Wednesday, September 29, 2010

Brazil's Evil Red Star

Brazilians will vote for president on Sunday, Ocober 3. The list of candidates is dismal; nonetheless they will probably, as usual, elect the worst among them all.

Let Rush's Starman be a symbol of what Brazil now stands for (original art by Hugh Syme, many thanks to my son Alex for skillful photoshopping).

Sunday, September 26, 2010

Mr. Colbert Goes to Washington

Stephen Colbert teaches economics to American politicians (HT Mankiw). Very funny, enjoy!

Thursday, September 23, 2010

What Should Have Been the Government Response to the Crisis?

Here's the answer according to John Taylor:

I am frequently asked what I would have done differently. It turns out that I testified before the same Senate Budget Committee two years ago in November 2008 and recommended a specific four part fiscal policy response to the crisis. The response was based on certain established economic principles, which I summarized by saying that policy should be predictable, permanent and pervasive affecting incentives throughout the economy.

But this is not the policy we got. Rather than predictable, the policy has created uncertainty about the debt, growing federal spending, future tax rate increases, new regulations, and the exit from the unorthodox monetary policy. Rather than permanent, it has been temporary and thereby has not created a lasting economic recovery. And rather than pervasive, it has targeted certain sectors or groups such as automobiles, first time home buyers, large financial firms and not others. It is not surprising, therefore, that the policy response has left us with high unemployment and low growth. Given these facts, the best that one can say about the policy response is that things could have been even worse, a claim that I disagree with and see no evidence to support.

Friday, September 17, 2010

Central Banking Gone Fishin'

Who was responsible for the economic crisis? Evidence points to discretionary central bank policies (once again...) according to Raghuram Rajan (HT Cowen):
It is true that the European Central Bank was less aggressive, but only slightly so; It brought its key refinancing rate down to only 2 percent while the Fed brought the Fed Funds rate down to 1 percent. Clearly, both rates were low by historical standards. More important, what Krugman does not point out is that different Euro area economies had differing inflation rates, so the real monetary policy rate was substantially different across the Euro area despite a common nominal policy rate. Countries that had strongly negative real policy rates – Ireland and Spain are primary exhibits – had a housing boom and bust, while countries like Germany with low inflation, and therefore higher real policy rates, did not. Indeed, a working paper by two ECB economists, Angela Maddaloni and José-Luis Peydró, indicates that the ultra-low rates by both the ECB and the Fed at this time had a strong causal effect in relaxing banks’ commercial, mortgage, and retail lending standards over this period.