Brian Blackstone Doubles Down on a Big Mistake in Reporting on Monetary Policy

I think it is a pity that (with the possible exception of his transitive flagging of “Larry Summers Just Confirmed that He is Still a Heavyweight on Economic Policy” through Brad DeLong in his op-ed “A Permanent Slump”) Paul Krugman continues to talk as if the zero lower bound is a law of nature, rather than a policy choice. At least Paul has the potential excuse that he is writing on the opinion page, and is making a strategic choice about how he can best affect policies in the directions he wants to affect them. But Brian Blackstone is the Wall Street Journal’s news reporter in Frankfurt, who specializes in reporting on the actions of the European Central Bank; when he says uncritically in his November 2 article “European Central Bank’s Bond Conundrum” that 

ECB interest rates can’t go lower.

without any qualification, that is just bad reporting.

When I gave my presentation “Breaking Through the Zero Lower Bound” at the ECB in July, the staff there took very seriously the idea that a time-varying paper currency deposit fee as I advocate in that presentation could allow the ECB to cut its target rate to -1.25% immediately. They realized that was a big deal and not an easy policy choice to make, both because it would be something unprecedented, and because it touches several political nerves. But there was much less dispute over whether it would work than I see about whether quantitative easing can stimulate the eurozone economy enough. And if there are any limitations on the ECB’s authority that would prevent such an action, no one there pointed to such a limitation. 

Brian was within the scope of my previous criticism of reporting in my post “The Wall Street Journal’s Big Page One Monetary Policy Mistake,” which makes the case for the newsworthiness of my proposal to make deep negative interest rates possible for the ECB with a time-varying paper currency deposit fee at the cash windows in the ECB and other banks in the European System of Central Banks. I would be delighted to talk to him directly about that proposal.

In general, reporting what government agencies can do, but choose not to, is helpful by holding them to account. Just so, I believe that matter-of-fact reporting that the ECB could make deep cuts in its interest rate, but so far chooses not to, would help make the ECB accountable–which in turn would better policy more likely. And if the ECB faces any limitations on its authority that would prevent the kind of policy I advocate, reporting on those limitations would help people understand what the issue is. So it matters.  

See my annotated bibliography on what I have written about employing negative interest rates in my post “How and Why to Eliminate the Zero Lower Bound.”

Adam Mossoff: The “Common Law Property” Myth in the Libertarian Critique of IP Rights, Part 1 →

I am posting this link to Part 1 of Adam Mossoff’s post on the history of copyright law because I think our copyright law is too restrictive. My interest in copyright policy can also be seen in my post “Copyright,” and from the link post that I am reproducing in full below: 

The Wonderful, Now Suppressed, Republican Study Committee Brief on Copyright Law

This is an excellent policy brief that is a well-written, fast, easy read. You can still see it thanks to Maryland Pirates.  Alex Tabarrok flagged it here. And Matthew Yglesias has a great discussion of the politics and the economic merits in his post “The Case of the Vanishing Policy Memo.” But on the economic merits, the policy brief speaks well for itself.

Truth or Consequences

One of my highest allegiances is to truth. (Except in the title and at the beginning of sentences, and toward the end of this one, I will use the lowercase “truth” because many groups capitalize “Truth” to refer to things that are not true at all.) The Mormonism I was raised in teaches that fidelity to truth is a higher value even than fidelity to Mormonism. It does so in a way many Mormons don’t recognize by the frequent avowal that “The Church is true.” If truth can validate Mormonism, then truth can judge Mormonism; and if there is ever a parting of ways between truth and a religion, so much the worse for that religion.

This past week, I thought again about allegiance to truth when I heard that there was a ban on federal funding on research about the effects of guns. I was relieved to find that President Barack Obama had lifted that ban in January, 2013, But there are many who would like to reinstate a ban on federal funding of gun research.

In my personal life, in order to keep myself from avoiding the truth, I often say to myself: “Whatever you decide is true, you don’t necessarily have to do anything about it,” lest fear of what I should do given certain findings tempt me to not find out the truth. In this context, let me say clearly that even if we find that guns are very damaging, it doesn’t mean that we have to tighten controls over them, and even if we find that guns are not very damaging at all, it doesn’t mean we have to loosen controls over them even further. Let’s find out what is true, and then argue over what to do about it. 

