Knowing and Making

Have a look at the following very odd statement from Laurence Kotlikoff in the Economists' Forum . He is suggesting that Greece does not need to devalue, because its prices and wages will quickly adjust regardless: In the US...the past two years has seen essentially zero inflation leaving prices today substantially lower than where they’d be today had there been no recession. This is hardly evidence of sticky prices. I find it difficult to interpret "zero inflation", and prices exactly where they were two years ago, as anything other than evidence for sticky prices. He then goes on to address the important question of sticky wages in exactly the same way: Nor is there strong evidence that wages don’t adjust to market pressures. In the US, median real wages have hardly moved for decades Huh? I haven't seen the new Alice in Wonderland film, but I have the feeling this must be what it's like. Syllogisms whose premises and conclusions point precisely in opposit...

In a difficult moral situation, we like to have someone to tell us what to do. The hard work of weighing up factors and working through the consequences of our choices is confronting - not least when the conclusions risk conflicting with some existing assumptions about the world or ourselves. This is where I find myself with respect to the Icelandic banking crisis. I generally think the UK government - especially the civil service - is pretty sensible, well-intentioned and respectful of markets and the rule of law. Thus, the idea that they might have attempted to extort money out of an innocent little third-world country like Iceland raises my cognitive dissonance hackles. The Icelandic government has done what most governments would have done in their situation - put a hold on everything while they try to sort it out and decide how much of their banks' liabilities they will stand behind. The UK's reaction - invoking anti-terrorism legislation to freeze several billion po...

I've had this article in draft for about three weeks. Paul Krugman's latest item seemed an opportune moment to finish it. Intriguing article by Sheng and Pomerleano in the Economists' Forum about zero interest rate policy . I don't think I agree with what they are saying (insofar as I can even tell what they're saying) but it stimulates a few thoughts along Scott Sumnerish lines. One bit (from Kevin Warsh, quoted approvingly by the authors) jumped out at me: A complication is the large volume of banking system reserves created by the non-traditional policy responses. There is a risk, of much debated magnitude, that the unusually high level of reserves, along with substantial liquid assets of the banking system, could fuel an unanticipated, excessive surge in lending. Now surely a surge in lending is exactly what we want? Isn't all this monetary activism meant to increase the effective money supply (or counter a fall in velocity) therefore sustaining nominal GD...