For such a great man, Michael Bloomberg sure isn’t represented well by Bloomberg News. (Update, I meant by this, that BN doesn’t live up to the name, the standard.)
Actually I’m too hard on them. Bloomberg News is fairly ok, and they supply the only quasi-intraday 5-year TIPS yield on the net, which is useful if you’re running webscrapers to gather those data.
But today they had a misleading headline:
I’ll be damned if I’ll let that stand unopposed!
Go ahead and read the article. It’s short. Basically it seems that someone was writing about Canadian housing prices, probably that they’re under threat from falling oil prices. Then, I am guessing here, an editor had the author weave it into the unexpected rate cut story. There’s a special spot in hell for editors.
For the record—and I’m just writing this to keep my mind limber, I know most of you already understand it—you don’t cut rates to save a housing market. You cut rates, or rather move rates below the heretofore expected rate path, to boost nominal income. At leas that should be your reason, because that’s what you’d be doing, directly.
House prices are incidental. Hell, higher house prices are undesirable by themselves, as they hinder affordable family formation. The important thing is to keep the realized nominal income path as close as possible to the expected nominal income paths from the recent past, lest you cause a debt crisis. Today’s rate cut seems reasonable to me, and without looking into it further, my suspicion is that the Canadian economy will be fine, because the BoC seems to be implicitly following Lars Christensen’s Export Price Norm. Look at this graph from Yahoo! Finance:
The CAD is getting hammered, as well it should. I’m impressed the BoC is allowing their currency to weaken like this. The only alternative would be to run the country through a recession for the sake of ‘currency prestige’, which while really stupid, happens all the time. Sort of different shocks, but this reminds me of how Greenspan allowed the USD to similarly weaken when the U.S. was hit with the ’87 stock market crash
The Canadian dollar weakening is a great example of the benefits you get from having a small, local currency. Texas and North Dakota are almost certainly headed for local recession, because they’re in the ‘USD zone’. Canada, blessedly, is an independent nation, and will thus have the option of responding to local circumstances with a weaker currency. Being part of a currency empire is not a good thing.
The plot above suggests Switzerland is far from overheating. NGDP growth has steadily risen since the ceiling was put in, in 2012, but is still well below the 4% per year that’s probably about optimal.
All I can think is that the SNB has been forced to buy lots of foreign currency since this Russia trouble began and rumors of Greece leaving the EMU started circling. That is, much of the pressure on the CHF had been speculative (does the SNB have the will to print?) whereas now there’s genuine haven demand-folks really want to hold CHF and Swiss assets. Maybe the SNB is uncomfortable with its recent surge (that I’m assuming happened) in currency holdings.
If this is the case, it seems like a big mistake to me. I’m blogging on my phone and can’t update myself on Switzerland until late tonight, so take my analysis with some salt. I look forward to learning now the Brazilian and Danish market monitarists read this.
I hope it was clear that by allowing the franc to appreciate, the SNB has tightened monetary policy. The drop in Swiss share prices suggests this is going to be bad for NGDP. I wish I had had a webscraper set up to gather Swiss financial market prices.
At least for a few days.
I just got off the phone with Amazon. I’d run up a $1600 hosting bill with them for December!
Upon learning how much I’ve spent, I killed my instances, so the site is now gone.
Amazon is going to refund the charges most likely, because they are a good company that knows about building long term relationships with their customers. But anyway, I will need to figure out how to use their (cheaper) Linux servers before I can put the site back up. This might mean changing a few things about how it works. So EF is dead until I can will myself to do the remedial work.
I feel really grateful to Amazon right now, this error is totally my oversight, but they’re bailing me out.
This is off topic, but y’all might like it all the same.
Robb Wolf, the paleo guru (with a solid chemistry background) has a lady named Barbara Oakley on his podcast. I’m not sure who she is, but she sounds smart. They start talking about nutrition research and…it sounds like economics!
No consensus. Few replicated results. Government policy badly affected by ill-validated science. Even if you’re tired of hearing about the whole paleo/ancestral health framework (I didn’t let it hold me back from the Christmas baklava), the first half is worth a listen.
