/Econ/ Economics General #2: Predictions for 2017

In the US: Multiple fed rate hikes, fiscal stimulus of some sort, poorly planned government programs in regards to trade/workers. Still preforming better than Europe.
UK getting a hard Brexit.
Japan having some inflation and everyone regards it as a miracle.
Oil $50-$60.

What effect will the rate hikes have? Could tighter money trigger a recession or weigh on growth? How likely is the fiscal stimulus Trump promised when the GOP seems to be dead set against a trillion dollar infrastructure program?

What would the effects of a hard brexit look like in England? Could the City of London really lose its relevance, or will a few banks leave and it'll still pull its weight in commodities and the other markets, especially if the Europeans increase regulation or pass a financial transactions tax or something?

So in the long run is there any way for the Japanese to deal with this problem other than having the central bank buy their government bonds?

Also, how likely is it that the Trump trade agenda will start a trade war? Will he soften his position on trade to get Paul Ryan and the other Republicans skeptical of him to support his positions on immigration? That isn't to say he'll become a neoliberal overnight, but will he just do what he's doing now with Twitter or will he actually tear up our trade deals (rather than renegotiating them). If he does renegotiate the trade deals, will it be an orderly change (like companies bringing factories back so far), or will it shake up markets?

>What is the most bullshit economic theory you can think of
Any variety of market fundamentalism (excluding socialism but I don't really consider it a legitimate economic thought).

>why?
It'd be too long to list all the reasons and fallacies the idea is predicated on so the TL;DR version is that virtually all economic problems and pseudo-problems (such as the wealth/income gap continuously widening) stem from it.

Define market fundamentalism. Do you mean something along the lines of Rothbardian market anarchy, Mises/Hayek, or Friedmanite Chicago School thought?

I'm a mix of a Chicago School and a market monetarist, but I don't really have a problem with budget deficits. I just think monetary stimulus is a better stimulating tool than fiscal stimulus.

What school do you identify as?

Market fundamentalism is a pejorative term for laissez-faire, unfettered free trade economic ideals. If fact, it's a fantastic pejorative because of how it captures the zealotry and fanaticism of its believers which makes it appear little different than a religion. Although, the term transcends any individual school of thought.

>I just think monetary stimulus is a better stimulating tool than fiscal stimulus.
user, that's just silly. The observable reality is that monetary policy is more augmentative of fiscal policy than anything. As we've seen since 08', the West has lacked any meaningful fiscal policy direction and despite unprecedented, never-before conceived monetary support, western economies have been languishing and moribund at best. Monetary policy has very limited power.

>What school do you identify as?
I don't; in fact I'm writing a book on the subject. At best, maybe I could identify with something like "new-American school."

TO DISCUSS ECONOMIC THEORIES CHAT HERE: discord.gg/MwxZ4

>never before conceived monetary support
It wasn't even that radical. They just did QE and lowered interest rates a bunch. Most of the QE was done in the United States, mind you. Monetary stimulus does, in fact, make a difference- that's why America has been in a recovery and Europe had a double-dip recession in 2011 when the ECB chose to hike rates.

Monetary policy doesn't have limited power, in fact it's just the opposite. Central banks have barely done any heavy lifting- they can print money at virtually zero cost and their bond portfolios are generating enormous profits right now.

The problem with your analysis is that you aren't taking into account nominal GDP. Monetary policy would be a lot more effective if we targeted NGDP growth rather than inflation. First of all, it explains why rates are low nowadays- not because of easy money, but because of low NGDP growth. If money were truly easy right now, then we would see expanding nominal GDP and higher rates. Tight money leads to low interest rates, we've seen it in the US in the 1930s, in Japan in the 1990s, and in the US again after 2008.

Right now unemployment in the United States is under 5%, thanks to monetary policy. The issues with productivity are outside of the scope of monetary policy and require supply-side reforms.

if you want to take a look at the effectiveness of fiscal stimulus, then look at Japan's experiment in it. It resulted in Japan being one of the only, if not the only, fiat money country that had falling NGDP consistently for TWO DECADES from 1993 to 2013.

