Comments on: Counterparties: DC’s mysterious decision-making A slice of lime in the soda Sun, 26 Oct 2014 19:05:02 +0000 hourly 1 By: TFF Thu, 02 Aug 2012 23:00:59 +0000 @SteveHamlin, at some level I must plead ignorance. I might not even be using the terms properly.

But trend lines do not always project into the future. It is surprising that the model charted proves so robust from 1950-2007, but even that doesn’t guarantee that it is meaningful going forward. Shift the curve lower for the past decade and 2000-2007 would look like an aberration on the upside, with 2008-2012 looking like the “new normal” (if you like).

I did look up some numbers on the finance sector, which doubled as a proportion of GDP between 1980 and 2000. But it remains at record levels, so that can’t explain the shortfall. I do wonder what such a reliance on finance does to our economy — no industry does more to concentrate wealth in the hands of a few.

By: SteveHamlin Thu, 02 Aug 2012 20:23:22 +0000 @TFF: The current output gap is based on actual GDP trends back to 1950. Recent bubbles are not dragging potential GDP up so much as to distort current output gap conclusions. Even significant recessions are not too noticeable, and everything else is mere noise within that major trend.

See: ges/2.1.1-GDP-gap-OPT.jpg

via: w&id=3252

By: TFF Thu, 02 Aug 2012 17:20:29 +0000 Maybe the output gap simply dates back to the ’90s? For a while, the GDP gap was papered over by growth in “financial innovation”. Pushing papers with no lasting economic gain. When that bubble burst , the weakness in the real economy was exposed.

By: SteveHamlin Thu, 02 Aug 2012 15:51:22 +0000 @realist50: “isn’t readily apparent” applies to what arguments the Fed has explicitly made, as opposed to arguments that the Fed could theoretically make.

The Fed has said “No”, and they might be correct, but it isn’t readily apparent why they’ve said “No”, because they have not laid out their logical arguments in a clear way.

@MrRFox: You write: “If it is to be the policy of government that some persons have their pockets picked for the alleged benefit of the larger society, then Congress has to give the green light for it.”

The FHFA report said that taxpayers would save money by pursuing principal reduction programs. Please note that: FHFA assets that; it is not Felix who asserts that. If you’ve got an argument about picking pockets, that boat sailed 4 years ago when Frannie was effectively nationalized, and those are (unfortunately) sunk costs. Starting today forward, what is the cheaper solution? FHFA itself says principal reduction programs save the taxpayers money over their current (ineffective) programs. How is that picking pockets?

@fresnodan & TFF re: output gap: the current output gap is based on a U.S. Potential GDP trend that goes back to at least 1950. The bubbles of the 2000s don’t appear to have inordinately ramped potential GDP as much as you think, thus the output gap amount is less influenced by those 2000s bubbles that you are positing. The current output gap is real, and it is spectacular.

Chart of U.S. Output Gap 1950-2020: w&id=3252

(just the image: ges/2.1.1-GDP-gap-OPT.jpg)

By: TFF Thu, 02 Aug 2012 12:37:15 +0000 Interesting question, fresnodan!

I think you have to assume that growth was artificially and unsustainably inflated during both the bubble and the housing bubble.

That suggests “normal” GDP growth in the 2% range, no?

By: fresnodan Thu, 02 Aug 2012 10:17:11 +0000 “it’s a choice between “a trillion dollar output gap and 6 million unnecessarily unemployed workers,”…”

What I am interested to know in these output “gap” is how much of the output was due to the “boom?”
There are a lot of assumptions is such a statement – when does the averaging of GDP start? tates/gdp-growth-annual

There hasn’t been a period of 6% growth in almost 30 years, yet many of these average GDP growth rates used as a basis of the “output” gap are as unrealistic as me saying I should still be able to buy a new car for 2,000 dollars.
Or, another interesting “average” that seems to have profoundly changed: ies/USAEPP
With a 20 year perspective, it seems we are not nearly utilizing our workers. But use a longer perspective, and we are considerably OVERemployed compared to 1970.

By: MrRFox Thu, 02 Aug 2012 04:18:07 +0000 Mr. Rudegeair – any sort of cost-benefit analysis that doesn’t include considerstions of fairness and ethics, not to mention – law, is seriously defective IMO. The Fed does not create its own mandates – Congress does that. If it is to be the policy of government that some persons have their pockets picked for the alleged benefit of the larger society, then Congress has to give the green light for it – not you, FS or any other ‘know-it-all’.

The prior opinion of FS that you so lovingly cite has been trashed on its merits by damn near everyone who has commented on it. Just ’cause St. Felix said it doesn’t make it right.

By: realist50 Wed, 01 Aug 2012 23:41:19 +0000 Peter – You and Ryan Avent assume that additional Fed action will necessarily lead to improvement in the real economy. That’s a debatable point, and that someone could question that assumption should be “readily apparent” – just as it should be that Mr. Avent has invented a question that makes only his answer appear reasonable.