Also, let’s not let our own failings in relation to the truth compromise our allegiance to the truth. We are all imperfect, and most of us at least occasionally tell lies. But let us nevertheless strive to set up social structures that avoid leading us into the temptation to tell lies, and that make it less likely that others will tell us lies.  

Though no one is perfect, a simple way to increase one’s incentives to tell the truth is to advocate in favor of truth-telling: the costs of lying oneself are higher when one has scolded others for lying. If your psychological makeup is of the standard variety, putting oneself at risk of the accusation of hypocrisy, one is likely to think twice about telling a lie in any particular circumstance.   

As I wrote in my column “Judging the Nations: Wealth and Happiness Are Not Enough,” in a stiff competition of well over 100 different characteristics of a nation, Dan Benjamin, Ori Heffetz, Nichole Szembrot and I found that the one people on average valued the most was

freedom from injustice, corruption, and abuse of power in your nation

and eighth most valued characteristic was 

people’s freedom from being lied to, deceived or betrayed.

People hate being lied to, and they hate the injustice, corruption and abuse of power that tend to go along with official lying. 

In order to find out the truth, careful research is often necessary. In some cases, that research is done by journalists. In other cases, it is done by scientists. When scientists make the case that they should be supported in their efforts to discover the truth, it is important that they in fact be devoted to finding out the truth, regardless of whether the truth fits in with their personal ideology or not. Given the subtle ways in which our subconscious minds steer us toward reinforcing our own preexistent biases, if we ever allow ourselves to consciously suppress things in order to further our side of the debate, we are in deadly quicksand. And whenever we lie in public to further our side of a scientific debate, we have gone far, far over the line, and deserve to be reprimanded severely. (And having previously subjected oneself to a financial temptation to lie in public debate provides no valid excuse for lying.)

Though it doesn’t always work this way, I think a fascination with the math behind applied statistics can be an aid in keeping one honest in empirical research. The love of that math can distract one at crucial moments from the temptation to follow one’s ideological prejudices. Also, it may well be that having just a touch of Asperger’s syndrome on the autism spectrum is protective against the temptation to follow one’s own ideological biases. And having techy friends to answer to who care more about getting the statistics right than getting the ideologically correct answer can also help.

As economists (speaking to those of you who are economists), let us work to strengthen the social pressure we put on each other to tell the truth in both shallow and deep ways. And as human beings, let us work to reduce the temptation we and others face to tell lies. I think we make ourselves less than we might otherwise be when our allegiance to the truth wavers. Let us instead make ourselves more.

How and Why to Avoid Mixing Monetary Policy and Fiscal Policy

When Raymond Reddington (played by James Spader) burns a pile of US paper currency in the second season opening of “The Blacklist,” he is giving a gift to the Federal Reserve (the “Fed”), and through the Fed, to the US government. To see this, notice that right after the US paper money is burned, the Fed can ask the US Mint to print an equal amount of paper currency for its vaults, and other than the cost of the paper and ink themselves, get the same result as if Raymond Reddington had given the paper currency directly to the Fed. This would be income to the Fed, and unless the Fed increased its expenses, would ultimately be added to the check that the Fed sends to the US Treasury every year.  

Similarly, if the Fed mails money to every US citizen, instead of using the money it creates to buy US Treasury bills, as it usually does, then the US Treasury ends up selling those bonds to someone else and the US government ends up owing that amount to someone else who won't ultimately send the interest it earns back to the US Treasury as the Fed does. 

Indeed, if the Fed mails every citizen money–a so-called “helicopter drop”–it is equivalent to the Fed doing its usual thing of buying US Treasury bills, plus the US Treasury issuing treasury bills to finance sending money to every citizen. The reason treating a helicopter drop as the combination of these two operations is useful is that the first (the Fed buying US Treasury bills) is the normal way that the Fed changes interest rates (when the zero lower bound doesn’t get in the way), while the second (the US Treasury selling bonds to finance sending money to every citizen) brings in all the complexity of fiscal policy. In the present, it takes money from those who buy the new bonds (who presumably like to save) and gives it to all the citizens (among whom there are some who like to spend). From a long-run perspective, having the US Treasury sell bonds to finance sending money to every citizen takes money from future taxpayers, in proportion to who would be asked to pay extra future taxes, to spread it out relatively evenly to citizens now. So there is redistribution. And the overall amount of redistribution that takes place through fiscal policy is an object of fierce debate between the major political parties.