Another point, take a look at the austerity of 2013 when the deficit fell by like $500 billion. Keynesians and other proponents of fiscal stimulus cried that there would be a double dip recession in the absence of fiscal stimulus, and there was no catastrophe to speak of.

Or you could take a look at quantitative easing and see a positive side of fiscal stimulus.

I'm not quite sure what you mean here. Quantitative easing is a form of monetary, not fiscal, stimulus. It is unconventional monetary stimulus, but monetary stimulus nevertheless. If you're arguing that its success is an example of effective fiscal stimulus, then you're using the wrong terminology.

However, if you're arguing the opposite, that is, QE wasn't effective and shows the need for fiscal stimulus, then I disagree. Research from the Fed suggests that asset purchases have helped lower mortgage interest rate costs, reduce corporate and government borrowing costs, and prevented widespread corporate bankruptcies in the early days of its implementation.

The best indication of the Fed's successful monetary stimulus program would be the fact that the Great Recession did not become another Great Depression.

>It wasn't even that radical.
>Central banks have barely done any heavy lifting
You must be very young if you think any of that was normal. It's unprecedented how much monetary support has been given. Never before in history has *any* amount of monetary support been given that comes even vaguely close to the monetary support of the post 08' era and interest rates have never been lower. Negative interest rates are actually a new thing that's never been seen before.

In fact, so much monetary policy support has been given, many believe that central banks are out of ammunition.

>Monetary stimulus does, in fact, make a difference
I never said it didn't, just that it's augmentative and has limited impact by itself.

>that's why America has been in a recovery and Europe
Correlation causation fallacy. Besides, you're not disproving what I said.

What makes the post 08' recovery different than any other is that there has been a lack of fiscal policy direction in the west which explains the dismal growth rate (read: historically low continuous growth rate). This is a showcase of how limited an impact monetary policy by itself makes.

>it explains why rates are low nowadays
No, it doesn't.

Interest rates move essentially in tandem with their benchmarks (the lowest risk domestic asset: sovereign debt). What affects the benchmark is the fed funds rate, market assumptions about future inflation, the ability of the borrower (government) to satisfy their interest obligation, overall risk tolerance, and the prevailing assumption about future debt issuance. When government bond yields rise, so too do the yields on corporate debt, mortgages, consumer credit, etc. because of the demand for a risk premium and the relative attractiveness of low-risk gov't debt improves.

>Right now unemployment in the United States is under 5%, thanks to monetary policy
Correlation causation fallacy.

I could also look at the effectiveness of recovery of every other recession which was followed by some form of fiscal policy alteration which proved to be countercyclical. FDR's infrastructure spending proved to be wonderful fiscal stimulus. Not to mention the Chinese gov't using fiscal policy to industrialize and Western nations doing the same centuries ago.

>look at Japan's...
Oh, yikes, you do realize that japan has attempted some of the most ambitious monetary support ever seen for decades, right? You really, I mean *really,* don't help your case by bringing Japan into things.

>take a look at the austerity of 2013 when the deficit fell by like $500 billion
Excuse me?

>unprecedented how much monetary support has been given

the ECB hiked rates in 2011 and we've had two rate hikes since 2015, with three more on the way. Is that /really/ doing the best to inflate?

And if we're talking about Japan, which has been considered the posterchild for ineffective central bank policies, they've seen NGDP actually growing since 2013, despite the fact they are tightening from a fiscal perspective.

Another example of ineffective fiscal stimulus are extensions of unemployment benefits, which were proven to increase unemployment, as evidenced by Brad DeLong's studies on the Bush Administration in 2008, where he correctly predicted unemployment rising 50 basis points by election day. Again, we saw a 700,000 job increase from 2.3 to 3.0 million in 2014 after extended benefits were eliminated.

>negative interest rates are actually a new thing
I'm aware. I didn't mention them because I am still on the fence about supporting them.

>Many believe that central banks are out of ammunition
A central bank will never be out of ammo until there is no paper left for them to print money on and they own every asset they can purchase. That's a fact.

