Saturday, September 03, 2011

I think Matt Yglesias has gone completely around the bend and said it is the Fed's fault that we can't have nice things and clean air.

I don’t have any defense to offer of yesterday’s decision by President Obama to evade implementation of EPA recommended ozone regulations, ...

You don’t have to like it, but you do have to understand that it’s the case. As a matter of practical politics, to make progress on the environment you need healthy macroeconomic conditions. Which is part of my case for why everyone on the left needs to care more about monetary policy. ... And precisely because it’s not true that environmental regulations are job killers, environmentalists need to care about the Federal Reserve.


This is my comment on his blog.


I have been apologizing for my repeated nearly identical criticisms of your posts on monetary policy, but your obsession with monetary policy is reaching extremes that would make Milton Friedman blush.

First note that the current monetary policy is by far the most radically dedication to expansion of any monetary policy at least since the Fed was founded. All earlier efforts to pump up the economy are dwarfed by the Fed's current (ongoing) efforts.

Second note that you simply assume that the Fed can deliver full employment. You don't even bother to argue this. OK fine I'm sure you understand economics much better than Keynes (what the hell did he know anyway) and I understand that anyone who advocates even more expansionary monetary policy must agree with your definite undeniable assertion made right in this post) that it will solve all of our problems *especially* if they have specifically written otherwise.

But third you do understand that the leader of our particular coalition (let alone the leader whomever it might be of the other one) can't "put in place a Fed team". He can nominate people who will never work for the Fed, because the confirmation vote will be filibustered.

Consider the case of Peter Diamond.

Oh by the way, you noted that it was very brave and a bit reckless to argue that a Nobel Memorial prize winner is wrong. But now you are just assuming that he is wrong. You don't even bother to argue. Your position is that if full employment would be good, it is Obama's fault that he didn't nominate two more people to the Fed so that the Senate not approving them would cause full employment.

Do you even understand how absurd the argument in this post is ?

Oh something else. There is still overwhelming popular support for environmental protection. The argument that the people won't support tougher smog standards because of the unemployment rate is unsupported by any evidence on public opinion. In contrast you assume that at the NAIRU people understand that employment does not depend on anti-pollution (or fiscal or trade) policy. Obviously the argument that this is bad because it will cost jobs was made when the unemployment rate was 5%. Your argument is based entirely on the assumption that the US voting public shares your views on macroeconomics. They don't (the most popular proposal for what to do to help the economy was "cut government spending).

Finally note that Paul Krugman argues, convincingly, that this is a very good time to force firms to spend on anti pollution technology because we are in a liquidity trap. His argument makes sense. If firms aren't hiring because they don't have customers (check) making them spend more for the same output makes them spend more (output limited by demand) so increases aggregate demand and employment. In general anti-pollution efforts should reduce real wages (if the cost of clean air is not counted in the CPI bundle -- it increases correctly measured real wages) but not affect unemployment. Right now, it will cause higher employment. Now you might argue that the public doesn't believe Krugman, but the public doesn't believe you that, if the Fed achieves its stated aims, then pollution regulations don't reduce jobs (lump of labor fallacy wins the day) *and* the public supports tighter regulation of pollution.

OK a challenge. Find economists who are prominent in the profession who agree with you that the problem (ozone or unemployment directly) is due to the Fed. Many will criticize the Fed but, I think, none will say that the Fed could make things fine. To be clear, Scott Sumner is not a prominent economist (he's a well known blogger but not prominent in the field). Joe Gagnon is not prominent except that he got a lot of attention with, well exactly the argument you are making.

There is this stupid but on the web ranking of economists.
http://ideas.repec.org/top/top.person.all.html

Gagnon is ranked number 1279
I am ranked 1348 (have you ever heard of me except in your comments thread and at Brad DeLong's blog ?
Peter Diamond is ranked 63 (he's the one with whom you chose to argue about what the Fed can achieve).

Scott Sumner is not ranked in the top 5% of economists. I can't find him in the top 10% either. His works convince me that this is *the* Scott Sumner
http://ideas.repec.org/f/psu244.html

beyond my comment.

I add that it if isn't unemployment, it is inflation. First it isn't known that looser monetary policy reduces the long run average rate of unemployment. Second, it does cause higher inflation. I don't see the problem with higher inflation, but people hate it. The argument that pollution controls add to inflation is just as convincing to the public as the argument that they cost jobs. Also it is true, but I won't stress that point, because the debate is about politics.

I have been looking at Pollingreport. I don't have anything particular to add but I note two things
First there are a lot of questions where the pollster asserts that anti pollution regulation hurts the economy. I can see that if the question is phrased economy vs environment that the economy would get more support when we are in a recession. But that doesn't mean that Republicans can convince people to accept that framing (pollsters can when polling but look at the record of political consultants who talk about framing).

Second I don't see a pattern in simple questions for tighter or looser environmental regulation (except that there is always a majority for tighter regulation). But I wouldn't as I didn't find a long time series. The very recent numbers look normal to me.

Third, there clearly has been an increase in global warming skepticism. I think this is a Fox News and partisan Republicans issue. The Republicans used to accept the fact of global warming. Now Republican leaders don't. The lemmings follow. I see no role for the economy. In particular the public is totally wrong about whether most scientists agree on global warming but this has nothing to do with smog *or* with polls of public opinion on smog.

Finally, Yglesias seems to me to be generally not only very smart but also very reasonable and reality based. I just don't know what it is with him and the Fed. I dunno maybe the Fed was rude to him or something.



No comments: