August 30, 2003

Jackson Hole Conference

The AP's Martin Crutsinger writes about the Federal Reserve Bank of Kansas City's Jackson Lake Lodge conference: / Business / Federal Reserve economic conference ends: Take Ph.D. economists from some 20 countries, add the world's most powerful central banker and spice things up with white water rafting and horseback rides... the 27th annual symposium on economic policy, sponsored by the Kansas City Federal Reserve Bank. In the rarefied world of monetary economics, it is the hottest ticket around. Foreign central bank officials from Argentina to Japan vied with top private sector economists for one of the 137 coveted invitations to this year's event.

The lucky ones got to hobnob with officials from the current Bush administration and the past Clinton administration as well as top Wall Street financiers, not to mention the prize attraction -- Federal Reserve Chairman Alan Greenspan.... Greenspan, perhaps with an eye on his legacy, used this year's symposium to defend his record, arguing that if the Fed had tried to prick the market bubble sooner, it would have had to drive interest rates so high as to bring on a recession. He also said the Fed's comments about the possibility of deflation and the use of unconventional methods to lower interest rates, which had triggered the short-lived bond market rally, represented a prudent approach to monetary policy that tries to prepare for all eventualities....

Like any good summer camp, the Fed gathering tried to offer a wide range of recreational opportunities, from rafting and horseback riding to hiking the trails and trout fishing, all against the dramatic backdrop of the Grand Teton Mountains. But the economists seemed to prefer sitting inside windowless conference rooms for hours at a stretch, debating the fine points of economic theory raised in hundreds of pages of papers, all complete with their own complex economic equations.

Much of the discussion revolved around the operation of the Federal Reserve during Greenspan's tenure and whether his great success with flexible decision-making can be repeated. Some economists believe the Fed needs to adopt more rigid rules, such as setting targets for inflation rates. "Some day in the future Alan Greenspan may not be there and it might be best to work on a system that does not require so much virtue," Arminio Fraga, the former head of Brazil's central bank, said during Saturday's closing session....

"The success of the Greenspan Fed has been extraordinary," said Allen Sinai, president of Decision Economics. "Only two recessions during his 16 years in office and both of them relatively mild."

Unfortunately, it started (unusually for Jackson Hole on Labor Day weekend) to rain--hard--just after the conference began Friday morning, and it kept raining all through Saturday: that made hiking, horseback riding, and white-water rafting seem much less attractive than...

  • ...debating whether "monetary policy" is usefully modeled by a John Taylor-style interest rate rule.
  • ...listening to Alan Greenspan reflect on the "...strange phenomenon in 1998 of the sudden emergence of and sharp rise in risk premia on fundamentally-riskless but temporarily illiquid securities..."
  • ...hearing the second conference chair in a row say that they are going to recognize Jacob Frenkel because they want to "...see how short and succinct a comment can be..."
  • ...watching Ken Rogoff apologize because he "... didn't get the culture. This morning when I got up I put on a tie. And I didn't realize that the Jackson Lake Lodge is like Harvard: When they say that a room is 'wired' what they mean is that it has electricity..."
  • ...and nodding as Guillermo Ortiz says that he has a key intellectual advantage: while everyone else's thin blood is struggling to carry enough oxygen to their brain at the Jackson Lake Lodge's 6800 feet above sea level, he is actually breathing thicker air than he is used to...

And the George W. Bush administration people were strangely absent: the only one I saw was former CEA Chair Glenn Hubbard. But nobody from the Treasury, nobody from the current CEA, nobody from the NEC.

Posted by DeLong at August 30, 2003 09:16 PM | TrackBack


You are in Jackson Hole and we are not. So all right already!

Posted by: Tom Strong on August 30, 2003 09:53 PM

"You are in Jackson Hole and we are not. So all right already!"

Hey, he's our Johnny-on-the-spot for the world's greatest events: shopping at Costco; taking the kids to camp; schmoozing with Greenie.

It is the faithful reporting of events, both unimportant and otherwise, which have in their turn been filtered through the refined and analytical eye of our host that makes this one of the truly great blogs.

Of course, to be up there with Pepys he's going to have to get stoned with Mick and be kissed by Britney at some point.

Posted by: Pooh on August 31, 2003 03:28 AM

Glen Hubbard is joyfully bouncing around announcing how wonderful Administration economic policy is, "and not to worry about Social Security and Medicare and Medicaid because you all need to learn to save more anyway."

Thanks to GH for helping along such horrid Administration economic policy.