There are still various policy options that we still have left. Quantitative easing in the United States only targeted government bonds and mortgage backed securities and even then the Fed only owns like 20% of them. We could buy more, like Japan does with its QQE program, and boost the economy as a result.

Even if we didn't want to do that, we could still do more with monetary policy. You can use monetary policy to finance a tax cut or government spending, by having the central bank buy government bonds when new spending is announced, known as a helicopter drop and first theorized by Milton Friedman.

>Right now unemployment in the United States is under 5%, thanks to monetary policy. The issues with productivity are outside of the scope of monetary policy and require supply-side reforms.
Labor participation rate and underemployment...

Continued.

Defining monetary policy solely as the purchase of T-bills is a noted habit of fiscal stimulus proponents. The purchase of other assets, like corporate bonds, municipal bonds, etc. is incorrectly defined as fiscal stimulus, when it is just open market operations with other assets and therefore part of monetary policy.

For my reasoning on interest rates, take a look here and read Friedman's reasoning, using Japan as his study (hoover.org/research/reviving-japan).

I'll start a new response to address this.

>the ECB hiked rates in 2011 and we've had two rate hikes since 2015, with three more on the way. Is that /really/ doing the best to inflate?
Your youth is showing really bad. Raising rates 0.5% is nothing.

Now, with the expectation of fiscal stimulus, the economy is finally looking up and the fed has decided to start raising rates to offset presumed future inflation and growth.

>Japan... ineffective central bank policy
Yet they're doing nothing unusual and have certainly not lacked in quantity of stimulus.

Just like Japan depending on monetary policy to carry them with growth, Europe and formerly the US have depended on it too. What's it led to? Moribund growth and general stagnation.

>Another example of ineffective fiscal stimulus
Cherry picking. I'm getting bored.

>I am still on the fence about supporting [negative interest rates]
It's counterintuitive.

>A central bank will never be out of ammo
They already are. Can't get much lower than 0% interest and can't bloat your central bank's balance sheet without crowding out investment.

>There are still various policy options that we still have left.
Nah, done everything we could and it's proven ineffective. Can't even get 3% growth.

>like Japan does with its QQE program, and boost the economy as a result.
Oh yeah, Japan, the prosperous high-growth nation. Lol

>You can use monetary policy to finance a tax cut or government spending
Because it's free money with no repercussion, lol.

> The purchase of other assets, like corporate bonds, municipal bonds, etc. is incorrectly defined as fiscal stimulus
Lol, no it isn't. WTF even?

>Friedman
Dilettante

Yeah... You've officially bored me. Your logic has more holes than a sponge and lacks any empirical evidence.

So first off, your arguments about fiscal policy are wrong. Monetary policy, specifically tight money, are the reason the Great Depression was so bad and the recession continued in spite of FDR's fiscal stimulus until the Second World War because mobilization pushed up AD and inflation, since wars are usually inflationary. Take a look at pic related (from Scott Sumner's the Midas Paradox).

In any discussion of fiscal policy during the Great Depression and fiscal stimulus in general, you need to take into account monetary offset. Take look at the veterans' bonus stimulus of 1936, which paid out $1.8 billion to 3.2 million WW1 veterans. Yet when one looks at 1937-38, one observes a pronounced slump, perhaps the result of higher labor costs and gold hoarding. But if one looks in December 1936, you can see that the Treasury makes moves to start stabilizing gold inflows and in March 1937 it raises reserve requirements, effectively doubling reserve requirements of early 1936. The resulting effect? Tight money offset any effects of the fiscal stimulus, thus providing evidence to my original point that monetary policy is more than complementary to fiscal policy. I think that the 1936 program was expansionary during 1936, but it wasn't expansionary during 1937 or 1938.

The biggest issue in the Great Depression was the deflation, as Anna Schwartz and Friedman pointed out, which caused deflation and forced labor costs higher. FDR didn't understand this and passed legislation like NIRA that held back economic growth and would later raise taxes, which would push the economy back into recession (along with the tighter monetary policy). The Great Depression is best characterized by the two recessions that took place during its time, from 1929-1933 and from 1936-1938.

