Relevant and even prescient commentary on news, politics and the economy.


The topic of this post might be “procrastination.” I have written a bit about aggregate consumption in the USA and I keep telling myself to write something similar about investment. I never do. I am using this post as a pre-commitment device (sorry to use the blog for my personal problems).

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Cynthia Lummis’s (Stunningly) Glib Fraud: A Follow-Up

Cynthia Lummis, a wealthy Republican House member from Wyoming, claims her husband passed away, thanks in part to Obamacare. Lummis cited the law as a major contributing factor to her husband’s demise. Instead of blaming her husband, who could easily have afforded the test (who elected to skip the necessary diagnostic), she blames the best thing to happen to millions of low income Americans, Obamacare.

From Addicting Info:

Cynthia Lummis is actually among one of the richest members of Congress. In 2007-2008, Representative Lummis’ financial disclosure forms reported a net worth between $20 million and $75 million… Obamacare wasn’t designed for people who have $20-$75 million. It was passed so the rest of us, who are either self-employed or have no access to insurance, can afford health care. It’s not the fault of the law that Lummis’s husband chose not to get a potentially life saving test – if he chose not to get the test.

Steve Doocy was desperately trying to dramatize her ‘poignant’ moment during these ridiculous hearings based on a pompous MIT economics professor speaking candidly. Lummis would not take the bait and blame her husband’s death entirely on the healthcare law. But she was willing to attribute a likely mistake in coverage to the passing of her husband. She believes men in general are easily dissuaded from seeking medical care, so any little glitch or problem will convince them to discount medical advice.

It’s truly disingenuous to blame a death on a law which is reliant on the insurance marketplace, as we all know insurance companies aren’t exactly cooperative and committed to the well-being of their customers. They are, like Republicans, only interested in financial gain and not human lives. Her husband’s choices and consequences should not deny insurance to the millions of poor people who finally have access to medical care. But they sure as hell will try their best to perpetuate the Republican Cult of Death and take away as much as they can from poor and needy Americans.

Cynthia Lummis Lies And Blames Obamacare For Her Husband’s Death, Crooks and Liars, yesterday


I can’t figure out which is worse. That this woman dragged her dead husband into this witch hunt to make a political point, or that she is so stupid to not realize that her story makes no sense.

And [Washington Post political blogger Nia-Malika] Henderson really needs to get a clue.

— EMichael, comment this morning to my post yesterday titled “Cynthia Lummis’s (Stunningly) Glib Fraud

The one thing I wish Crooks and Liars had added to that post was that Lummis mentioned that her husband was 65 years old.  He therefore was on Medicare–although Lummis failed to say that.* 

Indeed, that may well have been what caused the confusion when he sent in his claim to “Obamacare”; he turned 65 last January, and this might have been his first use of Medicare, and that might have someow complicated the matter.  But in any event the cost at issue would have been the difference between what Medicare paid for the various tests he had, and would have paid for the test he did not have, and the portion of the remainder of the charges that the “Obamacare” plan that Lummis and her husband purchased was supposed to pay for as Medicare supplement coverage.

Lummis is trying to get away with murder here—the murder of others.  I really, really would like to see one of the high-profile fact-checker blogs inquire into why Lummis was effectively claiming that “Obamacare” negated her husband’s access to Medicare coverage.  Nor was her husband even required under the ACA to have insurance beyond just Medicare, although of course the additional coverage was free, courtesy of his wife’s employment with the federal government.

Might the Washington Post’s own Fact Checker, Glenn Kessler, be interested in pointing this out?

But the Cooks and Liars highlights a critical point: that the ACA is reliant on the insurance marketplace, and, as we all know, insurance companies aren’t exactly cooperative and committed to the well-being of their customers.  Thus the problems—of the sort that Lummis complained of and of the sort that virtually everyone else who complains about it, complains about.

Such as Catherine Keefe, whose op-ed published yesterday in the Washington Post, is titled “I’m an Obama supporter. But Obamacare has hurt my family.” The subtitle is “Obamacare has been far more frustrating than I’d ever dreamed.”  Chances are, I’d say, excellent that Keefe wrote the subtitle but not the title, since the subtitle accurately summarizes her piece but the title does not.