Posted by: lise on August 31, 2003 03:47 AM

You're in excellent company, lise.

Up and Down 17th Street: Bush critics in academia drop gloves

August 16, 2003

In the battle of politicians versus academics, you might expect the Bush administration to get beaten up by the stereotypically liberal-minded sociologists or idealistic visual artists.

But you may be surprised to see a Bush smack down coming from a university economics department. And yet, that's exactly what happened this week, when a Nobel laureate and his economist posse accused President Bush of being the worst commander in chief ever - of fiscal policy, anyway.

"The Bush fiscal policy is the worst policy . . . in over 200 years," said George Akerlof, an economics professor at the University of California at Berkeley and co-winner of the 2001 Nobel Memorial Prize in Economic Sciences.

Akerlof wasted no time with niceties, declaring the current debate over U.S. fiscal policy far too polite.

"The debate should be, 'Is this the worst president in the last 200 years?' " he said in a conference call with journalists organized by the Economic Policy Institute, a think tank focused on the economic situation of low- and middle-income Americans.

You can probably guess how he answered his own question.

"We are living in historic times, and the answer is no, there has not been a worse president," he said.

Gene Sperling, who was national economic adviser in the Clinton administration, was - not surprisingly - equally anti-Bush.

"Hands down, this is the most fiscally irresponsible administration in history," Sperling said.

Sperling's beef with Bush is this: He believes there's ample evidence the big tax cuts the Bush administration has pushed through in an effort to stimulate the economy haven't even been that effective.

Akerlof argued that any short-term economic benefit doesn't nearly outweigh the danger of creating what he believes could balloon into a multitrillion-dollar deficit down the road. Akerlof said that burden "threatens the fiscal integrity of the United States."

Although Akerlof hadn't hesitated to throw down the gauntlet, there was no real debate during the EPI's conference call. Instead - hoping to inoculate the public before Bush's own economic summit a day later - the like-minded academics rallied together Tuesday to beat up on Bush and his economic posse.

Some accused the Bush administration of using fiscal policy in a bid to get their leader re-elected.

"The fiscal policies of this administration are a systematic matter of sacrificing the future. The last calendar date this administration cares about is November 2004," said Robert Solow, another Nobel laureate and retired Massachusetts Institute of Technology professor.

Another accused Bush of being downright irresponsible.

Janet Yellen, another UC Berkeley professor, said Bush's policies are "economically reckless, (with) very negative long-term consequences."

President Bush's policy may create jobs, she said, "But how many and at what cost?"

Yellen, in fact, disagreed with the entire premise of Bush's argument that tax cuts and other incentives are needed to stimulate the economy.

"We shouldn't rely on fiscal policy to stimulate the economy. Fiscal policy, most agree, should focus on long-term goals," she said.

The economists' doomsday prophecies left journalists asking the obvious question: What would you do?

Sperling envisioned "grand compromise" that included bipartisan support, more fiscal discipline and better plans for stimulating the economy in the short run.

But Laura D'Andrea Tyson, dean of the London Business School, seemed resigned to wait it out and count on someone else to clean up after what she believes are this administration's big economic messes. In the first Clinton administration she served as chairwoman of the National Economic Council and of the Council of Economic Advisors - and therefore did her own share of economic cleanup.

"It will be done by another administration, and it's a very tough job," she said. "It is not a fun job. It is not an easy job."

After listening to a couple of trash- talking Nobel laureates and their spitfire colleagues, it was a little anticlimactic to hear Bush use the more conventional, and less adversarial, arguments after his economic meeting the next day.

The president argued Wednesday that the economy would have been worse if he hadn't passed the tax cuts, and his aides said they believe the economy might start adding jobs by the end of the year.

"I'm more worried about families finding jobs and putting food on the table than I am about, you know, economic theory and economic numbers," the president said.

Still, there may yet be hope for Akerlof's not-very-polite debate. When asked about his projected $455 billion budget deficit, Bush said, "I look forward to taking this debate on.",1299,DRMN_82_2186442,00.html

Posted by: Pooh on August 31, 2003 04:38 AM

- "I'm more worried about families finding jobs and putting food on the table than I am about, you know, economic theory and economic numbers," the president said. -

Thanks for worrying. Since March 2001 there have been 3 million jobs lost in the American economy.

Looking forward, I am worrying about how we are going to pay for defense and security needs, and
protect our critical social benefit programs. My father and mother worked more than 40 and 30 years respectively and Social Security and Medicare and personal savings have given them a lovely secure retirement.

