More Stimulus Skeptics for Lunar

[Bono]

The good folks at the Heritage Foundation have compiled a few prominent ones. John Bates Clark Medal recipient, Nobel laureate, and University of Chicago economics professor Gary Becker, Mercatus Center Financial Markets Working Group member Arnold Kling, New York University economics professor Thomas Sargent, Harvard University economics professor Greg Mankiw(though this one is admittedly tentative), University of Chicago School of Business finance professor Eugene Fama, George Mason University economics professor Russ Roberts, Naval Postgraduate School, economics associate professor David Henderson, U.S. Court of Appeals for the Seventh Circuit judge Richard Posner and Stanford University economics professor John Taylor.

I'd ask you to retract your statement that no PhD economist didn't support the stimulus, but really I know better than to expect you to ever admit you were wrong.

[Jacobtm]

Any info about what alternatives (if any) these people support?

One I know (Robert Lucas, who wasn't listed) supported the Fed using billions (maybe more) to buy up all the "troubled assets" out there to clear up the system, in hopes of allowing credit to flow freely. Is there any general consensus around this idea, or does everyone have their pet plans about how to fix this issue?

http://online.wsj.com/article/SB122999959052129273.html

[Bono]

Any info about what alternatives (if any) these people support?

One I know (Robert Lucas, who wasn't listed) supported the Fed using billions (maybe more) to buy up all the "troubled assets" out there to clear up the system, in hopes of allowing credit to flow freely. Is there any general consensus around this idea, or does everyone have their pet plans about how to fix this issue?

http://online.wsj.com/article/SB122999959052129273.html

Yea, I didn't say anything about Lucas because he wasn't listed in the list I got these from and I had already posted that article in this forum before, so I'd be repeating myself anyway (not that I don't do that a lot).
Lucas' plan is pretty good, though I'd add to it that banks which are clearly insolvet instead of simply illiquid should be allowed to fail. Clogging the financial system with zombie banks is not something anyone should want, and you only need to look at Japan to know why.

[Jacobtm]

I wonder if anyone actually favors the idea of letting the recession take it's natural course. Even the most economically conservative/libertarian people seem to just be advocating for huge tax cuts (which just amounts to more gov't debt). The whole point of capitalism really is that the economy remains dynamic by purging those who can't compete and allowing only the most efficient to survive.

Of course, no one is willing to sacrifice 10%+ unemployment for future efficiency...

[Bono]

I wonder if anyone actually favors the idea of letting the recession take it's natural course. Even the most economically conservative/libertarian people seem to just be advocating for huge tax cuts (which just amounts to more gov't debt). The whole point of capitalism really is that the economy remains dynamic by purging those who can't compete and allowing only the most efficient to survive.

Of course, no one is willing to sacrifice 10%+ unemployment for future efficiency...

Well, Lucas's point is just that money needs to be pumped in to avoid deflation, and buying troubled assets is a good way to do it because it kills two birds with one stone--it pumps money into the system and helps the banking system gain liquidity. If this is done without picking favorites, then this doesn't really affect the 'real' side of the economy, only the nominal, and so they are effectively saying that the recession should be allowed to run its course until the market adjusts. Keeping a stable price level actually helps the market do this. Lucas isn't advocating this in order to increase aggregate demand, he knows bettar than that--he just wants to prevent nominal problems from affecting the real economy. The one problem I see with this plan is that I don't trust the fed to sterilize all this money when the economy kicks into gear again and the money multiplier starts accelerating, so a lot of inflation could be in the horizon.

[Sam Spade]

I wonder if anyone actually favors the idea of letting the recession take it's natural course.

(raises hand)

Along with re-instituting certain securities regulations and either regulating or eliminating the shadow derivatives markets.

Putting troubled assets on the Fed's balance sheet is an amusing solution that will not work and probably makes the problem even worse because when those assets pop, guess who's backing it...

If someone can wake up to the fact that the problem is not a problem of liquidity, maybe we can get somewhere.  I'm not holding my breath.

[Bono]

I wonder if anyone actually favors the idea of letting the recession take it's natural course.

(raises hand)

Along with re-instituting certain securities regulations and either regulating or eliminating the shadow derivatives markets.