What Keefe’s complaint, like most other accurately stated complaints about the ACA are really complaints about this country’s for-profit, market-based healthcare insurance industry.  So were Lummis’s.  Keefe’s only actual harm from the ACA itself, as opposed to harm from the obnoxious insurance-industry-created provider-networks system—a factor now in most employer-based insurance coverage, although that’s rarely mentioned in the media—is that as a 56-year-old woman (her husband is 59), she should not have to purchase a plan that includes children’s dental coverage and maternity care.  Point taken, but that would be an easy fix.  (Missing from her article is mention of two benefits from the ACA that may matter to her husband: no annual nor lifetime coverage cap.  She does, though, note her gratitude for the ACA’s having ended the pre-existing-conditions thing, a big factor for husband, especially, but also for her.)

As for Lummis, what she’s really complaining about is that, thanks to an amendment offered by Sen. Charles Grassley (R. IA) to the original ACA bill as it was being debated in Congress, members of Congress and their staffs no longer are covered by the federal government’s famously generous and user-friendly healthcare coverage. They now must, like regular folk, deal with the for-profit, market-based healthcare insurance industry that she and her ideological cohorts claim to hold in such high esteem.

As I read Keefe’s op-ed yesterday, what struck me is how very ready huge swaths of the public are for Medicare-for-all. And how thoroughly clueless most politicians, political operatives and pundits are that this is so.  Lummis’s husband needed simply to schedule that final test and present his Medicare card when he arrived at the medical facility.  And that’s how simple and direct such things should be for everyone. Including the spouses of people whose financial assets don’t range between $20 million and $75 million.


*Post edited slightly to clarify that while Lummis mentioned her husband’s age, she failed to note that he had Medicare coverage–a key point I made in my earlier post.  12/11 at 1:07 p.m.

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Policing and a culture of protect and serve

mark twain

Dan here…In the middle and late eighties grants went out to train police on methods of intervention into domestic violence.  In my experience on the North Shore Boston, police chiefs seemed to agree this was the most dangerous situation officers faced on a routine basis.  There were also efforts to re-orient police departments to be more responsive to community needs…the push for this orientation to policing disappeared in the hysteria of “three strikes and your jailed” and privatizing jail services.

Police Chief Magazine

Community policing goes beyond simply putting officers on foot and bicycle patrols, or in neighborhood stations. It redefines the role of the officer on the street, from crime fighter to problem solver and neighborhood ombudsman. It forces a cultural transformation of the entire department, including a decentralized organizational structure and changes in recruiting, training, awards systems, evaluation, promotions, and so forth. Furthermore, this philosophy asks officers to break away from the binds of incident-driven policing and to seek proactive and creative resolution to crime and disorder.

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For Kevin Drum to Be "Expecting a Reasoned Critique of John Cochrane’s Claim Is Like Expecting a Reasoned Critique of the Claim that 2+2=5": Hoisted from Robert Waldmann’s Archives from a Year Ago

Brad DeLong points us to a archived posts by Robert Waldmann and Paul Krugman:


Robert Waldmann: Why does Fiscal Stimulus Work ?: “Ah, now: Kevin Drum wrote about something…
…I know something about. He notes a post by John Cochrane and said he was licking his lips waiting for the Delong/Krugman demolition which, however disappointed him.

I was a little disappointed in their responses. They have plenty of detailed issues with Cochrane, many of which strike me as well taken. But I didn’t feel like they ever addressed Cochrane’s core argument. He isn’t insisting that stimulus doesn’t work. Instead, he’s taking aim at the stories economists use to explain why they think stimulus works.

He hands the mike to Cochrane:

In his words, here’s the Old Keynesian multiplier story:

More government spending, even if on completely useless projects, ‘puts money in people’s pockets.’ Those people in turn go out and spend, providing more income for others, who go out and spend, and so on. We pull ourselves up by our bootstraps. Saving is the enemy, as it lowers the marginal propensity to consume and reduces this multiplier.

But Cochrane says that New Keynesian models don’t support this story at all. When you take a look into their guts, NK models posit an entirely different underlying mechanism for why fiscal stimulus works:

If you want to use new-Keynesian models to defend stimulus, do it forthrightly: ‘The government should spend money, even if on totally wasted projects, because that will cause inflation, inflation will lower real interest rates, lower real interest rates will induce people to consume today rather than tomorrow, we believe tomorrow’s consumption will revert to trend anyway, so this step will increase demand. We disclaim any income-based ‘multiplier,’ sorry, our new models have no such effect, and we’ll stand up in public and tell any politician who uses this argument that it’s wrong.’

