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Brad DeLong reminds us of the Kauffman Foundation presentations coming up. Rebecca Wilder is probably not going this year…she just had a baby early January, both doing fine, but ‘Matty’ only reads baby books to date, not nerd journals. Ken Houghton may have more to say on the conference later.


11:45 AM: Economic and Weblogging and the Future and Sustainability of Financial Journalism: Panel: Cardiff Garcia, Joe Weisenthal, Allison Schrager):

DRAFT INTRO: As Michael Bloomberg will readily attest, people are willing to pay a lot for timely and accurate information about financial markets. But issues quickly become more technical and convoluted than even in the rest of weblogging about the economy. And the problem of monetization remains: if one is unable to bundle one’s weblogging with delivery of a proprietary asset price-reporting terminal persuading somebody to actually pay so that you can continue to provide them with high-quality financial information that they find of immense value turns out to be a hard problem. Here today we have three panelists: one provides pink pages and web content behind a nasty firewall, one provides information firewall-free, and one is both a consumer and producer of what modern financial weblogging creates. We welcome Cardiff Garcia, Joe Weisenthal, Allison Schrager.

The idea of monetization is an interesting one, and important, and is worth exploring.

The Scariest Graphic I Made All Week, or, Still More on Excess Reserves and "Money"

One of the nice things about the Kauffman Foundation’s Blogger Conference is the time to let the mind wander and look at data after having your brain scoured.

One of the worst things is realizing too late that you’ve got a Really Ugly Graphic, and most of the people who could help with it are gone.

Four hours ago at dinner, I was sitting between Brad DeLong and Tim Duy (who pointed out some good contemporary performers of Real Country Music), but I didn’t have this graphic with me. Now Tim is on a plane and Brad is teaching students, and my best option is to ask the AB commentariat if the following graphic scares them as much as it does me.

Even given my hobby-horse attitude toward Excess Reserve (i.e., the Sheer Unmitigated Contempt with which I treat the idea that reserves in general—let alone Excess Reserves—should “earn” interest), the dropping-off-a-cliff impression (and the overall downward trend, even keeping in mind that we do not Seasonally Adjust Excess Reserves, and therefore Seasonal Effects are clear) almost seems to explain why the 32nd month of the “recovery” feels as if it’s just possibly starting something.

To be fair—and a hearty “thank you” to Jeff Miller of A Dash of Insight for reminding me that most people believe the Fed concentrates on M2, not M1—the broader index shows an upward trend (again, discounting the recent decline as a Seasonal Effect):

Otoh, an overall ca. 5% increase in “Net M2,” as it were, over a year in which the dollar has increasingly appeared to be the only reasonable “Safe Haven” doesn’t seem all that large either.

I’ve yet to play with the data beyond this, so I leave it to the AB comentariat:

  1. Do you believe there is something here?
  2. If so, any guesses what it is? Or anything you want to know about it?
  3. If not, what else should we be looking at where Excess Reserves may/should/will (depending upon your degree of certainty) affect the value of the data and/or Real Economic Growth?

Kauffman Economics Bloggers Forum Update and a Few Links of Noe

I’m in Kansas City, where the Royals have started the season as one would expect of the current iteration of the team.

Fortunately, I’m not here for the baseball, but rather for the Kauffman Economics Bloggers Forum. There will be presentations tomorrow (agenda here; homepage for live streaming here) in three session. The morning features Tyler Cowen, Ben Wildavsky, Megan McArdle, Bryan Caplan, and Bob Cringely; early afternoon are Lynne Kiesling, Ryan Avent, Arnold Kling, and Felix Salmon; and it closes out with Dean Baker, Steve Waldman, and Virginia Postrel.

All times on the website are Central.

Discoveries so far:

  1. Steve Waldman and Matt Yglesias have the same hairstyle
  2. Felix Salmon agrees with me about individual investors and 401(k)s—indeed, I should say I agree with him, since he’s more vehement about the issue. (He gave me permission to quote him, but this is a family blog.)
  3. For the second year in a row, the “best” barbecue place in Kansas City provided inferior product; Tyler Cowen blames the voters for its loss.
  4. There was much discussion of cricket without mention of Lagaan (which, as I noted last year at this blog, explained to me why the British Empire failed, rather in the same way that Dick is the only movie to make sense of the White House in the early and mid-1970s).

Tune in tomorrow, after the positive but not thrilling Non-Farm Payoll release. Meanwhile:

  1. Buce continues the discussion started by Tim Geithner’s Chief Internet Apologist‘s discussion of Neil Barofsky’s analysis of TARP.
  2. As another two-fer, I’m trying to figure out how Don Marron’s discussion of a letter he signed dovetails with Bruce Bartlett’s analysis of a newly-proposed Constitutional Amendment. Maybe our readers can help?