I think the debate about how much redistribution should take place should be carried out in as open and transparent a way as possible. But if there are to be any obfuscations in this area, leave the Fed out of those obfuscations! If you think it is a good idea to mail money to every citizen, let the US Treasury do it; then no one will mistake what is going on, and the argument can be in the open.   

Now, when the economy needs stimulus, and monetary policy is seriously constrained in a way that can’t be helped, mailing a credit card to every citizen with a $2000 line of credit as I have advocated is somewhere between regular fiscal policy and regular monetary policy, and might be appropriate to put under the Fed’s jurisdiction. Such a policy strives not to redistribute, though it unavoidably does to some degree when some fraction of people fail to repay the loan from the government. 

In addition to thinking that arguments about redistribution should be out in the open (as they are on my blog), I think it is important that the Fed be shielded from politics as much as possible in order to allow it to do its job of economic stabilization (keeping output at the natural level as that natural level shifts around in response to technological progress, and keeping the price level steady). That is why I argued in my column “Why the US Needs Its Own Sovereign Wealth Fund” that instead of having the Fed engaged in “quantitative easing,” buying anything other than 3-month Treasury bills should be left to another, new government agency:

… isn’t it a bit much to expect the Fed to both choose the right amount of stimulus for the economy and decide which financial investments are the most likely to turn a profit for a government that faces remarkably low borrowing costs?

Why not create a separate government agency to run a US sovereign wealth fund? Then the Fed can stick to what it does best—keeping the economy on track—while the sovereign wealth fund takes the political heat, gives the Fed running room, and concentrates on making a profit that can reduce our national debt.

I collected links to other posts I have written about sovereign wealth funds as an instrument of economic policy here. 

Through Roger Farmer, who also endorses sovereign wealth funds as an instrument of economic policy, I heard about Mark Blythe and Eric Lonergan’s plan, heartily endorsed by Matt Miller, to either (a) mail money to consumers, or (b) earn returns through the central bank acting as a sovereign wealth fund and then send the funds earned out to people: 

Central banks could issue debt and use the proceeds to invest in a global equity index, a bundle of diverse investments with a value that rises and falls with the market, which they could hold in sovereign wealth funds. The Bank of England, the European Central Bank, and the Federal Reserve already own assets in excess of 20 percent of their countries’ GDPs, so there is no reason why they could not invest those assets in global equities on behalf of their citizens. After around 15 years, the funds could distribute their equity holdings to the lowest-earning 80 percent of taxpayers. The payments could be made to tax-exempt individual savings accounts, and governments could place simple constraints on how the capital could be used.

Of these two ideas, I think the second, (b) is better. The money for redistribution is coming not from raising taxes but from having the government do risk bearing it is actually rewarded for, instead of through implicit risk guarantees that benefit private, often wealthy individuals.

However,

  1. I think it is much better institutionally to separate the sovereign wealth fund from the central bank. A sovereign wealth fund, though immensely valuable, is inherently controversial. The Fed and other central banks face enough controversy even when they don’t act as sovereign wealth funds. They don’t need the added political burden.
  2. Although I like the idea of new revenue that doesn’t come from taxes being used for some form of redistribution, it is not clear to me that sending people money is the best form of redistribution. There should be a vigorous debate about the most effective ways to lift up the poor for a given amount of money used. This is the issue I have with basic income proposals as well. Are they really the most effective ways to help the poor per dollar spent? (For example, see 1 and 2.) 

Still, I am glad to see the idea of a sovereign wealth fund gain traction–not only

  • as a way to stabilize the financial cycle–which would continue to exist even if the Fed completely tamed the business cycle, other than those fluctuations that are an appropriate response to technology and other real shocks–but also
  • as an alternative way to add to government revenue on average without resort to taxes.

