Krugman on the Fed’s “Taper”
In his last blog post, Krugman is astounded that there are actually economists applauding the Fed’s recent announcement that it will exit its bond-buying sooner than previously thought–i.e. that it will “taper” QE. Speaking of the case that these pro-tapering economists make, Krugman writes:
One of the odd things about the people arguing that we must raise interest rates to head off bubbles — Raghuram Rajan, Martin Feldstein, the BIS, and so on — is the near-universal assertion among this group that just a little rate increase can’t do any real harm. (Just a thin little mint). After all, rates are so low!
As I’ve argued, this is a novel economic principle; where else do we argue that demand curves (in this case the demand for investment) are vertical at low prices? [Bold added.]
Actually, it’s not novel at all. It’s just like Krugman arguing that an increase in the minimum wage wouldn’t boost unemployment–which means that demand curves for labor are vertical at low wages. Your rhetorical question has been answered, Dr. Krugman!
Less sarcastically: Where is this “near-universal” assertion that an increase in interest rates won’t hurt the economy? In his recent pro-taper op ed, for example, Feldstein writes: “The higher interest rates that followed the Fed’s announced plans for tapering its bond-buying will further weaken GDP and employment.”
I also skimmed the BIS statement (which Krugman had linked in an earlier, incredulous, post) and saw no example of this “near-universal” assertion.
I’m not denying somebody said it, but I’d like to see it to evaluate it.
“More sooner”?
Shh. He’s on a roll.
I think I was originally typing “more quickly,” then got distracted, and decided “sooner” would be better–but I forgot to get rid of the “more.” In any event, my preferred outcome would be for Bernanke to end QE most soonest.
Oh man, that’s like a RT. Haha.
Do that exact same thing all the time myself.
Isn’t that a reference to the gag where the fat guy keeps eating and eating and then after he has eaten a massive amount they try to put one more wafer thin after dinner mint into him and he explodes?
So the suggestion is that we have been raising interest rates and raising interest rates, and now we want to raise interest rates just a little bit more until it all falls apart. Except that in reality the situation is the complete opposite of what Krugman is making out here (that’s normal I know, still annoying).
Tel,
Here is Mr. Creosote in all of his considerable glory. (French subtitles, no extra charge.)
http://www.dailymotion.com/video/xd0rg9_monty-python-mr-creosote_fun#.Udt_fKw1Bac
The bulk of Austrians would recommend presenting him with the bill and stop feeding him so his recovery could begin. Of course, the Stiglitz/Krugman/LK crowd would tear up his cheque and NOT OFFER him a wafer thin mint, but rather force feed accelerating quantities down his gullet with the aid of a metred industrial hose and perhaps a plumber’s helper so that his GDP/waistline could continue to grow at their approved rate..
You are all, of course, invited to speculate as to the effect of a minimum wage hike on the employment opportunities for the saintly washerwoman.
Yours in elevated discourse.
Yes, that’s the one I was thinking of, thanks.
Mr Creosote does make a good icon for Keynesian “aggregate demand”. If only we could get people to consume more, hmmm, that would fix the economy.
Krugman is taking inflation into consideration. According to Peter Schiff, the Big Mac is the proper measure of inflation. Which means we’ve had an annual rate of inflation of 6.25%/year since 2004. Minimum wage now is $7.25 which means adjusted for inflation it is 4.20 in 2004 dollars. The minimum wage in 2004 was $5.85. So the real minimum wage has been cut 29% during the past 9 years. Even if the minimum wage is raised to $10/hour, employers are paying their employees less than they did in 2004 in real dollars.
Do you think a higher min wage would be beneficial?
zzzzzzzz
http://mises.org/daily/6389/
This has nothing to do with the Minimum Wage and everything to do with inflation. Had the central banks of the world not embarked on this massive spree of debt creation and had a modicum of austerity then the poorest among us who depend on meager wages would be better off as their wages would purchase more stuff. And to add insult to injury, after the inflation has eaten away at the value of their wages, these same poor people must shoulder the burden of government and its multi-hundred trillion dollar unfunded liabilities the vast bulk of which go to middle and upper class people who earn far more than the Minimum Wage.
So the problem is that the minimum wage has not kept up with the 6.25% real price inflation (Hey LK, how come those Big Mac prices aren’t “sticky”?), so we must raise the minimum wage. Not the inflationist policies of our wise ovelords and central bankers. That’s like saying “I read somewhere that smoking is bad for you, so I stopped reading”.
No, the problem here is that our overlords purposely manipulate price inflation numbers by excluding things that tend to go up in price as a result of money printing. This so they can continue their scheme.
Monetary inflation always involves a transfer of wealth from the lower incomes to the highest.
PS: The Big Mac price is also the best way to judge the exchange rates between currencies 🙂
But don’t you see that price increases in assets that aren’t part of the CPI cannot be called inflation? Dummy.
http://mikenormaneconomics.blogspot.com/2013/07/lee-adler-heres-why-qe-isnt-money.html
Ah, yes, i always dreamed about owning one of these “Big Mac” assets…
PK: One of the odd things about the people arguing that we must raise interest rates to head off bubbles — Raghuram Rajan, Martin Feldstein, the BIS, and so on — is the near-universal assertion among this group that just a little rate increase can’t do any real harm.
He would know…
“Meanwhile, economic policy should encourage other spending to offset the temporary slump in business investment. Low interest rates, which promote spending on housing and other durable goods, are the main answer.” – Krugman, 2001.
“Low interest rates, which promote spending on housing and other durable goods, are the main answer.” – Krugman, 2002.
“To be honest, a new bubble now would help us out a lot even if we paid for it later. This is a really good time for a bubble…There was a headline in a satirical newspaper in the US last summer that said: ‘The nation demands a new bubble to invest in” And that’s pretty much right.’ – Krugman, 2009.
This dude wants bubbles, and he wants them nowALWAYS.
For progressives, it’s a slightly more difficult decision: They want universal care, and they want the president to succeed — but the proposed legislation falls far short of their ideal. There are still some reform advocates who won’t accept anything short of a full transition to Medicare for all as opposed to a hybrid, compromise system that relies heavily on private insurers. And even those who have reconciled themselves to the political realities are disappointed that the bill doesn’t include a “strong” public option, with payment rates linked to those set by Medicare.