The problem here is that Cochrane’s fantasy has so little connection with reality that it is hard to discuss. Consider Krugman’s New Keynesian model of fiscal stimulus here [update please click this link before criticizing my assertions about New Keynesian models]

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Cynthia Lummis’s (Stunningly) Glib Fraud

The big news story of the last 24 hours, of course, is the Senate Intelligence Committee’s sickening torture report.  But you might also have heard about Wyo. Rep. Cynthia Lummis’s dramatic statement yesterday as a member of Darrell Issa’s Committee on Oversight and Government Reform’s Jonathan Gruber/Marilyn Tavenner Obamacare hearing.

The purpose of the hearing was, naturally … well, you know.  But something surprising did happen at the hearing.  In short, Lummis, the chairwoman of the Republican Study Committee’s Obamacare-repeal subcommittee, claimed that her 65-year-old Medicare-eligible husband failed to get a physician-recommended medical test to diagnose the cause of his chest pains because he was told incorrectly that he and his wife “were not covered by Obamacare”.

Even if you did hear about this, you might have missed Washington Post political blogger Nia-Malika Henderson’s precious take on it as “the most moving moment of the Gruber hearing.”:

Jonathan Gruber, the MIT economist who said that the stupidity of the American public played a major role in the passage of the  Affordable Care Act, came to Capitol Hill on Tuesday to be verbally flogged by members of Congress. Amid the predictable litany of “stupid” references, Wyoming Republican Rep. Cynthia Lummis (R-Wyo.) provided a poignant moment. Here’s what she said:

“On October 24, the week before election, my husband went to sleep and never woke up. He had a massive heart attack in his sleep at age 65.  A perfectly, by all accounts, healthy man. Come to find out, in a conversation with his physician after he died, he chose not to have one of the tests, the last tests, his doctor told him to have. This happened to coincide with the time that we were told that we were not covered by Obamacare. I’m not telling you that my husband died because of Obamacare.  He died because he had a massive heart attack in his sleep.

Lummis’s husband was Alvin Wiederspahn, a former Democratic state legislator and a lawyer and rancher. They married in 1983. When he died, Lummis released this statement, which mentions the couple’s only child: ‘Last night, my husband, Al, passed away peacefully in his sleep in our home in Cheyenne. Annaliese and I know that God has taken Al home to heaven, but right now our hearts are broken.’

“Her statement about her husband in the Gruber hearing wasn’t so much a question as much as it was a raw accusation about the Affordable Care Act, a statement she ended by asking for some compassion. ‘I want to suggest that regardless of what happened to me personally, that there have been so many glitches in the passage and implementation of Obamacare that have real-life consequences on peoples’ lives,’ she said, almost choking up. ‘The so-called glibness that has been referenced today has direct consequences for real American people. So get over your damn glibness.’”

“Centers for Medicare and Medicaid Services Administrator Marilyn Tavenner tried to offer Lummis some sympathy, but was cut off by outgoing chairman Darrell Issa (R-Calif.)”

Hearings like this are always political.  But they don’t usually offer such deeply-felt personal stories from lawmakers.

Apparently, it didn’t occur to Henderson, nor for that matter to Tavenner, to mention that Lummis’ husband surely was covered by Medicare.  For the record, Mr. Wiederspahn, according to his own Wikipedia page, was born on January 18, 1949, so he turned 65 a full 10 months before his death.

Also for the record, Lummis and her husband had a net worth of between $20 million and $75 million, including three Wyoming ranches.  Although Mr. Wiederspahn himself came from a prominent Cheyenne family and was a successful lawyer, the couple, who met when they were young across-the-political-aisle colleagues in the state legislature, inherited most of their extensive wealth from Lummis’s family.

Lummis said at that hearing that her husband had had several routine heart-health tests, presumably months or at least weeks before he died, and had submitted payment claims to “Obamacare,” but was told, erroneously, by “Obamacare” that the two of them were not were not covered, even though they had purchased a plan through the DC exchange website.  She said he resubmitted the bills and was told again that he and his wife weren’t covered.  But he was covered primarily by Medicare. And of course he knew that. Lummis didn’t mention that, but she did say that he had been having chest pains yet declined to have that final diagnostic test.

Lummis ran unsuccessfully in September to chair the Republican Study Committee, and she heads its legislative-repeal subcommittee. Her story was not a deeply-felt personal one but instead a deeply-felt ideological one.  The chance is nil that her husband delayed getting that final diagnostic test for fear that he might have to pay out-of-pocket some relatively small portion of the cost for the test–the portion that Medicare would not pay. Or that he thought the insurance error would not be corrected.

