Conditional Inflation Targeting in Effect

Nearly a year ago, Jeffry Frieden and I called for Conditional Inflation Targeting. Today, policy seems to have turned toward that direction. From today’s statement from the FOMC:

…the Committee decided to keep the target range for the federal funds rate at 0 to 1/4 percent and currently anticipates that this exceptionally low range for the federal funds rate will be appropriate at least as long as the unemployment rate remains above 6-1/2 percent, inflation between one and two years ahead is projected to be no more than a half percentage point above the Committee’s 2 percent longer-run goal, and longer-term inflation expectations continue to be well anchored. …

The Fed had earlier conditioned its asset purchases on the state of the economy, and continues to do so (although replacing Operation Twist with outright purchases). But today, the Fed provided explicit numerical reference points to condition the policy regarding the setting of the Fed funds rate. From our Foreign Policy article:

[We need] inflation — just enough to reduce the debt burden to more manageable levels, which probably means in the 4 to 6 percent range for several years. The Fed could accomplish this by adopting a flexible inflation target, one pegged to the rate of unemployment. Chicago Fed President Charles Evans has proposed something very similar, a policy that would keep the Fed funds rate near zero and supplemented with other quantitative measures as long as unemployment remained above 7 percent or inflation stayed below 3 percent. Making the unemployment target explicit would also serve to constrain inflationary expectations: As the unemployment rate fell, the inflation target would fall with it.
Today our highest priority should be to stimulate investment, growth, and employment. Raising the expected inflation rate will lower real interest rates and spur investment and consumption. It will also make it difficult for the de facto dollar peggers, such as China, to sustain their policies. The resulting real depreciation of the dollar would stimulate production of U.S. exports and domestic goods that compete with imports, boosting American production. The United States would get faster growth, an accelerated process of deleveraging, a quicker recovery, and a firmer foundation upon which to address long-term fiscal problems.

The actual unemployment rate, NAIRU, and threshold unemployment rate are presented in Figure 1. Figure 2 presents the actual CPI-all inflation rate (y/y), the forecasted inflation rate a year from November, and the inflation threshold.
conditional1.gif

Figure 1: Actual unemployment (blue), nonaccelerating inflation rate of unemployment (CBO NAIRU) (red), and 6.5% threshold (black dashed line). NBER defined recession dates shaded gray. Source: BLS, CBO (August 2012), and NBER.

conditional2.gif

Figure 2: Actual CPI inflation year-on-year (blue), and average forecasted inflation for November 2013 (red square), and 2.5% threshold (black dashed line). NBER defined recession dates shaded gray. Source: BLS, Survey of Professional Forecasters (November 2012), and NBER.

This move is no panacea for the economy’s challenges, and certainly would not completely offset the shock arising from a complete implementation of the fiscal slope, but it’s a step in the right direction.

 

See also: [1], [2], and Thoma on thresholds vs. triggers.

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28 thoughts on “Conditional Inflation Targeting in Effect

  1. Menzie Chinn

    Steve Kopits: Yes, I think the same folks afeared of the black helicopters. I think that someone leading a company that gave $4 million to the Romney campaign might not be an unbiased observer. [1] If one reads the article, you’ll note the amount incorporates increases that would occur in the absence of the law. I like the Kaiser (nonprofit) Foundation’s analyst’s assessment.

  2. Edward Lambert

    I find it really interesting that the NAIRU is calculated at only a small jump to 5.5%. Let´s look at a definition of it…
    “…the majority of mainstream economists mean NAIRU when speaking of “full” employment. Full employment in microeconomics is when the economy is employing all of its available resources.”
    http://en.wikipedia.org/wiki/Full_employment
    The key word is available. But the correct word after available should be “capacity”.
    Much capacity is not available because there are economic constraints. This is the basic equation for these constraints.
    UT2 ≥ u – cu + cu(ls)
    UT=measure for total “available” unused capacity
    u=unemployed labor
    cu=capacity utilization, employed capital
    cu(ls)=capacity utilization at 0% unemployment as a function of labor share.
    Current data…
    UT2 ≥ 7.7% – 78% + 71.7% = 1.4%
    There is very little available capacity in the economy, which means we are near the NAIRU right now with an unemployment rate of 7.7%.
    If you give all of those 1.4% points to unemployment, it can only go down to 6.3%. But capacity utilization will want to rise some too.

