a usar o seu website para procurar "economistas norte-americanos credenciados" dispostos a adicionar os seus nomes a uma lista de "céticos quanto ao estímulo aos gastos".
Mas tão logo a economia fortaleça-se um pouco, o governo sofrerá muitas pressões para que recue, e para que jogue fora as muletas que sustentam a economia. E se o governo ceder muito rapidamente a tais pressões, o resultado poderá ser uma repetição do erro cometido por Franklin Delano Roosevelt em 1937 - o ano em que ele cortou os gastos públicos, elevou os impostos e fez com que os Estados Unidos mergulhassem em uma recessão grave.
O fato é que pode demorar mais do que muita gente pensa para que a economia dos Estados Unidos seja capaz de viver sem bolhas. E, até lá, a economia necessitará de muita ajuda governamental.
Tradução: UOL
Visite o site do The New York Times




What is to be Done? The End of the Washington Consensus
by Michael Hudson and Jeffrey Sommers
Global Research, December 13, 2008



December 25, 2008
Stiglitz: We Need Bold Action
Joseph Stiglitz doesn't think policymakers are likely to support a stimulus package that is large enough to avoid a "vicious negative spiral":
The dismal economist’s joyless triumph, by Joseph E. Stiglitz, Project Syndicate: ...Economists are good at identifying underlying forces, but they are not so good at timing. The dynamics are, however, much as anticipated. America is still on a downward trajectory for 2009 — with grave consequences for the world as a whole. ... ]
Stiglitz - Desvendando 2009 - O triste triunfo do economista lúgubre
JOSEPH E. STIGLITZDE NOVA YORK - folha, 29-12-2008
EU PREVIA há alguns anos que era apenas questão de tempo para que a bolha da habitação nos EUA -iniciada nos primeiros dias da década, com o apoio de um dilúvio de liquidez e de regulamentação frouxa- estourasse. Quanto mais a bolha se expandisse, maior seria a explosão e maior (e mais global) a desaceleração resultante. ... ... ... ....



Friday, December 26, 2008
Capitalist fools
Who is to blame for the current global financial mess? Joseph Stiglitz in this Vanity Fair classic identifies 5 key mistakes made by 3 US Presidents. (i) Appointing an anti-regulator (Alan Greenspan) to the position of Federal Reserve Chairman was a basic error - Greenspan did nothing to prick two asset market bubbles and refused to intervene to regulate derivative markets when many knew they were instruments of finamncial mass destruction. (ii) Tearing down the walls and repealing the Glass-Steagall Act which separated commercial banks (which lend) from investment banks (which organise the sale of bonds and equities). (iii) Applying the leeches - providing tax cuts to mainly upper income earners did little to stimulate the economy which was driven by a wash of liquidity and incentives which favoured capital gains over hard work. (iv) Faking the numbers proceeded partly through gaps in the Sarbanes-Oxley Act which excluded executive options gave firms incentives to fiddle the books and partly through the operations of rating agencies who were paid by firms whom they were rating - financial overseering failed. (v) Letting it bleed - the bailout package is a confidence trick that forces ordinary Americans to bailout the rich but which will fail to restart lending - the core issue. The issue to Stiglitz revolves around the need for regulation and for what I have elsewhere called the failure of free market fundamentalism:
The truth is most of the individual mistakes boil down to just one: a belief that markets are self-adjusting and that the role of government should be minimal. Looking back at that belief during hearings this fall on Capitol Hill, Alan Greenspan said out loud, “I have found a flaw.” Congressman Henry Waxman pushed him, responding, “In other words, you found that your view of the world, your ideology, was not right; it was not working.” “Absolutely, precisely,” Greenspan said. The embrace by America—and much of the rest of the world—of this flawed economic philosophy made it inevitable that we would eventually arrive at the place we are today. (my bold)



December 24, 2008
Keynes and Morality Plays
Paul Krugman says this is a "Great piece by Martin Wolf":
Keynes offers us the best way to think about the financial crisis, by Martin Wolf, Commentary, Financial Times: ...Like all prophets, Keynes offered ambiguous lessons to his followers. ... Now,... in another era of financial crisis and threatened economic slump, it is easier for us to understand what remains relevant in his teaching. I see three broad lessons. ...



"Economists' Pretensions About Science"
Gavin Kennedy continues his crusade against the myth of the invisible hand:
An Evolutionist Speaks Out About Economists' Pretensions About Science, by Gavin Kennedy: Massimo Pigliucci, professor in the departments of Ecology and Evolution, Stony Brook, NY, contributes an important piece of work in the Blog, Rationallyspeakingout.org (‘a site devoted to positive scepticism') (here):



Hawkish Fiscal Policy
Martin Feldstein argues that military spending should be part of the stimulus package:
Defense Spending Would Be Great Stimulus, by Martin Feldstein, Commentary, NY Times: The Department of Defense is preparing budget cuts in response to the decline in national income. The ... budgeteers ... apparently reason that a smaller GDP requires belt-tightening by everyone.



Lucas: Monetary Policy Can Still be Effective
Robert Lucas says monetary policy can still effectively stimulate new spending even though the target interest rate is already at or near zero, and that monetary policy is preferable to fiscal policy:
Bernanke Is the Best Stimulus, by Robert E. Lucas Jr., Commentary, WSJ: The Federal Reserve's lowering of interest rates last Tuesday was ... received with skepticism. Once the federal-funds rate is reduced to zero, or near zero, doesn't this mean that monetary policy has gone as far as it can go? This widely held view was appealed to in the 1930s to rationalize the Fed's passive role as the U.S. economy slid into deep depression.