Her claim is a fraud.  Call her the “‘Jackie’, the-University-of-Virginia-fraternity-gang-rape-victim” of the Obamacare-horror-story crowd.  By which I mean that, theoretically at least, her fabrication in order to try to serve her cause may prove to have the opposite effect.  But only if the news media reports the credibility issues.  And because this is not about sex but instead about Obamacare, the news media probably won’t.

And, no, I’m not being glib.  Lives indeed are at stake.

And while it may be unfair to analogize Henderson to Rolling Stone journalist Sabrina Rubin Erdely, the author of the infamous UVa-fraternity-gang-rape article—Henderson, after all, was just extemporaneously reacting to what she had just seen on CSPAN, not writing an ostensibly extensively-investigated in-depth news article—I’ll draw the analogy anyway, albeit while noting that important distinction.

But Henderson certainly is correct on her last point: Congressional hearings don’t usually offer such deeply-felt personal stories—real ones or fake ones—from lawmakers. Nor, of course, was this lawmaker actually testifying.  Not under oath, anyway.

But to Henderson’s observation, I’ll add one of my own: There has, at least to my knowledge, never been a House or Senate hearing at which, say, a surviving spouse of someone who died because of lack of access to diagnostic tests or to treatment because of the family could not afford healthcare insurance on the private market on the pair’s minimum-wage jobs, or because the spouse had a pre-existing condition detailed this.  Nor, to my knowledge, has there been testimony by a witness who alone or along with a spouse filed for bankruptcy, or completed lifelong savings and retirement accounts, because of huge and possibly ongoing medical bills that far exceeded the pre-Obamacare annual benefit cap on the family’s Blue Cross plan.

For that matter, there has been no Congressional-hearing testimony by people who will lose access to healthcare insurance if Antonin Scalia brings along with him next spring the votes of four other justices to interpret the ACA as containing an antidisestablishmentarian clause that bars insurance-premium subsidies under that statute in states that have allowed the federal government to set up and run their state’s insurance exchange website, as per the ACA, rather than set one up and run it itself.  During a little-publicized private speech to the Appellate Judges Education Institute Summit last month, Scalia decided to tamp down public speculation that in the ACA cases, King v. Burwell and Halbig v. Burwell, he might adhere to the rule of statutory construction that he announced for the Court last June in a ruling favoring a who’s-who cadre of anti-environmental-regulations Republican campaign finance benefactors, and against the EPA.  Scalia reportedly told his audience that judges don’t have the power to interpret “garbage” statutes enacted by Congress to avoid an undesired outcome. (Scalia and four of his colleagues do believe, however, as they demonstrate regularly these days, that they have the power to interpret non-garbage statutes and statutory procedural rules as garbage statutes, but apparently he didn’t mention that in his speech.)

And there has been no Congressional testimony by anyone who, notwithstanding a very moderate annual income ($11,670 to $29,175 a year for an individual), this year has enjoyed excellent healthcare insurance through an ACA provision that has remained almost secret because it requires a separate budget appropriation that the Republicans have blocked. HHS has used funds appropriated for the tax subsidies to fund the program this year, but the professional-anti-Obamacare-litigation industrial complex is challenging the legality of this in the courts.  New York Times healthcare reporter Robert Pear explained on November 29:

In mounting the latest court challenge to the Affordable Care Act, House Republicans are focusing on a little­-noticed provision of the law that offers financial assistance to low­ and moderate­ income people.

Under this part of the law, insurance companies must reduce copayments, deductibles and other out-­of­pocket costs for some people in health plans purchased through the new public insurance exchanges. The federal government reimburses insurers for the “cost-­sharing reductions.”

Nor has there been Congressional testimony by anyone who is deeply grateful for the dramatic slowing of the decades-long virulently-rising annual increase in healthcare insurance costs for private-employer-based insurance, although surely there are many, many millions who are.

I want to suggest that regardless of what happened to Lummis personally, that although there have been so many glitches in the passage and implementation of Obamacare, the actual real-life consequences of Obamacare on peoples’ lives are that it mitigates to some extent but by no means fully the profoundly harsh and quite-often deadly American healthcare-access/healthcare-coverage system, and that Lummis is fraudulently invoking her husband’s untimely death in the service of trying to strip millions of spouses, parents, and children of their newfound, very-long-in-coming access to diagnostic tests, treatments, and preventative medical care.  That—unlike her false indictment of the ACA in her husband’s death—is a fact.