  3. ppcm

    Few professional branches of activities may testify for it , they are the banking staffers and the legal bodies of civilized societies. Whoever is involved in a scam aiming at defrauding societies by will or aggravated circumstances, will until prevented maintain or amplify the scam as an exit strategy.
    No need to moralize, the actual situation is the by product of an international financial fraud involving several sets of political, public servants, public representatives participants and other private sectors segments of the societies. The natural remedies will be in the same vein, inflation the fraud against the fixed incomes, debts default. The structural problems are not addressed and do not even seem to be on the way.
    History maintains a long record of these circumstances.The most fascinating observation is the time lag between the events and the social recognition of these events.

  4. Higher Yield

    Regarding your point about the need for higher inflation, it seems that the market believes the Fed is moving toward your view. The yield on 10-year Treasuries is up about 10bps since the Fed announcement yesterday. The setting of a 2.5% inflation threshold, above their long-term inflation target of 2%, indicates more tolerance for higher levels of inflation. In addition, since they are looking out 1-2 years at the inflation rate, a short-term jump in the inflation rate to (for example) 2.8% might not cause them to raise the Fed Funds rate if they believe it is transitory. One could view this policy as increasing the risk of the Fed reacting too late to prevent sustained inflation of 3%+, thus the increase in yields since the announcement.

  5. Steven Kopits

    Well, this is really simple, Menzie. Either those healthcare premiums go up, or they don’t.
    If I add no pre-existing conditions, children on parents policies, huge increase in numbers covered, etc., then I suspect we’ll see quite an increase premiums. When I was a financial analyst back in the 1980s, I had a chat with the CFO of the 100 person company where I worked. He indicated to me that just two people in 100–one had MS–drew half the healthcare expenditures of the company. Now, if we’re going to put pre-existing conditions on the table, then you have a whole new class of claims on the premium base.
    My guess: It’s going to be expensive.

  6. c thomson

    Of course Stephen Kopits is right. After a snivel election, come the bills.
    Let’s just hope that nothing blows up in connection with Iran – thus completing the Carter analogy.

  7. Steven Kopits

    What sort of tax increases do we need? And who should pay?
    This is the topic on my mind.
    Obama is now talking about taxing the Top 2%. On 118 m households in total, that’s 2.4 million households with an average income of about $350,000. If I assume we hit these guys with $30k per household for additional taxes (about 8% of gross income), then that’s $75 billion, on a total deficit of $1 trillion. So it’s maybe 1/12th of the deficit in total, after a massive tax increase. By the way, to get there, going back to the Clinton rates may not be enough. Clinton rates are 4% marginal, not 8% average, higher than the current rates. But there are other taxes coming for this group as well, so maybe it works some other way. In any event, this group is going to be flattened by coming increases, and for all that, the effect on the deficit will be all but unnoticeable.
    So maybe we go to the next layer: the Top 20%. The lower bound here is about $100,000 HH income; the higher bound about $300,000 HH income (2% income threshold). Figure the average income in this group will be around $170,000. Now we’re talking 18% (20%-Top 2%) of households, so 21 million households, and let’s hit them up each for 6% of gross income. That’s good for $216 bn. Someone making $100k would get a bill for $6,000. An earner with $250,000 would be tagged with a $15,000 bill.
    But we’re making progress. We’re about $300 bn into a $1,000 bn deficit.
    Now, a 3% deficit—the level traditionally considered sustainable—is about $450 bn, so the necessary debt reduction is $550 bn ($1 trn – $450 bn), of which we’ve achieved $300 bn cruising through the Top 20% of households. Only $250 bn to go, and, let’s see… Only 53% of households pay income tax. Should we stop at the Top 53% or cruise right down to, say, the Top 75%? Well, let’s stay with the Top 53%. So now, we have 33% (53%-Top 20%) of households with incomes from about $45,000 to $100,000. Figure $60k is the average here. That’s 40 million households which we can hit up for, say, 5% of gross income. That’s about $120 bn.
    So we’re now through the Top 53% and we’ve raised $420 bn–still $130 bn short of a stable deficit. But OK, let’s spot everyone a bit of GDP growth, and we can live with a $570 bn deficit for now.
    Oh, there’s one more thing, actually two more things. First, I believe high oil prices are holding back the economy and will continue to do so. So take 1% off potential GDP for that.
    Second, running a 3% deficit on debt exceeding 100% of GDP may not prove feasible in the long run. Longer term stability might require a deficit not greater than 1-2% of GDP. So that’s a problem as well.
    And I’d add that government forecasts on spending seem invariably too optimistic.
    In short: Taxing the Top 2% or Top 4%, even with horrendous tax hikes, won’t be even close to enough. Republicans, Democrats and the President all acknowledge this. And horrendous tax hikes on the Top 20% won’t be nearly enough either. Now, horrendous tax hikes on the Top 53% might bring us close.
    So, if you hear the President talking about raising marginal tax rates by 2% on the Top 2%, you should cringe, because that means more for you to pay. And further, if that happens, then there’s a good chance we’re on our way to financial crisis. Why? Because the President won’t be able to go back to that well for at least 2-3 years. He can’t say, “Hey, Mr. 300k, I know I hit you up for $10,000 last year, but could you do another $8k this year?” I doubt even his enthusiastic liberal professional supporters could stomach another massive increase so soon.
    Will he then push taxes on everyone else?
    Or will he be content to run continue with massive deficits? If he does that, then he has limited exit points. 2013 is all but on us, so there won’t be two tax increases in one year. What about 2014? That’s an election year–he won’t have the Democratic votes for a tax increase then. Ditto for 2016. So that leaves 2015 or 2017 as possibilities for a tax increase. Put another way, a failure to materially increase taxes going into 2013 locks in large deficits for at least another three years.
    How long can we run trillion dollar deficits until the bond market vigilantes come and get us?
    If you think about it that way, the fiscal cliff looks better and better all the time.