Feldstein on Defense Spending

Robert Lucas on the Economy

A Question about Learning Economics


"An Eisenhower Moment" for Infrastructure?
What can the incoming administration learn about infrastructure spending from Eisenhower's experience in creating the interstate highway system?:
Eisenhower's roads to prosperity, by Tom Lewis, Commentary, LA Times:


December 24, 2008, 11:55 am — Updated: 11:55 am --> krugman
Wages and employment, again
Just a quick question for those who think that FDR prolonged the Great Depression by preventing a fall in nominal wages: what would be the benefits, right now, if the United States were to implement a Latvian program and cut everyone’s wages by, say, 15 percent?


December 25, 2008, 2:18 pm — Updated: 2:18 pm --> krugman
The second Great Depression has arrived …
…. in Ukraine.
From Edward Hugh:



The Remedist
By ROBERT SKIDELSKY - December 12, 2008
Why John Maynard Keynes is the man of the year.
Among the most astonishing statements to be made by any policymaker in recent years was Alan Greenspan’s admission this autumn that the regime of deregulation he oversaw as chairman of the Federal Reserve was based on a “flaw”: he had overestimated the ability of a free market to self-correct and had missed the self-destructive power of deregulated mortgage lending. The “whole intellectual edifice,” he said, “collapsed in the summer of last year.” ..... ..... ..... ...... .....
Times Topics: John Maynard Keynes




The 8th Annual Year in Ideas Issue
Welcome back to the Year in Ideas issue. For the eighth year in a row, we have compiled an alphabetical digest of ideas, from A to Z (almost), that helped make the previous 12 months, for better or worse, what they were.



Folha, 20-12
Crise faz despertar debate sobre Keynes
Em ano turbulento, ganha força defesa do economista britânico por intervenção do Estado para assegurar o emprego
Medidas de aumento do gasto público, porém, podem não surtir efeito e ameaçar equilíbrio fiscal de países, alertam críticos
MARIA CRISTINA FRIASDA REPORTAGEM LOCAL
Num ano cheio de surpresas, é interessante notar o "revival" do keynesianismo nas páginas de jornais e de relatórios de analistas estrangeiros.
Até o colapso dos preços dos ativos e a recessão global neste ano, nove entre dez estrelas do mercado financeiro nutriam um certo desprezo pelo economista britânico John Maynard Keynes (1883-1946).
Muitos novos economistas formam-se hoje com poucas informações sobre o barão defensor da intervenção do poder público para assegurar o pleno emprego e sobre idéias hostis à política deflacionista (de redução do excesso de papel-moeda em circulação), em geral.
"Você notou que curioso o termo "reflação'? Fui até pesquisá-lo", confidencia um jovem economista de um banco estrangeiro, sobre um relatório da instituição que alertava para os riscos de reflação, em meio a déficits fiscais mais elevados.
A reflação é uma política econômica que visa à retomada do crescimento pelo estímulo à demanda. Batizada no período recessivo e deflacionário dos EUA, nos anos 1932-33, caracteriza-se pelo aumento da circulação monetária, da produção e dos preços, em seguida a uma recessão ou depressão.
Keynes enfatizava a importância da demanda agregada para o nível de produto e emprego, e a necessidade de o governo estimular a demanda em situação de recessão. Defendia políticas fiscal e monetária que favorecessem a propensão a consumir, com mais investimentos públicos e privados.
A lista de surpresas do ano é longa: a ruína ou, ao menos, o forte abalo de instituições financeiras veneradas; os pacotes de ajuda de vários governos, anúncios de aumentos de gastos públicos, impensáveis no começo do ano; Bolsas despencaram; recessão nos países desenvolvidos; preços de commodities afundaram e índices de confiança também; fim do sonho do "descasamento" (de desaceleração restrita aos EUA).Para sair rápido da recessão que se abateu sobre o mundo desenvolvido, muitos analistas se lembram do britânico.
Keynes, que enriquecera com um fundo de "hedge", foi, ele próprio, uma vítima do colapso dos preços das commodities em 1929. Entendeu que, se uma mudança de expectativas gerasse queda forte nos preços dos ativos (inclusive ações e imóveis), o investimento e o emprego cairiam.
Edmund Phelps, prêmio Nobel de Economia, considera um erro de Keynes não distinguir uma queda de preços causada por motivos monetários de uma queda por fatores que pouco ou nada têm a ver com oferta e demanda de dinheiro: a primeira queda pode ser resolvida por medidas monetárias de banco central, a outra, não.
Keynes enfatizava que a demanda de consumo e o investimento pelo Estado ou empresas estatais favoreceriam o emprego. Para Phelps, o estímulo seria sentido mais no exterior.
"Na economia globalizada, demanda ampliada em última análise faz pouco mais que gerar alta de juros e reduzir o preço dos ativos", escreveu no "Financial Times". "A presença muito forte do governo no setor de investimentos poderia restringir a inovação. E ficaríamos em recessão, da mesma forma."Para Peter Hall, do Export Development Canada, "medidas keynesianas deixaram uma herança de déficits fiscais e dívidas do período pós-guerra".
"O conselho famoso de substancial intervenção estatal provou-se tão potente que foi difícil suspender os programas de gastos temporários", escreveu em relatório da instituição.



Keynes' comeback
By Scot Lehigh
Globe Columnist / December 31, 2008





Can the US economy afford a Keynesian stimulus?
January 5, 2009
TEXTO MEIO GRANDE



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