Notice that in the background I have a particular view on the rational level of risk aversion, which I plan to defend in a future post–though it is always hard to find time to write major, relatively technical posts.

I also want to be clear in saying that, after eliminating the zero lower bound (as it should), a central bank should only raise the amount of revenue that is consistent with maintaining zero inflation in the unit of account (except for a bare minimum of hard-to-avoid short-run fluctuations in inflation). In particular, inflation is a very costly way to renege on the promises a government makes when it issues bonds. That seems like a bad idea to me.

“The ideas of economists and political philosophers, both when they are right and when they are wrong, are more powerful than is commonly understood. Indeed the world is ruled by little else. Practical men, who believe themselves to be quite exempt from any intellectual influence, are usually the slaves of some defunct economist. Madmen in authority, who hear voices in the air, are distilling their frenzy from some academic scribbler of a few years back. I am sure that the power of vested interests is vastly exaggerated compared with the gradual encroachment of ideas. Not, indeed, immediately, but after a certain interval; for in the field of economic and political philosophy there are not many who are influenced by new theories after they are twenty-five or thirty years of age, so that the ideas which civil servants and politicians and even agitators apply to current events are not likely to be the newest. But, soon or late, it is ideas, not vested interests, which are dangerous for good or evil.”

– John Maynard Keynes, The General Theory of Employment, Interest and Money, Ch. 24 “Concluding Notes,” p. 383-384

John Stuart Mill: We Are Ethically Responsible for the Harm We Do to Others, Even When That Harm Stems from First Doing Harm to Ourselves

How can the idea of personal liberty survive the argument that we are all connected, so harm to oneself is harm to society? John Stuart Mill holds the line, strongly resisting the idea that the interconnectedness of people is an excuse for meddling. Only the actual harm we do to others–regardless of whether or not it is caused by harm to self–deserves blame or if severe, punishment. Here is his argument, from On Liberty, Chapter IV, "Of the Limits to the Authority of Society over the Individual” paragraphs 8-10:

The distinction here pointed out between the part of a person’s life which concerns only himself, and that which concerns others, many persons will refuse to admit. How (it may be asked) can any part of the conduct of a member of society be a matter of indifference to the other members? No person is an entirely isolated being; it is impossible for a person to do anything seriously or permanently hurtful to himself, without mischief reaching at least to his near connexions, and often far beyond them. If he injures his property, he does harm to those who directly or indirectly derived support from it, and usually diminishes, by a greater or less amount, the general resources of the community. If he deteriorates his bodily or mental faculties, he not only brings evil upon all who depended on him for any portion of their happiness, but disqualifies himself for rendering the services which he owes to his fellow-creatures generally; perhaps becomes a burthen on their affection or benevolence; and if such conduct were very frequent, hardly any offence that is committed would detract more from the general sum of good. Finally, if by his vices or follies a person does no direct harm to others, he is nevertheless (it may be said) injurious by his example; and ought to be compelled to control himself, for the sake of those whom the sight or knowledge of his conduct might corrupt or mislead.

And even (it will be added) if the consequences of misconduct could be confined to the vicious or thoughtless individual, ought society to abandon to their own guidance those who are manifestly unfit for it? If protection against themselves is confessedly due to children and persons under age, is not society equally bound to afford it to persons of mature years who are equally incapable of self-government? If gambling, or drunkenness, or incontinence, or idleness, or uncleanliness, are as injurious to happiness, and as great a hindrance to improvement, as many or most of the acts prohibited by law, why (it may be asked) should not law, so far as is consistent with practicability and social convenience, endeavour to repress these also? And as a supplement to the unavoidable imperfections of law, ought not opinion at least to organize a powerful police against these vices, and visit rigidly with social penalties those who are known to practise them? There is no question here (it may be said) about restricting individuality, or impeding the trial of new and original experiments in living. The only things it is sought to prevent are things which have been tried and condemned from the beginning of the world until now; things which experience has shown not to be useful or suitable to any person’s individuality. There must be some length of time and amount of experience, after which a moral or prudential truth may be regarded as established: and it is merely desired to prevent generation after generation from falling over the same precipice which has been fatal to their predecessors.