What FDR did that mattered was effect the market's perception of FUTURE monetary levels, in that, he lowered the gold standard value of the dollar.

(Great Depression continued)

The resulting future expectations of monetary expansion fueled the resulting 57% increase in industrial activity and the 22% wholesale rise in the price level in the twelve months after March 1933.

After June 1933, you can take a look at how well FDR's policies performed. NIRA caused an adverse wage shock, that led to unemployment, as late as 1940, being between 14 and 24 percent.

Moving from there into the mid 1935 to late 1937 period, we see that the results of the New Deal on rising wages aborting promising recoveries on five different occasions.

Then, from late 1937 to mid 1938, we see a return of gold hoarding, perhaps caused by the European situation, and a return to deflation and cuts in production and employment.

The budget deficit fell by nearly 500 billion, take a look at the graph. That isn't to say the debt did, just the rate of increase of it. That means that government spending is decreasing, which is fiscal austerity, which if you're assuming monetary stimulus is ineffective and only complementary to fiscal policy, is a contradiction, considering growth continued in 2013. The year was a success for monetarism.

Anyway, going to your point about Japan. They haven't been a good posterchild for effective central bank policy because what matters isn't the past rate of monetary growth, but rather the markets' anticipation of future monetary growth. Temporary monetary injections have little to no effect on NGDP, you're correct there if that's what you're trying to argue. We can see it in Japan when they implemented QE in the late 90s and in the 2002-03 recession. This doesn't mean that QE doesn't work.

I'll post another response with a graph showing this, but the monetary base in Japan actually declined in 2000 and 2006. These weren't random declines, they occurred at the same time as Japan hiking interest rates, in the middle of a liquidity trap mind you. But why would they do this?

Because the BOJ was unfortunately trying to prevent inflation. Every time the CPI inflation rate rose up to zero, they would tighten policy. I'm not proposing that.

The absence of real monetary policy has prevented Japan from escaping recession, as shown by Yutaka Harada of the BoJ (bloomberg.com/news/articles/2015-02-05/abe-bolsters-kuroda-reflation-effort-with-boj-board-nomination).

Sorry, forgot to link the graph for the budget deficit.

...

Not even going to waste my time reading your garbage.

>post 2008
>unprecedented monetary support
>lowest interest rates *ever*
>shocking bloating of central banks balance sheets with trillions upon trillions of assets all over the west
>no meaningful changes in fiscal policy
>can't even break 3% growth
>Europe and Japan going in and out of stagnation and recession

Meanwhile
>fiscal policy built every single major nation in the world from America, to Japan's industrialization, to every major European nation
>fiscal policy countered negative reflexive cycles numerous times

But yeah, you can hang onto your fallacies, contradictions, and ideas void of any empirical evidence (and in fact, much evidence already presented to the contrary). This conversation is obviously going nowhere.

>raising rates 0.5% is nothing
Wrong, see pic.

>Not lacked in quantity of stimulus

>Cherry picking
It's empirical evidence that your doctrine is flawed?

>Counter intuitive
Irrelevant to the discussion, but Narayana Kocherlakota and Miles Kimball have good literature on it.

>Nah, done everything we could and it's proven ineffective
lmao you think buying a few hundred billion in MBSes is all we can do? Are you fucking shitting me?

>Japan, the prosperous high-growth nation
I made a response addressing this with the graph of the Japanese monetary base. I'm just saying we can expand the scope of the central bank's actions, which are currently being done in Japan and haven't been working because of the lack of cohesion, agains shown in my response.

>Because it's free money with no repercussion
How exactly is fiscal stimulus not arguing this? I assumed you were one of those "budget deficits don't matter" kind of people. If you aren't, then another argument against fiscal stimulus is that they require future tax cuts to pay for them. Monetary policy doesn't. Open market operations don't.

>Lol no it isn't, wtf even
I meant from your perspective. If you're denying the central bank can't take more action, then i assume you must think of these as fiscal stimulus.