Being in the midst of orthodontic and dental orthopedic treatment (fixing an unstable bite caused by botched braces earlier) I can tell you orthodontics as a field is almost as messed up as macroeconomics is. I’ve never been all that impressed with physicians either…
This reminds me of those cases where the Mississippi floods out a bunch of people who were living in flood planes thanks to government subsidized insurance. The free market says “don’t do it!” but the state overrides it.
The Vermont state government is currently funding a study on the comprehensive effects of cannabis legalization.
I find myself wondering how you’d estimate such a policy’s tax revenue effects. I look forward to reading the study and seeing how they (the RAND corp) go about doing this.
The main thing to focus on is the effect of bringing the cannabis industry into de jure GDP. Right now lots of product is sold on the black market. This really should be counted in GDP, because it’s a final transaction, but it goes untaxed and unrecorded. It’s similar to the problem of home production. Before the 1970s lots of working age women produced final food products and rendered household and childrearing services outside of the de jure economy. Many women still worked for cash, but you know what I’m saying, it’s not like today. Home-working women were the ‘pot dealers’ in this example. Then, for complex reasons, women shifted into the cash economy, GDP statistics and the taxman captured the resulting rise in cash transactions, but ignored the drop in home production. However, the original production had a cash value greater than zero, so the measured effect exaggerates the gain in production.
If you’re the government, and your goal is to maximize tax revenue while also staying in power, you should be out hunting for opportunities to bring economic activity from the ‘informal’ side of the ledger to the ‘measured and taxed’ side. Those drug dealers aren’t paying you protection.
The thing is, how do you measure the black market? How do you anticipate the industrial transformations that happen in the transition. Presumably, without the black market constraint, productivity in the industry will skyrocket, if only from the improvement in worker ability. In a case like this you never get much beyond ‘back of the envelope’ sorts of results.
This is why federalism is so great. The only reason Vermont is looking at this so soon is because the Colorado government made a boatload of money off their legalization. That’s evidence that convinces people. If your state’s politics permit legalization, and you’re a state government, this is a no-brainer, especially for a state like Vermont which is already has high taxes on the obvious revenue sources. The Vermont state government is in a bind, because the governor overpromissed on a single-payer healthcare system. Just maybe the state can narrow the gap by becoming the weed-beer-skiing tourism hub for Boston, Montreal and NYC. There are risks, but then Vermont votes for governor every two years. You got to deliver.
There are also tax gains from people shifting spending from consumer industries less taxed than cannabis presumably would be. Imagine if people bought fewer groceries and more drinks at bars. A dollar of bar drink is taxed at a higher rate than groceries, especially food. This is less interesting, because it increases the Taxes:GDP ratio, which I don’t like, but it could still be a modest source of cash for the government.
1.Which admittedly is buried within aggregate production growth and confounded by swings in productivity
2. I find that this example also helps show why real GDP is best though of as a production index. You can certainly come up with a reasonable dollarization of a given period of housewife production, but it’s somewhat misleading. The shift from home production to market production results in such a marked change in the economy that it seems odd to me that we’d choose to think of it first as a dollar concept. It’s more of a magnitude, a direction in a very big space. Using an index would more-readily bring the mind to this understanding, and I imagine that if RGDP were published as an index, with the dollarization buried in the release, that RGDP growth would get a lot less attention.
This post was updated on 19-Jan-2015 to correct typos and improve prose.
A friend sent me a link to augur.net last night. It’s a decentralized prediction market start up. Unlike past prediction markets like intrade, these guys are going to try and set their market up using Bitcoin so it will be anonymous and hard for the bullies in U.S. government to shut down. I take this to also mean that Americans will be able to trade in the market, which won’t be the case with Sumner’s new NGDP market project.
I don’t know anyone on the team, and I haven’t even finished reading their theory paper yet, but so far it looks pretty cool. I particularly like that they’re using Bitcoin. If the government would just be reasonable and take a cut of the action (which is their right, as the uber neighborhood boss) we wouldn’t need Bitcoin, but for whatever reason its OK to bet on meaningless things like horses or football or spinning wheels, but not alright to bet on election outcomes or macro economic events, where the betting would yield socially useful signals. It’s possibly the government’s weirdest prohibition.
I just hope these guys aren’t based in the U.S., the safest place for them would be Russia or China (what a weird world we live in) but if I had to guess I’d say they’re in the Bay Area and if successful, will have their lives ruined.