On a personal note, the only “Asian” food service available at O’Hare Airport was nearly a full kilometer round-trip away from my gate, and I decided that my legs were tired enough. But on the flight from Chicago to Kansas City, I finished reading Sarah Manguso’s marvelous (and short) The Two Kinds [sic] of Decay and thought about feeling ashamed for not taking the walk. Fortunately, the feeling passed, but my regard for and recommendation of the book hasn’t.

Crisis? What Crisis?

As I should have noted yesterday, and as Arnold Kling discusses today, sometimes the questions are as revealing as the responses. And sometimes, the answers are suspiciously inconsistent.

Below is the graphic from my question for the Q2 Kauffman Economic Outlook: A Quarterly Survey of Leading Economics Bloggers. Link to the survey press release here, graphic results for the questions from Bloggers here, and the general Kauffman Institute blog site, Growthology, here.

I’m failing miserably at developing a Macro model that supports the majority answer for all the questions.

Conclusion to my Kauffman Institute Presentation

Note: This is “what I believe I said,” not“what I would have said” and is presented here solely to document the confluences that were, perhaps, clearer in my head than they were in the presentation itself.  As such, several references here are echoes of earlier pieces of the presentation. (Links to same will be updated as soon as possible.)

To review, there are three standard methods of reducing a fiscal debt: default, inflate, and taxation and/or budget cutting.  I believe it is clear that default is not desirable; the historic examples of 1917 Russia and the State of Louisiana are clear indicators that issues persist long after the act itself, and the recent suffering of the Argentineans in 2002 and 2003 clearly shows that, even at the time, default is at best a problematic solution, more an amputation than a lancing.

The second, moderate inflation, has the collateral issue that some of the assumed benefits of an inflationary policy—especially an inflationary policy in an environment with a relatively low savings rate—do not accrue to the country whose currency is the dominant one in the world.  As I noted earlier, David Beckworth is doing some research in this area, and I look forward to seeing the results.It seems safe to assume that the benefits of inflation will not accrue in the way a model might predict, and therefore “solving” the problem with inflation will require a suboptimal level to achieve optimal policy.  The chance of having to repeat “the Volcker experiment” would not be small, while the likelihood of success would not be so large.

Budget cutting is an abiding idea. While I’m perfectly willing to stipulate that one might be able to cut around 1% of GDP from the US defense budget, and that some direct consumption—though much of this is a State and Local issue more than a Federal one—might be reducible, this appears unlikely to have more than a marginal effect. While we like—indeed, make a living from identifying—marginal effects, the magnitude of the issue at hand requires more.  Since we generally can stipulate that transfer payments are at worst neutral (or, by Jim Baker’s “supply-side/conspicuous consumption” theory presented earlier, likely beneficial to both the velocity of money and overall tax revenues), gains from there will, at best, not help the team.



This leaves taxation, and it is perfectly reasonable to assume that taxation can be increased. Except that, as you can see from the graphic I have left on the screen, we have a large deadweight loss in health care spending. We spend approximately 6% more, on a percent-of-GDP basis, than the next country, with no noticeable economic value-added.  Having that deadweight loss hanging over the economy limits options—possibly as much or more than being the dominant currency.  And since the basic premise of this panel appears to be that we would prefer that the US Dollar remain the dominant world currency—that is, becoming the 21st century equivalent of 20th century Britain not being a desired outcome—we are left to the reality that we cannot solve the budget crisis without reducing or eliminating much of the deadweight loss in the health-care system.

Were we to solve only half of the difference and transfer that amount to tax revenues, we would solve the budget deficit without adding any drag to the economy, effectively substituting tax revenues for cost overruns. We would, in short, have produced a better team: a better engine for growth and a greater potential for entrepreneurial opportunity, even if a groundskeeper becomes underutilized in the process.

The most viable alternative to addressing the deficit by addressing the deadweight loss in the health-care system appears to be to yield our place as the world’s Reserve currency of choice. There does not appear to be much of an appetite for that, even if there were a clear mechanism to do so.

As economists we look for the suboptimal.  In this case, we can identify the areas where the returns are low—defense spending—the areas where spending growth might be moderated—Government Direct Consumption, although that is a very nominal portion of the Federal budget—and areas where there are clear deadweight losses—health care spending.  Only the latter shows much promise as a direct, not just a marginal, way to address the problem.