I fully admit that the mischief which a person does to himself may seriously affect, both through their sympathies and their interests, those nearly connected with him, and in a minor degree, society at large. When, by conduct of this sort, a person is led to violate a distinct and assignable obligation to any other person or persons, the case is taken out of the self-regarding class, and becomes amenable to moral disapprobation in the proper sense of the term. If, for example, a man, through intemperance or extravagance, becomes unable to pay his debts, or, having undertaken the moral responsibility of a family, becomes from the same cause incapable of supporting or educating them, he is deservedly reprobated, and might be justly punished; but it is for the breach of duty to his family or creditors, not for the extravagance. If the resources which ought to have been devoted to them, had been diverted from them for the most prudent investment, the moral culpability would have been the same. George Barnwell murdered his uncle to get money for his mistress, but if he had done it to set himself up in business, he would equally have been hanged. Again, in the frequent case of a man who causes grief to his family by addiction to bad habits, he deserves reproach for his unkindness or ingratitude; but so he may for cultivating habits not in themselves vicious, if they are painful to those with whom he passes his life, or who from personal ties are dependent on him for their comfort. Whoever fails in the consideration generally due to the interests and feelings of others, not being compelled by some more imperative duty, or justified by allowable self-preference, is a subject of moral disapprobation for that failure, but not for the cause of it, nor for the errors, merely personal to himself, which may have remotely led to it. In like manner, when a person disables himself, by conduct purely self-regarding, from the performance of some definite duty incumbent on him to the public, he is guilty of a social offence. No person ought to be punished simply for being drunk; but a soldier or a policeman should be punished for being drunk on duty. Whenever, in short, there is a definite damage, or a definite risk of damage, either to an individual or to the public, the case is taken out of the province of liberty, and placed in that of morality or law.

Notice that this principle means that excusing one’s behavior by reduced capacity from, say, alcohol use, or not having gotten enough sleep, should not be given much weight. If allowing one’s capacity to be reduced is likely to lead one to harm others, one has the responsibility to avoid reducing one’s capacity when in the presence of others one might hurt.

In other words, allowing people freedom in their private lives means that we should allow fewer excuses for the effects of their interactions with others.

Economic Fiction (The Good Kind)

The day before yesterday, in “On Real and Fictional Economists” I posed the question of what books and movies have economists as heroes. In addition to the comments on the post itself (including several very promising book recommendations), I received many interesting tweets. For example, I learned from Diane Coyle’s post “Economists in Fiction” of several books, and from her and others that there are now foureconomic murder mysteries by Marshall Jevons:

  1. Murder at the Margin
  2. Fatal Equilibrium
  3. A Deadly Indifference
  4. The Mystery of the Invisible Hand

I loved the first two, which were all I knew existed. 

Diana Coyle recommends other books with economist heroes, but points out how many more philosopher heroes there are in fiction. Ian Preston provides evidence for how few economist heroes their are in fiction with these Ngram frequency graphs:

blog.supplysideliberal.com tumblr_inline_ndxn6aPCkR1r57lmx.png
blog.supplysideliberal.com tumblr_inline_ndxngmIVmo1r57lmx.png

IMF economist Rex Ghosh has a book Nineteenth Street NW that was reviewed in the New York Times. That book review, “A Novel Whose Plot Seems Oddly Familiar” includes this grimly entertaining quotation from Rex:

When I was trying to shop the book around, originally in 2006, I could not get anyone interested. I remember a letter from a major publishing house saying, ‘It’s very nicely written, great characters, but the plot — a global financial crisis — is too implausible.’ 

On TV, “The Wire” includes a significant economics component, as pointed out by Ian Preston and JD Portes:

“The Wire”

Update: Michael W. Klein wrote to me on Facebook about his book:

Miles, I’ve been reading, with great interest, your posts for some time now. I saw your recent post on economists in novels; you might want to check out my 2011 satirical novel, Something For Nothing which is about a young economist’s first year post-PhD when he has an adjunct position at a small liberal arts college and faces personal and professional challenges after an article on teenage abstinence programs that he wrote as a grad student goes viral. Best wishes, Michael

On Real and Fictional Economists

 

My own interactions with John Nash have been limited to invoking Nash equilibrium or Nash bargaining, and seeing the movie and reading the book A Beautiful Mind. But when I was at Princeton last week, I heard that John Nash still comes to economics seminars.

