onsdag 25 januari 2012

Begränsades Obama-administrationens stimulanspaket av deras rädsla för bond market vigilantes?

Brad DeLong, 24 januari:
"How Much Did Larry Summers Fear the Invisible Bond Market Vigilantes in December 2008?: The Obama Economic Policy Memo

My conclusion is that he did not fear them much, if at all.

Remember that this memo is not Larry Summers's view as of December 2008. It is, instead, the rough consensus of an initial Obama economic policy team whose members spread out on the policy spectrum from left to right roughly in the order: Romer-Summers-Orszag-Geithner. This is Larry Summers being honest broker: his own personal views at the time were probably a couple of steps to the left of the broad thrust of the memo.

Reading the memo, the piece of it that I thought summarized the memo's view of the "bond market vigilantes will come to kill us all if we try to give the economy a fiscal boost!" argument was this:
From the perspective of raising demand and creating jobs there is a case for a very large program of stimulus. Considerations on the other side include… [a]n excessive recovery package could spook markets or the public and be counterproductive. Given where the public discussion is moving and given the "flight to treasuries" present in markets at this point, we do not believe this should deter escalation well above $600 billion - a view shared by senior Federal Reserve officials. It does speak to the importance of accompanying recovery actions with strong measures to reinforce medium term fiscal credibility…
This seems to me to raise the argument that the administration-to-be should do less than it was planning to do out of fear of bond market vigilantes--and then to rebut that argument. The bottom line I get is that the economic team believed that the invisible bond market vigilantes were simply not an issue for policies in the range that the administration-to-be was thinking of proposing.

The other place in the memo where the invisible bond market vigilantes are mentioned is this:
To accomplish a more significant reduction in the output gap [than in the four illustrative policy proposals] would require stimulus of well over $1 trillion based on purely mechanical assumptions - which would likely not accomplish the goal because of the impact it would have on markets…
If you read the memo as expressing the opinions of a single rational mind--which is probably a mistake: such memos are by their nature a compromise, and coherence and consistency of thought across sections is invariably sacrificed to the need to get the memo out the door when participant X says that §Y must say Z or they will demand another meeting to thrash out the issues--then the midpoint of the Obama economic policy team as of December 2008 thought that a $600 billion fiscal boost was too small while a "well over $1 trillion" fiscal boost was too big. The Recovery Act that we got was about $600 billion of real stimulus, plus $200 billion of stimulus-ineffective congressional gee-gaws like AMT relief.

Given the situation and forecasts as of December 8, 2008, this looks like the right number to me. Remember that as of December 8, 2008 the economy looked much brighter than it turned out to be--and that as a result the magnitude of "flight to quality" demand for Treasuries looked to be much smaller than it turned out to be, which means that it was rational then to think that the bond market vigilantes were much closer than they have turned out to be.

Don't complain about excessive fear of the bond market vigilantes."
Utifrån Ryan Lizza, "The Obama Memos", The New Yorker 30 januari.
Också: Paul Krugman, "Larry and the Invisibles", 23 januari.
Jfr 13 november 2011, "Avsattes Berlusconi av 'den internationella marknaden'?"; 7 sept 2011 "Spendera sig ur krisen?"; 21 juli 2010 "Rodrik om 'marknadens förtroende'"; 16 maj 2010 "Makten i världsekonomin - var finns den?".

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