Robert Hall Interview
By Arnold Kling
Mark Thoma points to an interview with Robert Hall, who I consider the Don Sutton of the economics profession.*
Read the whole thing. Here are some excerpts from the interview, with my comments.
Issuing what appear to be overvalued public securities and trading them for undervalued private securities, at least under some conditions and some models, is the right thing to do. In my mind, it doesn’t make a big difference whether it’s done by the Federal Reserve, the Treasury or some other federal agency.
Here, he is defending the Fed’s departure from conventional monetary policy in order to participate in bailouts. To be fair, elsewhere in the interview he is critical of the way bailouts were conducted.
even though the Fed has driven the interest rate that it controls to zero, it hasn’t had that much effect on reducing borrowing costs to individuals and businesses. The result is it hasn’t transmitted the stimulus to where stimulus is needed, namely, private spending.
The spread between the interest rates on private debt and the interest rates on Treasuries shot up during the crisis. Hall calls this an increase in “friction.” Many of us instead call it an increase in the risk premium. Whatever one calls it, it is an important phenomenon. No matter how hard he tries, Scott Sumner just cannot convince me that this phenomenon is due to a drop in expectations for nominal GDP growth.
the number of people who find jobs each month is the same in a strong market or a weak market. In a strong market, you have a relatively small number of job seekers, so each one finds it easy. In a good market, it takes the average person about a month to find another job. In a weak market, there are twice as many people looking, but each one of them is half as likely to find a job each month
Can you say, flood of refugees?
A rise in the cost of funds will result in a decline in employment, and that’s something a lot of people are looking at right now.
Garett Jones labor, which builds organizational capital, is very much an investment. If investment depends on the cost of funds, then so will the demand for labor in a Garett Jones economy.
*Bill James once distinguished players with high peak value and more modest career value (Sandy Koufax) from players with high career value and more modest peak value (Don Sutton). Economics Nobel laureates tend to be drawn primarily from economists with high peak value (many have high career value also). Ronald Coase and Myron Scholes cannot come close to Jagdish Bhagwati or Robert Hall in terms of career value, but the latter fall short of the former in terms of peak value.