Robert Hall Interview
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.
Jul 4 2010 at 4:30am
The baseball analogy has serious problems, for baseball has a rather clear maximand (winning ballgames), whereas greatness in political economy resides in the aspirational. Coase is a great figure. He’s written at least a dozen great papers. Also, the JLE under him and Director was a very major development. He’s among my top five economists of the 20th century. My only real complaint about Coase is about 8 important sentences spread over 3 or 4 papers, to the effect that property/ownership is a bundle of rights (as opposed to a benchmark claim of exclusion to the thing owned). I like the idea of reciprocity of effects, but in those 8 or so sentences he made property configurations (or ownership) sound more much more legalistic and malleable than he should have (and than he himself really believed them to be). Fifty years from now, the number of people reading Coase will far outnumber those readiing Bhagwati and Hall.
Jul 4 2010 at 10:54pm
Sandy Koufax? Don Sutton? I sense another lifelong Dodger fan.
I thought interesting was Hall’s commentary that due to local and state cutbacks, the federal fiscal stimulus has been offset.
In good times, states and local governments tend to run surpluses (in aggregate).
I am coming to the view that more aggressive monetary policy is needed. Inflation is dead. It is difficult to stimulate fiscally for the reasons Hall states (although we could just give money to states).
There was a time when the Reaganites edged Volcker out in favor of the “easier” Greenspan, and ramrodded red-ink drenched budgets through the one-time theology student David Stockman. Stimulus both fiscal and monetary in a time of higher inflation that we have now. Inflation came down anyway. George Gilder was pink-cheeked at this, rhapsodizing about inflationary booms.
Now inflation is dead–but the right-wing is calling for tight money, hand-wringing abut too money money and limiting federal outlays. I think it is time for the Fed to blow the doors off.
Jul 5 2010 at 2:21pm
This is as it should be, because “nominal GDP growth” is not a thing about which actual people have expectations. This is the biggest problem with Scott’s theory and he continually fails to address it.
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