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Old 09-02-2011, 04:15 PM
Parallax Parallax is offline
Join Date: May 2011
Posts: 219
Default Re: Booze and Money (Tim Fernholz & Megan McArdle)

Originally Posted by sugarkang View Post
This is a good point as far as the Fisher / Rogoff treatment. However, accusing Megan of poor journalism for dismissing hyperinflation is actually weird when you step back from the plain logic of the argument. Also, Krugman already suggested targeting 5% inflation at MIT in January. There were crickets in the room from the other distinguished economists. I'd say it's pretty unfair to call this a journalism problem.
The journalism problem is not that she opposes 6% inflation, the journalism problem is that he discredits Rogoff for personal ideological biases.

While I certainly understand the argument in favor of inflation, don't you think it's a problem that the government has been disincentivizing and punishing traditional saving for decades? Remember when saving was the responsible thing to do and people who took risky bets needed to suffer the consequences? At some point, that's the policy we should return to.
That is the puritanical spirit!

First of all the US government has not punished traditional savings for decades. Look at inflation in the past 30 years, it has been in steady decline throughout that period. And secondly I don't see an inherent reason for saving being better than borrowing. If anything one of the roots of the crisis was that on a global scale we had too much savings. Why are we now pushing for the Yuan to appreciate against the dollar? Because it would make the Chinese to save less and spend more.

She could just as easily load up on TIPS if inflation were imminent.
The yield on 5-year TIPS is -0.93% and the 10-year TIPS stands at -0.05%. So if she buys TIPS, she is basically paying the US government to hold on to her money. Hardly an investment that a libertarian would undertake with an easy conscious.

The only people that are absolutely sure about this seem to be Keynesians. And yet, Europe renounced Keynes and went for austerity. Japan just appointed a new PM who seems to be in favor of austerity. I don't think it's that clear, even if I, personally, favor spending now.
No, actually the opposite is true. Among economists the only people that are for hard money right now are the gold standard, anti-Fed fringe who secretly think deflation is a good thing. This narrow section is now being enabled by politicians who wish the economy to stay depressed until the election. If you are looking for prominent economists on the right calling for more aggressive monetary policy you can check out Greg Mankiw and Scott Sumner for starters.

EU, Japan and your preferences are politics. US might very well choose a president that is against any kind of monetary and fiscal stimulus as well. It does not make it the right policy. The point is that austerity might get you elected but it does not work when you look at the economics.

What do you mean by this?
She says if US keeps selling large quantities of treasuries there is a point at which the market won't want anymore of it causing the price of US debt to fall and hence raising US borrowing costs catastrophically. However reality is not very kind to her wild fantasies: 10-year treasury now yields +2.01%.
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