  8. Nick

    “How long can we run trillion dollar deficits until the bond market vigilantes come and get us?”
    Unfortunately for you and your ideology, Steven, a very long time.

  9. ReturnFreeRisk

    This is all well and good. Bernanke can not actually generate inflation except scare the oil traders and gold bugs. Guess what? Since Bernanke’s anemic press conference, where he showed his true hand – that he has NO idea whether this hocus pocus policy of lifting inflation expectations through intimidation will work or not (Jedi monetary policy according to FT Alphaville)- bonds down, stocks down, and commodities down. In short, inflation expectations down while risk premiums are rising. Opposite of what he hopes to achieve. Mr. Bernanke may find himself in the same position as the governors of the BOJ – the same people he built his career criticizing. Ironic if it actually happens. I feel sad for him.

  10. 2slugbaits

    Steven Kopits If I add no pre-existing conditions, children on parents policies, huge increase in numbers covered, etc., then I suspect we’ll see quite an increase premiums.
    Wrong verb tense. There was a spike in insurance premiums immediately after Obamacare was passed, largely for the very reasons you mentioned. And this was expected. But according to Kaiser the rate of growth since that spike has fallen dramatically. In other words, you’re confusing level shifts and first differences. You also have to remember that a lot of those costs you mentioned were in fact being covered pre-Obamacare, albeit in a very inefficient way by increasing premiums on those who did have insurance. The expectation is that the rate of growth of insurance premiums will slow even more once Obamacare is fully implemented. For example, there will be more subscribers to spread out those healthcare costs thanks to the mandate.
    It sounds to me like that CEO at Aetna doesn’t understand his own business. Gee…like that’s never happened before!

  11. Steven Kopits

    What’s the ideological part of the comment, Nick? It’s a largely mathematical analysis.
    If you do 2% on the Top 2%, that’s less than $20 bn, on a trillion dollar deficit. OK, what comes after that?
    Your seem to call for endless borrowing. That could happen. Perhaps it’s even the likely outcome, although I think the tone of the public debate has moved beyond that point.
    But unless growth really picks up in the US,at some time in the future, those chickens come home to roost.
    Is that ideology? To me it looks like simple math.
    What’s your plan?

