Mike Konczal Responds to Me and Yglesias (and Yglesias responds yet again)

Mike Konczal, whose blog Rortybomb is must reading on the economic and financial questions we’ve been talking about here, has a thoughtful post on my exchange with Matt Yglesias.  Konczal argues that the left needs to think hard about monetary policy and not assume fiscal policy will take care of all of our concerns.  I’ll be responding, but very curious to hear your thoughts.

Update (11:10 pm)

Prompted by Konzal’s post, Matt Yglesias has yet another response to our exchange. Again, I’ll be writing something about this in the next few days, so all thoughts are welcome.


  1. Peter K. July 16, 2011 at 12:22 pm | #

    I’d be interested to learn how you’d get more fiscal stimulus – let alone a jobs program – through a Republican House. (I”m amazed Obama got a payroll taxcut last December.)

    Inflation targeting hasn’t even been tried. Is it better to not try something or to try it and see if it would work?

    Do they teach these things at Princeton? I didn’t get into an Ivy league school so I wouldn’t know.

    • Corey Robin July 17, 2011 at 4:38 pm | #

      Peter, the stipulation in the original discussion wasn’t “What is the single most politically viable thing Washington can do to jumpstart job creation?” It was “What is the single best thing Washington can do to jumpstart job creation?” I took best to mean best. That’s something they did teach me at Princeton.

  2. Tom Geraghty July 16, 2011 at 12:54 pm | #

    There are two questions here: (1) can monetary policy be effective now at reducing unemployment? and (2) even if it would be effective, is it preferable to fiscal policy?

    On (1), while it’s true that the conventional Fed policy of buying and selling short-term government bonds is likely to be ineffective, it’s not necessarily true for the unconventional “quantitative easing” policies that people are proposing. According to Henwood, “Corps have lots of cash – they’re just not investing or hiring.” But the whole point of a QE policy is to get firms to transfer their cash piles into productive investment:

    Private investors can choose to hold their wealth in the form of safe assets or risky assets. At the safe end of the spectrum there is cash. At the risky end there is equity and low grade bonds. Unemployment remains at 7.8 per cent in the UK and 9.5 per cent in the US because investors are scared to put their money into activities that create jobs. The appetite for risk has vanished.

    Quantitative easing encourages the private sector to create more jobs. As yields on long term assets fall, some of that money moves into equity and newly capitalised firms expand and begin to hire workers.

    There’s some evidence that what little of this has been actually tried has worked to increase consumption and exports by raising stock prices and lower the value of the dollar:

    For what it’s worth, casual observation suggests that a lot of the growth in consumer spending has been at the high end, which suggests in turn that a higher stock market might be driving it. And the lower dollar has clearly helped US exporters and import-competing firms.


    Nonresidential investment has been rising rapidly, but it was doing that even before QE2 was announced.

    So QE2 has been effective, it’s just not been all that large relative to the size of the output gap we face.

    • Corey Robin July 17, 2011 at 4:41 pm | #

      Tom, you should probably put these excellent questions to Doug; I’m in no position to answer or reply to them!

  3. Tom Geraghty July 16, 2011 at 1:09 pm | #

    On (2), I think that it’s a “both/and” question, not an “either/or.” We need both more aggressive fiscal policy in the context of an accommodative monetary policy. Loose money will make government spending that much more effective.

    Also, who cares if rich people are spending money in a way that helps puts everybody else back to work? In an economy where many people are debt constrained, increases in economic activity have to come from either increased spending by non-debt-constrained people (i.e. via higher inflation and lower real interest rates), or by government (or both).

    A third option would be to reduce the debt constraints, but inflation would help with that, too (as would cramdown or other debt relief policies).

    • Corey Robin July 17, 2011 at 4:43 pm | #

      I think I answered some of this in my reply to Yglesias and Konczal.

  4. Mike July 16, 2011 at 3:42 pm | #

    1. If you haven’t read it before, this Chris Hayes ’09 New America policy piece on The Case for Inflation is fantastic, and put down all the right markers early. Highly recommended. It made me want to get “Inflation Now” pins made up.

    2. The #1 Thing pitch is always lame, but I don’t think Yglesias was wrong on it. I buy Andy Rich’s argument that think tankers should be ideological ideas factories and set what areas need work, and acknowledge how ineffectual they are at the actual process. Their strength is the beginning, not the end, of the work. Yglesias or me aren’t going to get a jobs bills through the Senate, but we can flag what needs attention for recovery – inflation for Yglesias, the mortgage market and foreclosures for me, which we each think is under-appreciated among general liberal thinkers.

    There’s a lot of work done from ’08-10 about infrastructure banks, jobs programs, infrastructure, direct hires, etc. I talk about those things but any of those projects have the white papers, have the editorials, even have the interest groups lined up – the arguments are ready, the political actors, notably Obama et al, aren’t.

    3. I think the neoliberal straightjacket shows up with the complete lack of push for anything larger than a jobs program. There’s little-to-no push for a right-to-work, for a basic guaranteed income, expanding the safety net or the role of income maintenance etc. Galbraith and others have mentioned now is the perfect time to lower Social Security retirement, as 59 year-olds who are unemployed for over a year aren’t having trouble getting another decent job (and SS was created in part to deal with this) – an argument that hasn’t really caught on sadly.

    • Mike July 16, 2011 at 3:45 pm | #

      Errr, #3 point is backwards: 59-year olds are going to have major trouble getting another decent job. Hopefully that’s obvious from context.

      • Mike July 16, 2011 at 3:47 pm | #

        Corey, I left these comments without having read your newest post. I will do so now and reply there if I have stuff to add.

    • Corey Robin July 17, 2011 at 4:49 pm | #

      So don’t know if you think I really replied to this or not in my big response above, Mike, but I’ll definitely take a look at Chris’s paper. Definitely agree with point 3. As for 2, I dunno. I can see that there might be policy-based arguments for jobs programs, but I wonder if the larger changes in gestalt that I was describing in my post are really happening there. And that, it seems to me, is what think tankers and other public intellectuals and bloggers could be doing. Or, if the arguments for jobs programs are so clear and self-evident, while there’s no political will to make it happen, to interrogate why that is. Remember the right didn’t come to power by backing off their arguments or, once those arguments had white papers, moving onto other arguments. They hammered the arguments they had, over and over and over again, refining the moral and political claims as much as the policy claims. As you know from previous discussions and writing, that’s what I think needs to happen now.

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