We must create jobs, and protect and improve social benefit programs, but how do we do that with such awful fiscal policy?

Posted by: lise on August 31, 2003 07:00 AM

- "I'm more worried about families finding jobs and putting food on the table than I am about, you know, economic theory and economic numbers," the president said. -

This poor, misguided intellectual dwarf. One might actually wonder whether he really believes what he says. Or is he so punch-drunk on his brutal, primitive "faith" that he believes Jesus will take care of everything? An interesting question which has never satisfactorily answered- what exactly, if anything, does the president think?

Posted by: non economist on August 31, 2003 09:20 AM

From the article:

""The success of the Greenspan Fed has been extraordinary," said Allen Sinai, president of Decision Economics. "Only two recessions during his 16 years in office and both of them relatively mild." "

Hahahahahahaha. Funny man. Another out of touch decision maker. I remember the jobless recovery of the early 90's and it was not pretty, not pretty at all.

And this time is much worse for Americans - it's getting to be quite a long "job-loss" recovery, isn't it? It's touching that NBER decided that the recession is over, but in the real world it never ended.

Posted by: Ian Welsh on August 31, 2003 01:40 PM

Lise: "Thanks for worrying. Since March 2001 there have been 3 million jobs lost in the American economy."

When you consider the fact that the cohort of people in their working years continues to grow, the picture is actually considerably worse than that. To keep the same level of jobs relative to the population the number of jobs has to grow - even staying even isn't good enough.

Let alone losing more jobs since anyone but Hoover.

The US unemployment problem is that the wrong people are unemployed.

Posted by: Ian Welsh on August 31, 2003 01:49 PM

A jobless recovery prevented Bush the Elder from being re-elected. Ian, do you think Bush the Younger will meet the same fate?

Posted by: Joe Willingham on August 31, 2003 03:47 PM

"A jobless recovery prevented Bush the Elder from being re-elected. Do you think Bush the Younger will meet the same fate?"

Though I do not know how to answer, this is not a jobless recovery but a job loss recovery. The recession ended 21 months ago, but we are still losing jobs and while there will hopefully be a lessening of the losses there is little prospect for significant job gains for the rest of this year. The problem of jobs is far more severe and long lasting than in the early 90s and even more so than all other recession recoveries since 1945.

Posted by: anne on August 31, 2003 04:13 PM

I find the absence of conservative or libertarian comment on this thread deafening. Anyone from the right care to state something contrary?

Posted by: non economist on August 31, 2003 05:09 PM

The conservatives are just holding their breath and praying that Bush knows what he is doing in running half trillion dollar deficits and still not creating jobs. The Bush economic policy is not easily defensible. Even Mr. Bush defends his policy weakly by saying, if it were not for the deficit, the economy would be worse. His economists have been unusually silent. Why do they not present a model that predicts how the Bush policy affects the economy? Or is it all being done by the seat of the pants?

Posted by: bakho on August 31, 2003 06:02 PM

The Republicans gave us the recent tax cut. The Democrats were opposed. But neither course of action was likely to accelerate the current recovery and lower the 6+% unemployment rate. Neither the Democrats nor the Republicans have a solution. Maybe this is because there is no solution that government action can effect. They don't call economics the dismal science for nothing.

Posted by: Joe Willingham on August 31, 2003 09:19 PM

I wonder if anyone at the conference had the courage to suggest that maybe this isn't a jobless recovery but that Structural Unemployment
has gone from 4% to 6.3%. Today the President
gave his tax incentive speech, where he tells the crowd when you receive your rebate checks you can spend it and someone will make more goods. Even if you SAVE the rebate someone will make some more goods. WOW what command of Econ 101

Posted by: greg on September 1, 2003 03:39 PM

Joe, I disagree that "neither course of action was likely to accelerate the current recovery and lower the 6+% unemployment rate."

The tax cut checks will have/have had a positive impact. The dividend cut will also likely be mildly stimulative over the longer term and it may even help short-term investor confidence. It is much easier for Democrats to target their constituency with more effective stimulus than the Bush team crafted. Still things could have been worse.

Of course our defense spending is probably more stimultive than these stimulus packages. We've also been lucky that interest rates have been low enough to mute the crowding out effect so far.

Posted by: Stan on September 2, 2003 12:00 PM

Good points. Let's hope the defense spending will soon have a strong Keynesian effect.

Question to Stan: do you think the deficits will have a long run crowding-out effect?

Posted by: Joe Willingham on September 2, 2003 01:00 PM
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