OK, econ blogomaniacs, time for a quick little pop quiz. Here are two quotes from prominent economics bloggers. See if you can guess which blogger said which quote. No cheating!
Quote 1
"Though there are things that central banks can do in the face of safe asset shortages...a safe asset shortage is basically a fiscal problem. The safe asset shortage is reflected in binding financial constraints that imply the economy is non-Ricardian. Government debt matters, and an expansion in the stock of government debt can be welfare improving. Presumably this also implies a lower net cost of financing government projects, meaning that a safe asset shortage provides an opportunity for the government to finance education and infrastructure on the cheap."
Quote 2
"When the excess demand is for longer-term assets – bonds to serve as vehicles for savings that move purchasing power from the present into the future – the natural response is… induce businesses to borrow more and build more capacity, and encourage the government to borrow and spend…When excess demand is for high-quality assets – places where you can park your wealth and be assured that it will still be there when you come back – the natural response is to have credit-worthy governments guarantee some private assets and buy up others, swapping them out for their own liabilities and thus diminishing the supply of risky assets and increasing the supply of safe assets."
...If you got both right without Googling, then you're way too addicted to econ blogs.
1. Cochrane
ReplyDelete2. DeLong?
Williamson and DeLong?
ReplyDeleteYup. You win one giant stuffed animal, or other cheesy carnival prize of your choice.
DeletePaging Stephen Williamson--Noah Smith called, and he'd like you to link back to him.
ReplyDeleteAccording to 9 out of 10 economists' models, when zombie apocalypse survivors enter a safehouse, this is a market signal that they want the safehouse to be burned down.
You're weird.
DeleteFirst looks like it is from Krugman, the author doesn't understand the government doesn't spend any resources no matter the interest rate, a monetarily sovereign government is not financially constrained and interest expense is not a real "cost" to it.
ReplyDelete"Societas eruditorum incognitorum" doesn't seem quite right; those quotations are not from anonymous scholars, merely from unattributed ones. And the day DeLong and Williamson form a society there'll be a frost warning in Hell.
ReplyDeleteNo Googling? How about Gauti Eggertssen and Ricardo Caballero?
ReplyDeleteBrad DeLong
Bonus points if you can find me some quotes from them that are essentially indistinguishable from the above two...
DeleteGauti Eggertsson
DeleteRicardo Caballero
Both links are to Caballero!
DeleteOops. Why did I think that was Eggertsson? Now I can't find anything Eggertsson has to say on safe assets.
DeleteI got Brad DeLong for the second, but couldn't figure out the first.
ReplyDeleteSo I need only a half intervention?
There is no "safe asset" shortage. There is a "excess" supply problem. Demand in the US is quite brisk actually. The problem is excess supply. What you would expect from supply sided policies of the last 35 years.
ReplyDeleteThis creates so much unusable cash it just sits waiting for it to be spent. When interest rates are low, think of government bonds as a checking account. When they are high, a savings account.
Bernanke is saying perhaps his "global savings glut" idea is a misnomer. There are two sides to the equation.
DeleteIt might be that that savings can't find anything worthwhile to invest in which would translate into more demand alongside a reliable, decent return. My point would be that demand management via government policy (trade, monetary, fiscal) should do more.
Quote 2 is definitely Brad DeLong.
ReplyDeleteI recognized BD's quote but I don't read Williamson.
ReplyDeleteRegarding the subject, I agree with Anonymous above kind of. There is no 'safe asset' shortage, at least not that has any meaning to the economy's proper functioning.
It isn't reasonable to expect the economy to function properly in the long run if we view the 'demand for safe assets' to be something that drives our economy. I suspect there's a shortage of safe assets everywhere and at all times.
The argument lends itself to a Keynesian view in which the government can provide those safe assets, and this is important in a depression or recession. However, there needs to be another mechanism to CHANGE the demand for safe assets rather than accommodate it.
The long-term availability of an economy to provide safe assets is always and everywhere limited. The main thing missing in our monetary system is a way to change the demand for safe assets, and the only way I can think of to do that is to dilute existing stores of safe assets, or to redistribute them who those who demand them.
Umm, why do you think removing the safety net is going to make people more likely to want to walk a high wire?
DeleteEconomics is about allocation of scarce resources? MMMMMM? now we are talking about scarce safe assets? The old story about saving gluts and scarce resources gives me a head ache.
ReplyDeleteThis comment has been removed by the author.
ReplyDeleteWho said these three:
ReplyDelete"No, in a liquidity trap, if the Fed purchases gold, it does not change the price of gold, just as it will not change the prices of Treasury bonds if it purchases them."
"The Fed can buy all the government debt it wants right now, and that will be irrelevant, for inflation or anything else."
"If it were up to me, I would have given Wallace the [Nobel] prize a long time ago, and I think Sargent would say the same. However, not everyone in the profession is aware of Wallace's contributions, and people who are aware don't necessarily get as excited about them as I do."
Again for my imaginary readers, Stephen Williamson, obvious to Williamson followers. I've, putting aside false modesty, become very expert on Wallace '81. These quotes show an amazingly overliteral interpretation of the model to reality. It would be like saying, with great confidence, you'll never find anyone who doesn't hold the market portfolio and/or government bonds because this was proven in the CAPM.
DeletePlus, for Wallace, the "in a liquidity trap" part is not necessary. This is always true in Wallace, whatever the starting equilibrium prices are.
No clue about either, but #1 is certainly a fine wordsmith.
ReplyDelete