Suffice to say that their forecasts are no better than others, and none are very accurate

From Free Exchange: My kidney stone is making me harsher:

"Romer roundtable: Think, plan, and tell us the plan

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Economist.com | WASHINGTON

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Romer roundtable

Allan H. Meltzer is a professor of political economy at Carnegie Mellon University, and the author of “A History of the Federal Reserve”. This discussion can be followed in its entirety here.

CHRISTINA ROMER makes two traditional mistakes. First, like generations of policymakers before her, she counsels "trust us". They will know the right time to change from stimulus to restraint. There is no factual basis for "trust us". If policymakers at the Fed and in the government had the ability to time their actions appropriately, we wouldn't be in this mess. For it was they who allowed banks to circumvent the Basel regulations, that permitted Fannie and Freddie to expand beyond any reasonable standard, that brought us too big to fail and, as John Taylor has shown, abandoned a policy that brought us almost 20 years of the Great Moderation. Suffice to say that their forecasts are no better than others, and none are very accurate. Short-term judgments are often wrong and misleading. Best to avoid them.

Second, like most other defenders of this inflationary, low productivity policy, Christina puts the choice as whether we act against recession now or against inflation now. That leaves out a multitude of options. Two of my former colleagues won the Nobel prize for showing that it is much better to think now about the policy problem that lies ahead. Yes, avoid the mistake of doing what seems urgent today while neglecting the longer-term consequences that will be the problem of the future. Much better to think about the path the economy will be on; yes, stimulate now to reduce unemployment, but avoid creating a big inflation in a year or two. And even announce in advance how you propose to reduce the high money growth rate and the excessive deficits. Don't just say you'll do it, think, plan, and tell us the plan.

Further, the administration agreed to a terrible stimulus package. Our long-term problem is to slow the growth of consumer spending, so that we can export more to service the debt we sold to foreigners. That calls for more investment and higher productivity growth. Cap and trade, health care, and the so-called stimulus either tax businesses to subsidise consumers or simply shift resources to consumption. Keynesians should read Keynes. He opposed spending to increase consumption; he favoured planning to increase investment. And if they can't stomach Milton Friedman, they should read Franco Modigliani, a leading Keynesian. Both showed that temporary tax reduction was an inefficient stimulus programme."

Me:

Don the libertarian Democrat wrote:

June 19, 2009 0:35

This post confuses me:
1) Don't trust govt officials
2) Don't trust forecasts
3) Don't trust short term judgments
4) Don't trust academics when they become policymakers
And yet:
1) Trust two Nobel Prize winners. After all, they're Nobel Prize winners, and they have shown that, paradoxically, we can't trust forecasts. But, if we do, the farther off they are in time, the better.
2) You can trust John Taylor's policies. By the way, who administered this policy? That the Great Moderation could be based on the fact that we allowed all these other policies mentioned, which occurred at the same time, is a priori false. In other words, the Great Moderation can't be the Great Forestalling.
3) Trust Keynes, Friedman, and Modigliani. Read them, and you'll be enlightened.

Essentially, the author lists four categories of mistrust, all of which he and the people who agree with him are immune to. The basis of his argument is: Trust Me.

By the way, if you subsidize consumers, and they then purchase goods, isn't somebody profiting from that? I would think that the problem is really that you borrowed money for the plan, not that people spent the money that you gave them. That's how businesses make money. Selling goods.

"That calls for more investment and higher productivity growth"

I agree. That's why we have tax incentives for investment during a recession. That's a stimulus. It's an incentive for investment.

"That leaves out a multitude of options."

That's how we make decisions. We narrow the list down. We don't keep expanding it.

"Short-term judgments are often wrong and misleading. Best to avoid them"

How do you do that? It's a temporal paradox.

What exactly is the factual proof that we should trust Allan Meltzer?

Ben Bernanke presented testimony this morning in which he seconded some of Wolf’s points

From The Bellows:

"What’s Bernanke Getting At?