I also heard the story that when they were filming a part of the movie in his office, he was told along with everyone else that he needed to wait until they were done filming to go into that area, and he waited patiently, unrecognized. 

The movie “A Beautiful Mind” is unusual in having an economist as the hero–and one who really sounds like an economist. Of course John Nash was also a mathematician. I think there are more mathematician heroes in film than economist heroes. 

On TV, the most prominent economist character I can think of is President Jed Bartlett in “The West Wing,” who was played by Martin Sheen. Unfortunately, although Jed Bartlett is supposed to have a Nobel prize in economics, one doesn’t have to listen very long to realize that he doesn’t think like an economist. So while, depending on your politics, Jed Bartlett may be a good role model for US presidents, he is not a good role model for economists.  

I suspect that the most influential fictional economist is actually Hari Seldon, from Isaac Asimov's Foundation series. I think of Hari Seldon’s “psychohistory” as very much like macroeconomics at its best: using the law of averages to make aggregate predictions even where it is hard to predict the behavior of any one individual. Although other scientific disciplines beckoned me along the way, I credit reading Isaac Asimov’s Foundation series with doing a lot to dispose me toward becoming an economist. I am not the only one for whom this was a big influence. Paul Krugman also credits the Foundation series as an important influence. The current version of the Wikipedia article on Hari Seldon reports that link this way:

At the 67th World Science Fiction Convention in Montréal, Québec, Canada, Paul Krugman, the Nobel Laureate in Economics, mentioned Hari Seldon. According to Krugman, his interest in economics began with Asimov's Foundation novels, in which the social scientists of the future use “Psychohistory” to attempt to save civilization. Since “Psychohistory” in Asimov’s sense of the word does not exist, Krugman turned to economics, which he considered the next best thing.[3] In his column he considers Ibn Khaldun having done “a pretty good job” of setting himself up as the Hari Seldon of medieval Islam.[4]

I would love to hear about other fictional economists and the influence of fictional economists in the world. Overall, I think our discipline is represented fairly positively in popular culture, given the many controversial things we deal with.  

In the real world, I think that for anyone wanting to build a better world, as Hari Seldon tried to make a better galaxy, making one’s case to young economists is one of the most promising ways to make it happen. That is a theme I have returned to often:

I have even tried to put together a bit of a strategy manual for trying to change the world in this way:

As I said in my post “Prioritization,” I would be glad for any helpful hints to improve on the kind of strategy I am pursuing beyond “do more."

The Wall Street Journal's Big Page One Monetary Policy Mistake

Ian Talley and Brian Blackstone. (I couldn’t validate any Google image of Raymond Zhang)

Ian Talley and Brian Blackstone. (I couldn’t validate any Google image of Raymond Zhang)

Working at the Wall Street Journal, Ian Talley, Brian Blackstone and Raymond Zhang are near the top of the heap for reporters. And I evidenced in my post “Will the ECB Go Negative?” my admiration for Brian Blackstone’s reporting in “ECB Mulls Bolder Moves to Guard Against Low Inflation: Officials Indicate They Will Consider Negative Interest Rates, Asset Purchases.” So it is disappointing to see Ian, Brian and Raymond write last Monday in "Global Signs of Slowdown Ripple Across Markets, Vex Policy Makers“ something that is seriously misleading, whether from ignorance, depending too much on what central bank officials and other government officials say, or an unwillingness to complicate their narrative. (You can jump over the paywall just by googling the title.) They write:

More than five years after the recession, officials are facing a difficult policy environment: Major central banks, which stepped up repeatedly to ease fears and energize markets, are reaching the limits of their powers.

Except perhaps due to legal limitations that Ian, Brian and Raymond do not address, this is not true. As I told at attentive audience at the European Central Bank in July, the European Central Bank could cut its target rate to negative 1.25% immediately, as long as it charges a time-varying fee when private banks deposit paper currency at a cash window of the European System of Central Banks. The European Central Bank should do exactly that. 

