I’m in Canada this week visiting relatives and taking in Toronto. Posting will be light but I wanted to get in some quick hits
1) Thanks to Ezra for the opportunity to blog at the Post. Getting out to a wider audience was exhilarating. I’d be happy to do it again anytime.
2) On Simpson-Boyles. I tend to view this type of thing with skepticism because the future is on so many levels hard to predict. Just to give you a taste think about our major issue: health care. I have heard plausible stories that excess cost growth is a complete waste of resources. In that telling marginal health care does almost nothing to promote health and Americans are already over-treated at price zero. That is, if extra medicine was offered to you for free you would be well advised, on average, to refuse it. Needless to say it’s then questionable whether our government should be rushing in to buy more of the stuff.
I have heard equally compelling tales that we are are on the cusp of a revolution in medicine that will make the discovery of penicillin look like a minor blip. In that case pouring money into health care will represent one of the largest welfare enhancing programs in human history.
However, I couldn’t tell you which is correct and neither could Alan Simpson or Erskine Boyles. That’s part of why planning for the future is over-rated. Most of the really crucial things are hard to predict or else someone would have already capitalized on being able to predict them.
That having been said I generally agree on principle with many of the approaches. Not because I think it will save our future but just because ideas like broader bases and lower rates are generally good policy even for today.
3) The anti-QE letter in WSJ. What can I say here. I find it hard to criticize something that John Taylor signed without being very sure of what his arguments are. Nonetheless, on first reading it sounds like nonsense and so far I have been left cold by Taylor’s take on the Great Recession. Brilliant guy but I think he is missing the boat generally here.
As a quick note, the Fed for good reasons does not have a mandate to maintain a strong dollar. I wish I could devote more time to this. My wife says that we could clear up a lot of confusion by replacing strong dollar/weak dollar with fat dollar/skinny dollar. Then we could just say that the dollar is morbidly obese and millions of Americans would immediately think it a moral imperative to make the dollar lose weight.
4) John Cochrane clarified that along he was talking about Ricardian Equivalence. There are many reasons why we should expect that Ricardian Equivalence doesn’t hold, however, not least among them is the fact that at the Zero Lower Bound short term debt is automatically financed at little cost by the Fed.
If the Fed promises to keep interest rates low then implicitly the deficit is being paid for through inflation which is exactly what one would want when inflation is running below its target.