Putting troubled assets on the Fed's balance sheet is an amusing solution that will not work and probably makes the problem even worse because when those assets pop, guess who's backing it...

If someone can wake up to the fact that the problem is not a problem of liquidity, maybe we can get somewhere.  I'm not holding my breath.

Sam, you miss the fact that the Fed can print money out of nothing. If those assets "pop" as you say, the fed can just print more money to make up for that.

[Sam Spade]

I wonder if anyone actually favors the idea of letting the recession take it's natural course.

(raises hand)

Along with re-instituting certain securities regulations and either regulating or eliminating the shadow derivatives markets.

Putting troubled assets on the Fed's balance sheet is an amusing solution that will not work and probably makes the problem even worse because when those assets pop, guess who's backing it...

If someone can wake up to the fact that the problem is not a problem of liquidity, maybe we can get somewhere.  I'm not holding my breath.

Sam, you miss the fact that the Fed can print money out of nothing. If those assets "pop" as you say, the fed can just print more money to make up for that.

Bono, you miss the point that when you try the game of printing money, the bond market calls your bluff and revolts in your attempt to devalue the currency.  In fact, it'll probably do it when the assets pop before you have the chance to actually print.

Go watch what's going to happen in England soon.

[Jacobtm]

Sam, you miss the fact that the Fed can print money out of nothing. If those assets "pop" as you say, the fed can just print more money to make up for that.

Not true in any sense.

If you actually mean that we print more physical bills, increasing the money supply that way, it just leads to inflation and dillutes everyone else's wealth. In the case of bailing out banks, banks benefit at everyone else's loss.

If you mean simply using money the fed already uses in open-market operations, then buying up bad debt form banks means giving them cash in return for securities that may turn out to be worthless, meaning the Fed is simply giving away their money, or trading dollars for pennies.

[Bono]

To both of you:
Of course in normal conditions increasing the monetary base leads to inflation--but it should be obvious that this isn't true when the broader monetary aggregates are declining. When that happens, printing more physical money becomes necessary to compensate that fall and mantain stable prices.
Moreover, as George Selgin argues and I think he may be on to something, give labor market rigidities--both natural and government imposed--it would be best if in times of falling productivity there is inflation and deflation in times of rising productivity. In my view this was Greenspan's biggest mistake: not recognizing that the possibility of deflation in the early 2000s wouldn't be a malignant deflation driven by a collapse of the money supply, but a benign deflation of the sort the US experiences for most of the late 19th century, a product of unparalleled economic growth.
But I'm getting distracted. The jist of my point is--if the broader monetary aggregates are falling, you should print money to avoid malignant deflation, and this can be done without any repercussions. If the broader monetary aggregates aren't falling, then there is no need to do anything except let the broke banks go under and if necessary print money to compensate the contribution of that particular bank to the money supply.

What is vital, and I can't stress this enough, is that the fed gets these dollars out of circulation as soon as the economy shifts back in gear again. They can do this by selling foreign currency or bonds--the latter of course being especially good because it would discourage government spending at a time when the propensity for it would be great.

[Sam Spade]

To both of you:
Of course in normal conditions increasing the monetary base leads to inflation--but it should be obvious that this isn't true when the broader monetary aggregates are declining. When that happens, printing more physical money becomes necessary to compensate that fall and mantain stable prices.
Moreover, as George Selgin argues and I think he may be on to something, give labor market rigidities--both natural and government imposed--it would be best if in times of falling productivity there is inflation and deflation in times of rising productivity. In my view this was Greenspan's biggest mistake: not recognizing that the possibility of deflation in the early 2000s wouldn't be a malignant deflation driven by a collapse of the money supply, but a benign deflation of the sort the US experiences for most of the late 19th century, a product of unparalleled economic growth.
But I'm getting distracted. The jist of my point is--if the broader monetary aggregates are falling, you should print money to avoid malignant deflation, and this can be done without any repercussions. If the broader monetary aggregates aren't falling, then there is no need to do anything except let the broke banks go under and if necessary print money to compensate the contribution of that particular bank to the money supply.