Lummis’s husband, whether or not he remained a Democrat throughout his life, did remain someone whose heart was in the right place.  He reportedly played a large role in obtaining financial support for Cheyenne’s largest homeless shelter.  His widow should have let him rest in peace, rather than glibly invoking his death in a cause whose purpose is to deny access to healthcare insurance to massive numbers of people.  His widow’s glibness was intended to have direct consequences for real American people, of exactly the sort that her husband (who surely knew that at the least he was covered by Medicare) did not face.  It is not Gruber, but Lummis, whose glibness will kill, as is its intention.

Yes, Henderson really did title her blog post “This was the most moving moment of the Gruber hearing.”  Once Obamacare has been repealed root-and branch, as Mitch McConnell has vowed, or just branch-but-not root, by the Supreme Court, as Scalia is hinting, there will be many possible moving moments, superficially similar but substantively different than Lummis’s, although of course not by lawmakers.  There still is a difference between staged theater and real life; at least I think so.  So I suppose we’ve seen the last of the moving moments, at Congressional hearings, concerning spousal deaths due to lack of health insurance coverage.

Lummis surely mourns her husband.  Deeply.  But she also made him her unwitting stage prop yesterday.



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Thoughts on Investment, IS-LM & Effective Demand

Investment is an essential component of economic growth. Investment supports a healthy inflation rate by providing new money into the economy. What determines investment? Through the IS-LM model, we can understand interest rates and investment.

The IS curve has its own model before it is incorporated into the IS-LM model. In that IS model, investment is a function of GDP (Y) and the interest rate (i).

I = I(Y, i)

“That means that loanable funds doesn’t determine the interest rate per se; it determines a set of possible combinations of the interest rate and GDP, with lower rates corresponding to higher GDP. And that’s the IS curve.” (Krugman)

Do lower rates always correspond to higher investment? No… We still have low interest rates and investment is normal. (FRED data) But what will happen if firms really believe that the Fed will raise interest rates next year? There will be incentive to invest before rates rise. Thus, we obtain higher investment from projected increases in interest rates, more so than the same projected low interest rates.

Investment is a Function of Effective Demand

I add another factor that determines investment along with output and interest rates. I would say that investment is also a function of effective demand.

I = I(Y, i, ED)

Why do I say this? Well, Keynes himself said it.

“The absurd, though almost universal, idea that an act of individual saving is just as good for effective demand as an act of individual consumption, has been fostered by the fallacy, much more specious than the conclusion derived from it, that an increased desire to hold wealth, being much the same thing as an increased desire to hold investments, must, by increasing the demand for investments, provide a stimulus to their production; so that current investment is promoted by individual saving to the same extent as present consumption is diminished.
It is of this fallacy that it is most difficult to disabuse men’s minds. It comes from believing that the owner of wealth desires a capital-asset as such, whereas what he really desires is its prospective yield. Now, prospective yield wholly depends on the expectation of future effective demand in relation to future conditions of supply. If, therefore, an act of saving does nothing to improve prospective yield, it does nothing to stimulate investment.” (Keynes, General Theory, Chapter 16)

In the first paragraph, Keynes is talking about the fallacy that increased saving is good for Effective Demand because the loss in consumption is balanced by an equal increase in investment. One has to understand the difference between Effective Demand and Aggregate Demand in order to understand this fallacy.

Aggregate Demand is equal to Consumption plus Investment. So what you lose in consumption just goes to investment. Yet, Keynes is not referring to aggregate demand, but rather effective demand. Effective demand represents the point at which firms see no profit potential to further increasing output. If you lower consumption potential, you ultimately lower aggregate demand.

Effective Demand is based on the relative strength of labor income to consume.

“All production is for the purpose of ultimately satisfying a consumer.” (Keynes, General Theory, chapter 5)

So if labor share drops, domestic consumption declines. National Saving increases, but “full employment” output falls due to the effective demand limit falling. We saw labor share drop in Germany a decade ago. Long-run output would have fallen in Germany too if they were not able to find other countries to accept more of their exports.

How does effective demand influence investment? Do firms know the difference between effective demand and aggregate demand?

We go to the second paragraph in the above quote. Investment depends on prospective yield, which “wholly” depends on future expectations of effective demand in relation to future conditions of supply. When firms decide to increase production, they must assess the strength of future demand alongside their own marginally increasing production costs. At the effective demand limit, firms in the aggregate choose not to increase production even if aggregate demand is increasing, because demand is not sufficient to warrant higher marginal production costs. Thus the effective in effective demand.

So is there future effective demand for investment? There are two ways to look at this.

First Bill McBride from Calculated Risk needs shades because the future is so bright. He sees aggregate demand building momentum. He sees a long and bright future for investment.

