Andolfatto
If you were Chairman of the Federal Reserve, what sort of policy or policy intervention would you be favoring at this time, just endowed with the situation as it has developed to this point?

Woodford
It's obviously a very complex situation. In general, I wish the Fed were speaking more about the need for fiscal policy to take on more of the burden of trying to get the economy moving. I'm afraid that, to some extent, the Fed's desire to stress the fact that we still have tools, we haven't used all of our ammunition, has had unfortunate effects. Of course, the intention of that is to reassure the public. The feeling is that letting people be scared that maybe we're out of ideas would itself create uncertainty about the future that would be undesirable for the economy. And that's understandable. But I worry that it's had the undesirable effect of letting Congress off the hook a little too easily by letting them say, "The Fed still has lots of things they can do to take care of the situation, so we can play other games." And I think maybe the Fed would have helped the public debate if it had pushed back a little more on the view that everybody should be assuming the Fed will save everything.

Via FT
"Consider some of the global non-policy forces that might now be weighing on price inflation:

– Aging demographics, high debt loads, weak nominal wage growth and persistent output gaps in advanced economies.

– Slowing growth in emerging economies, as their catch-up period has stalled.

– The shale revolution and improving technologies across the energy landscape, along with weaker commodity price growth in recent years.

– Entrenched deflation in non-construction investment goods (and consumer durable goods) since the late 1990s.

– There continues to be a residual belief in most developed-world markets, resilient since the 1980s and the subsequent Great Moderation period, that central banks can reverse breakaway inflation. This makes it hard for inflation expectations, which can have a feedback effect on current inflation itself, from becoming too unanchored even if unexpectedly aggressive demand-side policies are pursued. (The same expectation of stability also probably helps prevent deflation.)
.......


Subdued inflation obviously isn’t a permanent state. Looking only at the broad global trends conceals tremendous variation between countries. Some economies are also more vulnerable to specific global pressures, and to currency fluctuations, than others. Domestic policy still matters most, and even when it is inadequately aggressive, plodding growth can still slowly lead an economy back towards full employment eventually, provided it goes on for a while.

But the problem that comes with running a low-pressure economy for too long is that the expansion stays precarious. Geopolitical (not to mention domestic-political) risks are always looming. The opening months of the year demonstrated that even the weather can knock the strengthening US economy off its growth path, if temporarily. Another slowdown in growth, or even a downturn, becomes more likely if negative cyclical forces reassert themselves. The same applies if measurement flaws lead policymakers to believe that their economies are stronger than they really are, prompting complacency. Finally, the delay itself is problematic given the possible hysteresis effects of people and capital going unused, lowering the slope of potential growth.

Look at the set of trends listed above, and you might recognise that many of them are diametrically the opposite of those that prevailed in the 1970s. A few of them are also quite obvious reversals from the decade leading up to the recent crisis. The point is not that policy can do nothing to countervail these global forces; it can do plenty. The point is simply that when the world changes, so does the mix of influences on price behaviour."

Scott Winship and his intellectual brethren have been first denying then minimizing the impact of growing inequality for years. I have said many many times on these pages that he/they are being intellectually dishonest Here is my first post on the matter 21/2 years ago.

This from Matt Yglesias

"And then something enormously predictable happened. Any time a depiction of growing inequality in the United States becomes popular, people who believe that increased inequality isn't bad, even if it's real, start arguing that it isn't real either. Scott Winship is one of the brightest lights of that school of thought, so he presented a long series of quibbles with both the Saez/Piketty data and Tcherneva's presentation of it which he framed as a debunking of their claims."

Matt ends with:


The bottom line is that while there is lots of room for arguing about the details of data selection, the conclusion that inequality is growing is not an eccentric discovery made by two French economists working with a particular source of income data. The broad trend is clear from a diverse set of data. Median household income growth has badly lagged per capita GDP growth, corporate profits as a share of national income have risen, and stock markets have reached record highs.

Outside the sphere of political debate, you also see the real world impact of inequality. Merrill Lynch recommends an investment strategy to its clients based on the growing economic clout of plutocrats, Singapore Airlines is now selling $18,400 first class cabin tickets, and observers think Apple is going to start selling a $10,000 watch. Conversely, Walmart is now primarily worried about competition from dollar stores. The executives at these companies are not hysterical liberals trying to drum up paranoia about inequality, they are trying to respond to real economic conditions — conditions that have entailed very poor wage growth paired with decent returns for those proserous enough to own lots of shares of stock.

Looping back to the beginning, the most striking fact about the entire dispute is that Winship himself does not disagree that inequality is at a very high level and that it has risen since the Reagan Revolution. He simply thinks it's wrong to obsess over this, and therefore that it's wrong to try to think up ways to dramatize it. But if you think that America is slipping into a doom loop of oligarchy then naturally you will want to dramatize the trend. Tcherneva's chart does that very well, which is exactly why it's so controversial.

Bloomberg. He wonders what that means? So do I (on both points).

Points out the BoC was able to lower interest rates to mitigate the costs of austerity and that Canada continues to have a larger government sector  than the US.

"Wouldn’t it be better to just act as if we are equal, evidence to the contrary notwithstanding? That way, no people will be discouraged from chasing their dreams—competing in the Olympics or performing at Carnegie Hall or winning a Nobel Prize. The answer is no, for two reasons. The first is that failure is costly, both to society and to individuals. Pretending that all people are equal in their abilities will not change the fact that a person with an average IQ is unlikely to become a theoretical physicist, or the fact that a person with a low level of music ability is unlikely to become a concert pianist. It makes more sense to pay attention to people’s abilities and their likelihood of achieving certain goals, so people can make good decisions about the goals they want to spend their time, money, and energy pursuing. Moreover, genes influence not only our abilities, but the environments we create for ourselves and the activities we prefer—a phenomenon known as gene-environment correlation. For example, yet another recent twin study (and the Karolinska Institute study) found that there was a genetic influence on practicing music. Pushing someone into a career for which he or she is genetically unsuited will likely not work.

The second reason we should not pretend we are endowed with the same abilities is that doing so perpetuates the myth that is at the root of much inaction in society—the myth that people can help themselves to the same degree if they just try hard enough. You’re not a heart surgeon? That’s your fault for not working hard enough in school! You didn’t make it as a concert pianist? You must not have wanted it that badly. Societal inequality is thus justified on the grounds that anyone who is willing to put in the requisite time and effort can succeed and should be rewarded with a good life, whereas those who struggle to make ends meet are to blame for their situations and should pull themselves up by their own bootstraps. If we acknowledge that people differ in what they have to contribute, then we have an argument for a society in which all human beings are entitled to a life that includes access to decent housing, health care, and education, simply because they are human. Our abilities might not be identical, and our needs surely differ, but our basic human rights are universal."

My Brother was an example of this to me. He did not complain about his terminal illness and accepted his death sentence with grace.

Keep Trying. Goals are bullshit - systems are the way to approach life.

Fed Employee attempts to regulate  Goldman Sachs and is fired after she refuses to back down on her recommendations. She secretly tapes meetings with management and Goldman. Her career ruined; Goldman Sachs conducts business as usual. Courtesy This American Life.