What is vital, and I can't stress this enough, is that the fed gets these dollars out of circulation as soon as the economy shifts back in gear again. They can do this by selling foreign currency or bonds--the latter of course being especially good because it would discourage government spending at a time when the propensity for it would be great.

I'm not disagreeing with your diagnosis of the problem one bit, Bono.  Your solution sounds a lot like what I heard out of Soros' mouth in an article I read a couple of days (with the same concern of getting the money out of the market quickly).

But your solution does have malignant repercussions.  Namely in that the bond market is going to stop purchasing your debt (or start selling your debt) when you start devaluing the currency through printing.

Additionally, with the amount of debt that is presently being destroyed, the amount of money that would have to be placed into the economy vis-a-vis printing numbers in the multiple trillions of dollars.

Also, a 19th century-type deflation is unlikely to occur in the US because we don't have an export-based economy like we did back then.  China/Japan are your present examples of that situation, and deflation is always a concern over there.

[Bono]

And here's a few more, especially for my favorite partisan hack. Robert Barro, Arthur Laffer, and Larry Lindsey.

[○∙◄☻¥tπ[╪AV┼cVê└]

I wonder if anyone actually favors the idea of letting the recession take it's natural course.

(raises hand)

Along with re-instituting certain securities regulations and either regulating or eliminating the shadow derivatives markets.

Putting troubled assets on the Fed's balance sheet is an amusing solution that will not work and probably makes the problem even worse because when those assets pop, guess who's backing it...

If someone can wake up to the fact that the problem is not a problem of liquidity, maybe we can get somewhere.  I'm not holding my breath.

Sam, you miss the fact that the Fed can print money out of nothing. If those assets "pop" as you say, the fed can just print more money to make up for that.

That's not how the Fed works.

[Bono]

I wonder if anyone actually favors the idea of letting the recession take it's natural course.

(raises hand)

Along with re-instituting certain securities regulations and either regulating or eliminating the shadow derivatives markets.

Putting troubled assets on the Fed's balance sheet is an amusing solution that will not work and probably makes the problem even worse because when those assets pop, guess who's backing it...

If someone can wake up to the fact that the problem is not a problem of liquidity, maybe we can get somewhere.  I'm not holding my breath.

Sam, you miss the fact that the Fed can print money out of nothing. If those assets "pop" as you say, the fed can just print more money to make up for that.

That's not how the Fed works.

Not ordinarily, but desperate times call for desperate measures. If needed, they should just drop money down from helicopters.

[CARLHAYDEN]

The good folks at the Heritage Foundation have compiled a few prominent ones. John Bates Clark Medal recipient, Nobel laureate, and University of Chicago economics professor Gary Becker, Mercatus Center Financial Markets Working Group member Arnold Kling, New York University economics professor Thomas Sargent, Harvard University economics professor Greg Mankiw(though this one is admittedly tentative), University of Chicago School of Business finance professor Eugene Fama, George Mason University economics professor Russ Roberts, Naval Postgraduate School, economics associate professor David Henderson, U.S. Court of Appeals for the Seventh Circuit judge Richard Posner and Stanford University economics professor John Taylor.

I'd ask you to retract your statement that no PhD economist didn't support the stimulus, but really I know better than to expect you to ever admit you were wrong.

Bono,

You've got to understand about Lunar.

First, he'll try to claim that he didn't really mean what he clearly said.

Second, he'll try to claim that he is a libertarian (in the abstract), and its just that he favors socialist policies now.  Remember how Marx claimed that the state would "wither away" after true socialism was imposed.  Well, that's essentially Lunar's line.  He is in favor of socialist policies now, but, theoretically, is in favor of libertarian policies, well, in the luminescent future.

Third, when he can not pull either of those frauds on you, he begins his name-calling routine (its his version of the 'war dance.')

Fourth, when Lunar realizes he can not fool or intimidate you, he puts you on 'ignore,'  Kind of typical of a child throwing a temper tantrum, who doesn't want to hear about his misbehavior.

[○∙◄☻¥tπ[╪AV┼cVê└]

We've been hearing a lot about a CBO report that is very critical of the stimulus. There's only one slight problem. The report does not exist. The anti-stimulus people are making sh**t up, and getting Faux News and their other propaganda outlets to report these lies. Screw them.