  12. Joseph

    Kopits, I haven’t heard such childish whining since the kids didn’t get their ponies for their birthdays. Look, the Democrats handed over a budget surplus to the Republicans and they squandered it, turning a surplus into a trillion dollar deficit in just eight years. The “horrendous” tax rates you speak of were a period of great prosperity in the 90s. You took your tax cuts and put them on the credit card. I’m sorry but the childish whining will have to stop. You will have to pay back those tax cuts you put on the credit card, like responsible adults. You have to pay back those tax cuts that were responsible for so much debt whether you like it or not. Friedman said “to spend is to tax.” You should have known that you would have to pay back those tax cuts someday and a responsible person would have planned for it.
    Mitt Romney really had it backwards. Kopits has made it clear that Romney should have been talking about the 1%. Because of taxes, they believe they are victims when it was their own irresponsibility that created the debt. They think they have an entitlement to million dollar homes and private schools for their kids, even if they can’t afford it. They’re entitled, by golly, even if it requires irresponsible tax cuts and government subsidies. And they are won’t take responsibility for their own lives and families, popping out more children than they can afford, according to their desired lifestyle, and then whining about it like children themselves. Children raising children.

  13. Steven Kopits

    Joseph –
    I opposed the payroll tax holiday, because I was concerned that it would change people’s base spending patterns. I opposed the Iraq war (although I am grateful for the oil and glad to see Saddam gone). I opposed Part D. I argued a year ago that we should start to get the budget back in order and that we should hold the line on the debt ceiling. I have never been a huge supporter of Bush. I have expressed continued skepticism about Keynesian stimulus, because I just didn’t see the multiplier making a real impact. US debt has risen by nearly $6 trillion–or 38% of GDP–since the beginning of 2009. Do I believe it raised GDP by 9% per year for each of the last four years? I don’t think I do. Mostly, we just borrowed a bunch of money and consumed it. I am on the record for all these points.
    I am not in the Top 4%. I could easily have externalized the problem and said, “Well, the rich should pay.” I have not, because I cannot see a way back to fiscal stability without a material contribution from people like myself. The numbers simply don’t work without it.
    But I, not you, have called for taxes to be raised on all of us and I have made clear what I expect to pay. I have not shied away from clarifying what that means to me and my family. But I, not you, am the one calling for the fiscal cliff.
    So what’s your plan, Joseph? The party’s over. Do you hear Menzie beating the drum for even more borrowing? Do you hear Slugs telling us to borrow until we reach potential GDP?
    And if you read through my comment above, you’ll know why. A trillion dollars is not an amount the US can easily handle. We’re close to the end of the borrowing line, or as Menzie might put it, we are beginning contractionary fiscal contraction. Incremental debt of $6 trillion has been unable to see GDP growth move above a meager 2%. That’s the sober reality.
    You’ll recall that the Bush tax cuts and the payroll tax holiday affected everyone. So you’re calling for tax increases on yourself as well?
    If so, I applaud you. If not, how do you expect to close the budget deficit, or like Nick, do you intend to borrow money until the capital markets simply close to us?

  14. tj

    Okay, this is getting surreal. Progressives won’t identify any significant spending cuts, but are more than happy to raise taxes and inflation. There you go, entitlement problem solved. Well done. (sarcasm)
    Obama campaigned on a balanced approach to deficit reduction. His current fiscal plan is similar to the plan his own party rejected. However, rather than have an adult conversation about curbing the growth rate of entitlement spending, progressives are in favor of inflating the problem away. I guess that’s what they mean by a ‘balanced approach’ – tax increases in inflation.
    What fraction of government spending is indexed to inflation? What fraction of the working class will receive raises that keep up with 5% annual inflation? Why would business increase investment if they expect a decline in real income?
    Nice plan Progressives. Raise taxes and inflation today, and then maybe, at some point in the future, maybe, discuss curbing the rate of growth in entitlement spending, maybe.