After the title, the first slide in my Powerpoint file "Breaking Through the Zero Lower Bound” says

The zero lower bound is a policy choice, not a law of nature. 

Here is a list, copied from my post “Electronic Money: The Powerpoint File” of places I have presented or am slated to present this seminar (other than the University of Michigan, where I have presented it multiple times to different audiences):

  • Bank of England, May 20, 2013
  • Bank of Japan, June 18, 2013
  • Keio University, June 21, 2013
  • Japan’s Ministry of Finance, June 24, 2013
  • University of Copenhagen, September 5, 2013
  • National Bank of Denmark, September 6, 2013
  • Ecole Polytechnique (Paris), September 10, 2013
  • University of Paris, September 12, 2013
  • Banque de France, September 13, 2013
  • Federal Reserve Board, November 1, 2013
  • US Treasury, May 19, 2014
  • European Central Bank, July 7, 2014
  • Bundesbank, July 8, 2014
  • Bank of Italy, July 11, 2014
  • Swiss National Bank, July 15, 2014
  • Princeton University, October 13, 2014
  • Federal Reserve Bank of New York, October 15, 2014
  • New York University, October 17, 2014
  • European University Institute (Florence), October 29, 2014
  • Qatar Central Bank and Texas A&M University at Qatar joint seminar, November 17, 2014

There has also been quite a bit of discussion of my proposal in online journalism, including quite a few interviews listed in my bibliographical post “How and Why to Eliminate the Zero Lower Bound: A Reader’s Guide.” To quote Paul of Tarsus, “these things were not done in a corner." 

I have now been to enough central banks that I can talk about their reaction without revealing inside information about any particular central bank. Both the staff in each central bank and the 7 members of monetary policy committees who heard my arguments took my proposal for a time-varying paper currency deposit fee very seriously. Some in each category want to take things to the next step of preparing for possible implementation. Everyone recognizes that subordinating paper currency to electronic money is a big step, and not one to be taken lightly.  

There are two reasons why I think that the kind of thing I propose will in fact happen. The first is that technical progress will lead to an increased fraction of transactions happening in electronic form in the future–that is with credit cards, debit cards, electronic transfers, etc. The second is that there are many central banks in the world, each of which faces a different political situation. Once one central bank puts a time-varying paper currency deposit fee into its toolkit, it becomes much easier for other central banks to do so.

To understand how different the political situations faced by different central banks can be, consider a central bank in a nation that has been running about 6% inflation for quite some time that decides it is time to go down to a lower level of inflation. If as part of bringing its inflation rate to zero, that central bank puts in place the machinery for breaking through the zero lower bound with a time-varying paper currency deposit fee, it will be hard to accuse that central bank of following a "soft-money policy.” And it will be hard to complain about the possibility of future negative interest rates during a time when the central bank has raised interest rates to begin gradually reducing its inflation rate.    

There are many practical reasons why people would want to know about the possibility of (a) negative interest rates, (b) an exchange rate or paper currency that is away from par, and © inflation targets well below 2% for major central banks at some point in the future. Investors in the stock market would care. Bond traders would care. Bankers would care. Anyone writing a debt contract would care. The Wall Street Journal should clue its readers in–as many other news organizations have.

The overall tenor of Ian, Brian and Raymond’s article is to talk about the many different approaches that are being discussed to deal with the persistent slump in Europe. But they missed the best and most straight forward approach: for the European Central Bank to cut it target rate to -1.25% with the help of a time-varying paper currency deposit fee.

The discussion in my seminar at New York University last Friday made me appreciate a little more the virtues of my very first column on eliminating the zero lower bound: “How Subordinating Paper Currency to Electronic Money Can End Recessions and End Inflation.” And you can see the later development of the ideas in the Powerpoint file and in the other posts I lay out in “How and Why to Eliminate the Zero Lower Bound: A Reader’s Guide.”

God in the Utility Function

I have been trying to figure out why I am moved by Amy Grant’s song by Sarah Hart and Chapin Hartford "Better than a Hallelujah.“ Some of the lyrics are 

God loves a lullaby, in a mother’s tears in the dead of night, better than a Hallelujah sometimes 

God loves the drunkard’s cry, the soldier’s plea not to let him die, better than a Hallelujah sometimes.