• Posted by ryan on June 3rd, 2009 filed in Economics
• 
  

As you know, I’ve been following the ongoing debate over the extent to which markets are nervous about American government debt levels, which may or may not betoken inflation to come and/or a crowding out of private investment and/or a dollar run. Martin Wolf has a relatively new column up which, in my view, levels the arguments of those like Niall Ferguson and John Taylor, who see disaster at the doorstep. As Wolf says, there is very little in interest rates to indicate a fear of runaway inflation or a crowding out of private investment.

Ben Bernanke presented testimony this morning in which he seconded some of Wolf’s points — most notably, he suggested that slack in the system would persist for some time, making near-term inflation extremely unlikely. But he also attributed the recent rise in long-term Treasury to concern over deficits, at least in part. And, he had this to say:

Certainly, our economy and financial markets face extraordinary near-term challenges, and strong and timely actions to respond to those challenges are necessary and appropriate. Nevertheless, even as we take steps to address the recession and threats to financial stability, maintaining the confidence of the financial markets requires that we, as a nation, begin planning now for the restoration of fiscal balance. Prompt attention to questions of fiscal sustainability is particularly critical because of the coming budgetary and economic challenges associated with the retirement of the baby-boom generation and continued increases in medical costs. The recent projections from the Social Security and Medicare trustees show that, in the absence of programmatic changes, Social Security and Medicare outlays will together increase from about 8-1/2 percent of GDP today to 10 percent by 2020 and 12-1/2 percent by 2030. With the ratio of debt to GDP already elevated, we will not be able to continue borrowing indefinitely to meet these demands.

Addressing the country’s fiscal problems will require a willingness to make difficult choices. In the end, the fundamental decision that the Congress, the Administration, and the American people must confront is how large a share of the nation’s economic resources to devote to federal government programs, including entitlement programs. Crucially, whatever size of government is chosen, tax rates must ultimately be set at a level sufficient to achieve an appropriate balance of spending and revenues in the long run. In particular, over the longer term, achieving fiscal sustainability–defined, for example, as a situation in which the ratios of government debt and interest payments to GDP are stable or declining, and tax rates are not so high as to impede economic growth–requires that spending and budget deficits be well controlled.

I’m not quite sure how to interpret this. On the one hand, it seems clear that reduced debt levels would make his life easier, and politically speaking, it will be difficult (in my view) to pass additional deficit-funded measures in the short-term without identifying some clear new revenue stream to be tapped to eventually pay for the program. On the other hand, Bernanke sure does seem to be making his policy preferences known in ways I don’t much like. This testimony will be ammunition for the Fergusons out there, who have failed to find much support in bond markets. If it seems clear that current deficits aren’t excessively inflationary and aren’t crowding out private investment, and new stimulus — in the form of unemployment benefit extensions, say — is deemed necessary to prevent the economy from tipping once more into a rapid rate of decline, then I’d like the government to have a free hand to do what needs to be done. Instead, we’ll have a bunch of blue dogs out there waving the text above.

The bottom line is this — the issue of long-run budget sustainability is actually of crucial importance. It should be part of the ongoing policy conversation. It should not be the beginning and end of the conversation, given the broader problem of economic weakness. But that’s increasingly the way these discussions are playing out. Bernanke must have known that his take on deficits would be splashed across news sites everywhere, reinforcing a meme that’s been pushed by conservatives in recent weeks. He must have known that his advisement that debt levels could be a major problem in the future would be interpreted by the press as a belief that debt levels are a major problem right now.

For someone with his background, and his awareness of the history of the Great Depression, I find this to be a very confusing and unfortunate move."

Me:

1. Don the libertarian Democrat Says:
   June 3rd, 2009 at 3:22 pm

   In order for QE to work, people must believe that Inflation is coming. That’s more important than worrying about Hyperinflation or its trumpeters, at least at this point. What he’s doing and saying makes sense.

1. Don the libertarian Democrat Says:
   June 3rd, 2009 at 3:30 pm

   I should have said that we want people to believe that inflation is coming down the road a ways. The trumpeters are serving a useful purpose, by going on about runaway inflation down the road. Right now, we want low interest rates. The current spreads are the desired result that we’re looking for. That’s why QE is working.