  15. Nick

    Steven,
    I appreciate your concern for the country. I too am concerned.
    We spend about $700 billion a year on the defense budget. Why don’t we drop about $200 billion of that? There’s 1/5th of your TRILLION DOLLAR DEFICIT that has the bond vigilantes lurking. Oh wait, Republicans will never cut defense.
    The country is recovering from the bursting of a massive housing bubble and extremely slow employment growth. You’re right, we’re barely pulling 2.0% GDP growth. I don’t think Obama is our saviour – odds are we’re due for another recession before his unconstitutional muslim takeover of the executive branch and 3rd term starting in 2017.
    However, bond markets have shown little to no concern for our TRILLION DOLLAR DEFICITS. As long as growth is slow, I don’t think they will. As growth returns (it has to at some point once the u rate drops to around NAIRU), the deficit will shrink naturally through increased revenue (which as Menzie is continuously pointing out, is at an all time low). I am not worried about the short run debt situation in this country. I am worried about long term health-care spending costs (let’s get social security out of this).
    Krugman on the TRILLION DOLLAR DEFICIT today: http://krugman.blogs.nytimes.com/2012/12/14/how-big-is-the-budget-hole/
    Dean Baker on Social Security: http://www.cepr.net/index.php/blogs/beat-the-press/social-security-does-not-contribute-to-the-deficit-lessons-for-the-washington-post

  16. tj

    typo above “taxes ‘and’ inflation” not ‘in’.
    Nick
    Why don’t we drop about $200 billion of that? There’s 1/5th of your TRILLION DOLLAR DEFICIT that has the bond vigilantes lurking. Oh wait, Republicans will never cut defense.
    Nick –
    Which party never agrees to defense cuts?
    Which party never agrees to tax rate increases?
    What happens to tax rates and defense spending if we go over the cliff?
    Which party will be blamed if we go over the fiscal cliff?
    If you answered ‘Republicans’ to each question, then you can appreciate how effectively the left has steered the narrative on the fiscal cliff.

  17. Joseph

    Steven, the answer is very simple. We don’t have a debt crisis. We have a jobs crisis. The government should spend like crazy when times are bad and save when times are good. This is what responsible people did in the 90s.
    So right now, we should continue the middle class tax cuts and payroll tax cuts for another year or two. Tax cuts for the rich should go away now, including capital gains and dividends, because they have very little stimulative value. All rates, including the middle class, should return to the Clinton levels when employment returns to the Clinton levels.
    There should be another trillion dollars of infrastructure and other stimulus spending. (It is nuts that we won’t spend for infrastructure when interest rates and wages are low, but will put it off until they are high).
    Social security should be fixed by raising the cap to at least 90% of earnings and then left alone for the next 20 years.
    The Medicare age should not be raised — it should be lowered. Allowing younger, healthier people in the plan will reduce premiums.
    The Fed should be targeting 4% inflation, not 2% inflation. Long range 2% inflation is just a boot on the neck of the wage earners in order to provide higher returns to capital.
    The trillion dollar deficit you keep harping on is a phony number. It is inflated by the reduced revenues and higher unemployment insurance and welfare spending of the recession. The deficit has already come down by half a trillion dollars, the fastest rate in history, just because of weak recovery from the recession. This will continue to drop if recovery is enhanced with stimulative policies. So the real deficit reduction needed by tax increases is easily doable. The single largest contributor to the current deficit is the Bush tax cuts. They should eventually go away for all, starting with the rich.
    In the long run, the only real spending problem is health care. It doesn’t matter whether it is Medicare or private sector, we still have to spend it, so reducing Medicare benefits doesn’t eliminate the problem. The real problem is that the U.S. has the worst medical system in the world. Every other advanced nation in the world has figured out how to do this at half the cost with equal or better outcomes. A good start would be Medicare for all, starting at birth. Then the government should aggressively cut provider payments. There is no reason that the U.S. should pay doctors, hospitals, pharmaceutical companies and medical device suppliers at twice the rate of other countries. Americans don’t consume twice as much health care. They just pay twice as much for each unit of heath care they consume.

  18. Nick

    @tj
    If i answered “Republicans” to each question, i’d get:
    Q: What happens to tax rates and defense spending if we go over the cliff?
    A: Republicans.
    Stop drinking on the job!