>Dilettante
Pointing out another economist's research is being a dilettante? I have a number of disagreements with Friedman and if you look at the core of my arguments, it's against what Friedman says. Friedman emphasizes the past growth of the monetary base, while I'm emphasizing the markets' view of future monetary growth.

>post 2008
>unprecedented monetary support
Congrats, that doesn't mean the central bank is out of ammo nor that the central bank is ineffective. Have you ever considered the fact that Dodd-Frank has had a significant on the banking sector by increasing the big banks' economies of scale, or perhaps the massive regulations we impose on companies in the United States, from the ACA to WOTUS? I never said monetary policy was the only thing we can use, we should be using supply side reforms to solve these kinds of issues with productivity.

>shocking bloating of central banks balance sheets with trillions upon trillions of assets all over the west

The EU began buying government pounds in March 2015, six years after the United States. Is this a joke? Still doesn't mean they can't buy more.

>no meaningful changes in fiscal policy
I mean we did finance the ARRA and still got into this mess, so what's your point here

>can't even break 3% growth
Again, supply side reforms and monetary stimulus lol

>Europe and Japan going in and out of stagnation and recession
As you have said frequently throughout this debate, correlation does not imply causation. This doesn't mean monetary stimulus fails, considering the fact monetary stimulus hasn't been constant in either the case of Europe or Japan, which is why you should read my responses.

>fiscal policy built every single majro nation in the world from America to Japan's industrialization to every major European nation

Ah, so what worked in the 1800s will work now! Gotcha.

>fiscal policy countered negative reflexive cycles numerous times
Care to provide empirical evidence for that claim? I've disproven you in the case of Japan, in the case of the Great Depression, and in this response I've pointed out that the ARRA didn't work, which was another form of fiscal stimulus. When, pray tell, did fiscal stimulus actually get shit done in a manner more effective than monetary policy?

Yeah, I noticed that too. Its fucking ridiculous to say central banks havent been giving the market shit tons of support and we have shit growth still. Growth hasnt even chaged since we stopped QE. That guy is full of it.

Dude, you're the one saying monetary policy is hot shit and you have no proof that it is. Where's the growth from all this QE and ZIRP? Yeah, nowhere. He's just calling you out on your bullshit.

I didn't say that they aren't. I'm merely arguing that they aren't out of ammo yet and they won't be for a very, very long time.

I'm not arguing that monetary stimulus is the only way to fix an economy, I'm just saying that it is more effective than fiscal stimulus. When you have the government passing practically thousands of regulations, raising taxes, and passing bullshit like the ACA, it's pretty hard to be creating jobs.

Pray tell, where are the jobs from the ARRA?

Oh yeah, they have so much ammo that the markets have been brushing aside the ECB and fed in favor of Trumps infrastructure ideas.

And newsflash, a decade of monetary stimulus later are we're barely chugging along, europe not even that! Fuck this shit is like being on life support. Fuck your monetary stimulus! Please god, please have trump give us fiscal stimulus! Im begging you god, please!

Markets have been brushing the ECB aside because of their constant refusal to actually hit their 2% target. They're refusing to use the options in front of them. They were late to the game on quantitative easing and they weren't even committed to low interest rates before and are now pursuing negative interest rates, which I've never mentioned that I'm a supporter of and I am actually very skeptical of. There are also a variety of problems in the European market that need to be solved with supply side reforms, the same here in the United States and Japan.

>"we're barely chugging along"
Do you think that has to do with the monetary stimulus that we've been doing, or more to do with the Obama Administration constantly hampering the growth of industry by hiking taxes and allowing regulatory agencies to act like banana republics?

By the way, I voted for Trump too buddy.

Also, more importantly, what was wrong with the $700-800 billion in fiscal stimulus authorized by the ARRA? Why are we in such a slow recovery?

Invite expired.

How advanced economics do you have to have studied to participate in threads like these?

Do you have to understand micro to understand macro?

Is my Austrian meme-school knowledge applicable?