We pour out our miseries. God just hears a melody. Beautiful, the mess we are: the honest cries of breaking hearts are better than a Hallelujah. 

In celebrating human life despite all of its suffering, it reminds me of the passage from Richard Dawkins’s book Unweaving the Rainbow that I quoted in my sermon "The Mystery of Consciousness”: 

We are going to die, and that makes us the lucky ones. Most people are never going to die because they are never going to be born. The potential people who could have been here in my place but who will in fact never see the light of day outnumber the sand grains of Arabia. Certainly those unborn ghosts include greater poets than Keats, scientists greater than Newton. We know this because the set of possible people allowed by our DNA so massively outnumbers the set of actual people. In the teeth of these stupefying odds it is you and I, in our ordinariness, that are here. We privileged few, who won the lottery of birth against all odds, how dare we whine at our inevitable return to that prior state from which the vast majority have never stirred?

But I think that there is something more than this in “Better than a Hallelujah.” I see “Better than a Hallelujah”: pointing out how beautiful the good side of human utility functions is. 

The good side of human utility functions is more than beautiful: in the terms of my view in “Teleotheism and the Purpose of Life,” the good side of human utility functions is our starting point for building God. I wrote: 

let me do a riff on Anselm by defining God as “the greatest of all things that can come true.”  God is the heaven—or in Mormon terms, the Zion, the ideal society—that we and our descendants can build, and god is a reasonable description of the kind of people who make up that society.   But what does a heavenly society look like?

No doubt our descendants will have a clearer idea of the greatest of all things that can come true than we do, but only if we start moving in that direction based on the good side of human utility functions. 

What is the good side of human utility functions? It is all of our desires that can, in principle, be satisfied without bringing others down–desires the likes of which we could logically wish to come true for all people. It is those desires that “Better than a Hallelujah” points to.

Edward Glaeser, Joshua Gottlieb and Oren Ziv: Maximizing Happiness Does Not Maximize Welfare

Ed Glaeser, Joshua Gottlieb and Oren Ziv have what I think you will find to be a very interesting Vox piece that features my research with Dan Benjamin, Ori Heffetz, Alex Rees Jones and Nichole Szembrot, as well as research of their own providing evidence that many people are willing to move to less happy cities (that seem to make movers less happy as well)  for the sake of a higher income or a lower standard of living. Their description of our research is admirably clear:  

Economists define utility as a measure of individuals’ preferences over potential choices. A rich tradition of welfare economics builds on this simple choice-based concept to understand how various policies affect social welfare, whether for better or for worse….

The appropriate interpretation of subjective wellbeing hinges on whether or not stated happiness measures utility. If it does not, then a policy to improve individuals’ stated happiness will not necessarily represent the choices those people would have made for themselves. In this case the policy cannot be justified based on traditional welfare analysis. 

Empirical evidence on the relationship between happiness and utility

In a series of novel experiments and surveys, Benjamin et al. (2011, 2012, 2013) conduct surveys about actual or hypothetical choices people make and measure the expected happiness associated with each choice. They find that actual choices and happiness-maximising choices are positively correlated. But they are not identical. Respondents are prepared to sacrifice happiness in furtherance of another objective, such as a higher income (Benjamin et al. 2011)….

You can see my own description of my coauthored research on the relationship of happiness and utility, including links to current, ungated copies of the papers, in my post “My Experiences with Gary Becker.” There are several important things Ed, Joshua and Orin don’t mention about that research. The most important is that our team is working hard to figure out how to do a National Well Being index right, including thinking through how to do interpersonal aggregation in a practical, but theoretically justifiable way.  

I hope you have noticed that one of the sub-blogs I link to ad my sidebar is my Happiness Sub-Blog, that contains all of my posts (and only my posts) that are tagged “happiness.” For those of you reading on your smartphone, who don’t see the sidebar, here is that link:

Posts on Happiness

Including this one, and counting each Quartz column once, there are now 20 posts in my Happiness Sub-Blog.