  19. Anonymous

    As regards Krugman and Social Security:
    The President’s budget does not see the kind of spending reduction–$300 billion or more in automatic stabilizers–that Krugman sees. Mandatory outlays continue to rise, by 3-5% over the medium term.
    Discretionary outlays fall, but most of this is defense. Another $50 bn comes from other discretionary programs.
    Overall, outlays are essentially flat over the next couple of years even with a minor reduction in unemployment insurance payments and the ending of job promotion programs.
    If outlays are to fall by $300 billion, then Krugman is on a different page from the Administration. I would also note that Krugman adds in the end of the payroll tax holiday in his article, as though this were a reduction in spending. Most Americans will perceive it as a rise in taxes, I would imagine.
    Further, the Obama 2013 Budget counts on real GDP growth of 2.7% in 2012; the Fed anticipates 1.7-1.8% real growth for this year.
    The budget anticipates 2013 GDP growth of 3.0%; PIMCO yesterday released its expectations for 1.25-1.75% growth for 2013. The Fed anticipates 2.3-3.0% for 2013.
    Thus, anticipated reductions in any stabilization plans and revenue increases which are to be driven by GDP growth are likely to fall short of White House expectations–and these in turn anticipate nothing like the $300 billion improvement Krugman is talking about. (The WH Budget already includes the tax increases being discussed; thus these would already be factored into 2013 WH GDP growth projections.)
    Thereafter, the White House sees growth of 3.9-4.1% GDP growth for the 2014-2017 period. That seems quite optimistic to me, and would represent an 8 year stretch without a recession, rather long by historical standards.
    As for Social Security: According the the President’s 2013 Budget, it is running a deficit on the order of $120-140 bn per year, rising to about $200 bn in the early 2020s. It’s not paying for itself, but it’s not getting much worse, either. My calculations for real payments per recipient show them essentially flat to 2022 (up 4% real in total). If you think a 4% increase over ten years is good, I commend you to Social Security.
    In any event, a TRILLION DOLLAR DEFICIT is indeed a great deal of money. Had policy makers followed Krugman’s earlier recommendations, it would be bigger still.

  20. 2slugbaits

    Steven Koptits First, Obama has not added $6T to the debt held by the public. It has been about $5.3T. Second, your math is wrong. The stimulus is not equal to the deficit, so your comment about having to raise GDP by 9% per year is ridiculous and reflects a deep misunderstanding about how the fiscal multiplier works…and even what it is. The fiscal multiplier is the change in GDP due to a change in the deficit. If the deficit in year T(0) is $1T and the deficit in year T(1) is $1.1T, the stimulus for year T(1) is $0.1T, not $1.1T. Third, your math is wrong regarding the tax revenues that would come in from allowing the Bush tax cuts to expire for the top 2%. The correct number is about $160B/yr, not $80B/yr. You’re calculations are only based on earned income. What you forgot to include was the reinstatement of the estate tax and the reversion of tax rates for unearned income going from 15% to 39.6%. Fourth, the CBO does not project deficits of $1T forever. You have to separate out the structural deficit from the cyclical deficit. The cyclical deficit will take care of itself when the economy recovers. The Obama tax plan is aimed at fixing the structural deficit. Call that $500B, give or take. Now all of a sudden that $160B/yr wipes out about a third of the structural deficit. And it also puts the balance of the structural deficit within site of being sustainable. Not quite, but a good deal of the way there.
    But your whole post seems confused. On the one hand you lament how bad the deficit is, but then you say that we shouldn’t raise taxes on the rich because (somehow) this means we will have to also raise taxes on the middle class. Huh? We may well have to raise taxes on the middle class, but it won’t be because we are increasing taxes on high incomes. The more we tax higher incomes the less we have to tax middle incomes. So your whole point about “So, if you hear the President talking about raising marginal tax rates by 2% on the Top 2%, you should cringe, because that means more for you to pay.” This is almost the definition of a non sequitur. Raising taxes on the rich does not cause taxes on the middle class to increase; it lowers the tax burden for the middle class.
    At one moment you seem to be arguing against raising taxes on the rich; but then the next moment you seem to be arguing that we should raise taxes on everyone. Look, raising taxes on the rich right now will have a significant effect on the deficit without having a strong contractionary effect. But raising taxes on everyone and cutting spending right now would have a contractionary effect. The day will come when we should raise taxes on everyone and we should cut spending; but that day isn’t today.