Then there is my view of the effective demand limit. I see that output will fall short of its past full employment level due to consumption potential falling from the drop in labor share. The current momentum in output and employment that Bill McBride sees, for me, is due to firms trying to maintain vulnerable profit levels. That momentum can stop quickly when hiring ceases to bolster profit rates.

The picture I see… Bill McBride is walking with shades so strong that he does not see the effective demand wall right in front of him. He sees more prospective yield than I see.

Let’s take this to the IS-LM Model

islm at ED limit

The dashed lines for the IS and LM curves is what those like Bill McBride are projecting into the future. They see output growing for years allowing the Fed rate to normalize to around 4%. He sees a larger output at full employment than I do.

I follow Keynes’ principle that says a deficiency of effective demand will lead to reduced output at full employment. I see the full employment output more to the left. So I bend the dashed lines to the full employment level that I see. Krugman says that we do not know where full employment output is. Be that as it may, I think I do.

At the effective demand limit, a change in the interest rate will have less effect on output (in terms of utilizing labor & capital) because the IS and LM curves go inelastic. When the IS curve goes inelastic at the effective demand limit, expansionary monetary policies, which try to shift the LM curve right, have mild impact on output.

Let’s take the case of the liquidity trap, where the IS curve crosses the horizontal portion of the LM curve. As output increases, the IS curve may start rising up the LM curve which would warrant a rise in interest rates. But if the Fed thinks there is still too much spare capacity or inflation still too low, they will increase monetary expansion even more. The result is to shift the LM curve to the right making the IS curve cross once again the horizontal portion of the LM curve. Output increases down along the IS curve, but at the cost of keeping the Fed rate at the ZLB. The liquidity trap becomes a self-fulfilling prophecy.

islm at ED limit 4

At some point the LM curve needs to shift left through tightened monetary policy in order to give the Fed rate a realistic path to reaching a normalized rate at full employment. The Fed is planning this strategy now.

Moreover, at the effective demand limit, a shift right in the IS curve from an increase in government spending would tend to raise interest rates with mild increases in output. Fiscal policy tends to be ineffective at the effective demand limit. We should have had more fiscal stimulus starting 4 years ago when the IS curve was crossing the horizontal portion of the LM curve far from the full employment level that I see.

People who call for more fiscal stimulus now think the full employment level of output is still years away. They think the liquidity trap (IS curve crossing the horizontal part of LM curve) will last for at least a year more. But I see that QE has been keeping the IS on the horizontal part of the LM curve artificially. Fiscal policy will become ineffective anyway at the effective demand limit, when the LM goes inelastic.

So my view of the last 4 years is that we should have had more fiscal stimulus (shift IS right) and less expansionary monetary policy (shift LM left). This strategy would have better aligned the IS & LM curves toward reaching the target of a normalized Fed rate in relation to full employment output at the effective demand limit. The path of normalizing monetary policy would have been safer. Something like this…

islm at ED limit 3

We are getting to the point where neither fiscal nor monetary policy will be effective at increasing output. Profit concerns by firms will curtail further increases in output. The only solution left is to raise effective demand through raising labor share. This would shift full employment output to the right. But would firms tolerate the cut in profit share?

Anyway, looking into the future, I see less prospective yield than others based on effective demand. Therefore I see less investment potential than others. I would caution firms to be careful of over-extending their investment commitments going into 2015.

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The G20 and the (Non)Pursuit of Financial Stability

by Joseph Joyce

The G20 and the (Non)Pursuit of Financial Stability

One of the legacies of the response to global financial crisis was supposed to be a renewed focus on international financial stability. A manifestation of this effort was the transformation of the Financial Stability Forum by the Group of Twenty (G20) into the Financial Stability Board (FSB) to oversee the development of global financial and regulatory standards. A “board,” of course, sounds more substantial than a “forum,” and the membership was expanded to include more G20 emerging market countries.

But the record of the FSB does not demonstrate an organizational commitment to changing the structure of international finance. Howard Davies summarizes its performance:

“…it is a watchdog without teeth. It can neither instruct the other regulators what to do (or not do) nor force countries to comply with new regulations.”

The FSB, of course, is an agent for its principals, the member governments. Davies places the responsibility for the lack of action on the FSB’s overseers:

“So a fair verdict would be that the FSB has done no more and no less than what its political masters have been prepared to allow it to do. There is no political will to create a body that could genuinely police international standards and prevent countries from engaging in competitive deregulation —and prevent banks from engaging in regulatory arbitrage.”

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