  21. 2slugbaits

    tj Progressives won’t identify any significant spending cuts
    I believe Democrats have argued for big defense cuts. Apparently those don’t count as spending cuts? It’s the GOP that is demanding cuts in entitlement spending, so why doesn’t the GOP tell us which entitlements should be cut and by how much? Why does John Boehner keep expecting Obama to tell him what number he would like? Can’t Boehner put on his big boy pants and come up with his own proposed entitlement cuts? The surreal part is the GOP demanding that Obama tell the GOP what they want.

  22. 2slugbaits

    Anonymous According the the President’s 2013 Budget, it is running a deficit on the order of $120-140 bn per year, rising to about $200 bn in the early 2020s. It’s not paying for itself, but it’s not getting much worse
    So what’s your point? That’s why Social Security accrued all of those Trust Bonds. Or are you suggesting that we should default on those bonds?
    Your benefit calculations are also wrong. The Trustee’s report shows what the projected benefits are going forward. Benefits continue to increase up until ~2037, after which the accumulated bonds will be exhausted and benefits will be about 75% of “promised” benefits…which is still about 25% higher than current benefits.
    You also seem quite confused about the deficit. Apparently your conclusion is that if growth isn’t as great as the WH anticipates, then the correct policy would be to cut spending. Right. Like that would help. Krugman’s point is to concentrate the mind on the structural piece of the deficit and not the cyclical piece. You missed that.

  23. Joseph

    … it’s a step in the right direction.
    It is much too little and much too late for The World’s Greatest Moral Monster, Ben Bernanke. He was given more power than any other single human being to handle the situation and instead, he stood by as millions of lives were ruined because he thought his most important job was to protect the banker class. There is no point to having a politically independent central bank if their only job is making easy decisions to protect bankers.
    Charles Evans wrote: “Suppose we faced a very different economic environment: Imagine that inflation was running at 5% against our inflation objective of 2%. Is there a doubt that any central banker worth their salt would be reacting strongly to fight this high inflation rate? No, there isn’t any doubt. They would be acting as if their hair was on fire. We should be similarly energized about improving conditions in the labor market.”
    It is this asymmetrical bias that most harms wage earners. Inflation is considered more harmful than unemployment. For the past 30 years, every recession depresses wages, but on the recovery, the Fed makes sure that wages never catch up again, putting their foot firmly on the neck of workers. It is this continual downward rachet on wages that is behind middle income stagnation. Bernanke should have been acting as if his hair was on fire, but he didn’t because it wasn’t his friends who were burning.

  24. tj

    2slugs
    Why does John Boehner keep expecting Obama to tell him what number he would like?
    Obama ran on a balanced approach. Where is the balance? It’s not unreasonable to expect him to finally, finally, finally provide some details on this “balanced” approach he ran on. So far the balanced approach amounts to tax-the-rich, and some defense cuts that would occur anyway as we exit the wars.
    Nick
    Stop drinking on the job!
    :)) oops…

  25. 2slugbaits

    tj Obama ran on a balanced approach. Where is the balance?
    Obama’s biggest challenge is that he’s facing a mentally unbalanced opposition consumed with Obama Derangement Syndrome.
    If you actually bothered to check the NIPA data, then you might learn that non-defense consumption and investment expenditures have actually been falling over the last couple of years. I don’t know what your understanding of “balanced” is, but my take is that you balance the requirements to reduce the long-run deficit and debt problem against the immediate requirement to support the economic recovery. I suspect that a lot of conservatives take the rather braindead view that “balance” means cutting one dollar in entitlement spending for each dollar in tax cuts. Of course, if you’re a real Republican running for President, then you reject even a 10:1 trade because that’s not “balanced” enough.
    What Boehner really needs is a set of gonads. He wants to be Speaker, but has no idea why. He’s afraid of losing his precious speakership and won’t risk confronting the whackos in his party. His speakership is as fake as his tan.

  26. tj

    2slugs
    LOL! Still blaming others for Obama’s mistakes.
    Where is his “balanced” approach?
    You and I could take a day and come up with a mutually agreeable 20 year plan to get our fiscal house in order.
    The last thing Obama wants to do is put a “cut” on the table and take something away from his precious constituents. Talk about no gonads. Obama needs to grow a pair.

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