AS or AD??

Worthwhile Canadian Initiative: Banks, Aggregate Demand, and Aggregate Supply: can understand how bad banks could affect the AS curve. Long-run growth comes from the Long Run Aggregate Supply curve moving slowly rightward over time as savings create investment that adds to the stock of capital and increases productivity. A good banking and financial system will encourage savings and investment, make sure the investments are the most productive ones, and make the LRAS curve move rightwards more quickly over time.

Even in the short run a good banking and financial system will be important in re-allocating capital between growing and declining sectors, if there are shifts in relative demand. If people want fewer cars and more restaurant meals, but banks cannot shift loans from car manufacturers to restaurants, the Short Run Aggregate Supply curve may shift left, because the restaurants won't be able to expand to meet demand, and car manufacturers' prices or wages may be sticky downwards. If you see the financial crisis as causing the recession by shifting the SRAS curve left, then monetary and fiscal policies, which shift the AD curve right, are not the appropriate cure...

Grasping Reality with Both Hands: "But if bad banks have shifted the AS curve inward, then right now we should have stagflation: depression and inflation, as output falls and prices rise. We don't. The argument that fiscal and monetary policies won't reduce unemployment to normal levels because we have a supply side problem is completely incoherent in an AS-AD framework."

Dani Rodrik's weblog: When textbook macro pays off

Dani Rodrik's weblog: When textbook macro pays off: "Until the current crisis hit, Chile's economy was booming, fueled in part by high world prices for copper, its leading export. The government's coffers were flush with cash. (Chile's main copper company is state-owned, which may be a surprise to those who think Chile runs on a free-market model!) Students demanded more money for education, civil servants higher salaries, and politicians clamored for more spending on all kinds of social programs.

Being fully aware of Latin America's commodity boom-and-bust-cycles and recognizing that high copper prices were temporary, Velasco stood his ground and decided to do what any good macroeconomist would do: smooth intertemporal consumption by saving most of the copper surplus. He ran up the largest fiscal surpluses Chile has seen in modern times."

The U-Turn - Inequality

Economic Principals » Blog Archive » The U-Turn: "[Saez's] most striking finding has been to confirm the widespread intuition that income inequality has been increasing – that one of the key regularities of post-World War II economics had fallen apart. It was in 1955 that Simon Kuznets, then of the Johns Hopkins University, observed that inequality in developing countries tended to describe an “inverted-U,” rising substantially for a time as workers moved from farms into industrial cites, then steadily diminishing as output grew and gains from increased productivity were more evenly distributed."

Bloggingheads.tv - Economics 2.0

Bloggingheads.tv - Economics 2.0: "Are macroeconomic models just hogwash? (12:01)"
Is Macroeconomics "hogwash"? Mark Thoma and Arnold Kling. Begin at 22:30.

deflation

The graph below shows when each nation formally abandoned the gold standard, industrial production almost immediately recovered ostensibly because the money supply could expand more.  Unfortunately for France, they entered WWII shortly after they abandoned the gold standard.

Grasping Reality with Both Hands: "All of the five major economies of the world started out the Great Depression pursuing for the most part the orthodox gold-standard non-New Deal policies of the 1920s. All five of them had fierce political debates about whether to switch to a 'New Deal.' All eventually switched to their own version of the New Deal--Japan and Britain in 1931, Germany and the U.S. in 1933, and France not until 1937. Japan and Britain recovered fastest and most completely; Germany and the U.S. were in the middle; and France was the worst."

Econbrowser: Consequences of the Oil Shock of 2007-08

Econbrowser: Consequences of the Oil Shock of 2007-08: "The implication that almost all of the downturn of 2008 could be attributed to the oil shock is a stronger conclusion than emerged from any of the other models surveyed in my Brookings paper, and is a conclusion that I don't fully believe myself. Unquestionably there were other very important shocks hitting the economy in 2007-08, first among which would be the problems in the housing sector. But housing had already been subtracting 0.94% from the average annual GDP growth rate over 2006:Q4-2007:Q3, when the economy did not appear to be in a recession. And housing subtracted only 0.89% over 2007:Q4-2008:Q3, when we now say that the economy was in recession. Something in addition to housing began to drag the economy down over the later period, and all the calculations in the paper support the conclusion that oil prices were an important factor in turning that slowdown into a recession."

Geithner declared the "vast majority" of banks are solvent

Economics and Politics - Paul Krugman Blog - NYTimes.com: "After all, there are a lot of banks in America. There are 1,722 institutions on the Fed’s list of “large commercial banks”. And I have no doubt that most of these banks — indeed, the vast majority — are in fine shape. That’s because they’re regional institutions that never got into the risky games played by the big guys. But the big guys are where the money is. The top 10 institutions on that list have 58 percent of the assets. (If we looked at bank holding companies rather than only commercial banks, assets would be even more concentrated.) So it’s perfectly possible that the “vast majority” of US banks are well-capitalized, but that banks with, say, a third of the system’s assets are insolvent."

Deflation In A Nutshell

I have never seen a textbook that gave a good analysis of deflation, so I put together my own. It really isn't that complicated.
Deflation is negative inflation. It is a decline in the average price level which is the same thing as an increase in the real value of money. We have had very large deflation in computer hardware prices for the past half century, but this is not what people usually mean when they talk about deflation because most nominal prices have still been going up.  Deflation comes from two sources:

• Increased money demand due to increased productivity which lowers the real price of goods and increases output and incomes.  This kind of deflation was relatively common under the gold standard because the money supply could not grow to accommodate economic growth. Under fiat money, deflation is rare because central banks expand the money supply to keep up with economic growth.
  
• Declining money supply due to a drop in the monetary base or a drop in the money multiplier (the willingness to make loans).  This is worse than the other cause because it is usually caused by some kind of economic crisis and it further decreases aggregate demand and exacerbates recession.
  

What causes increasing declining money supply and/or increasing money demand?

• Declining money supply is caused by central bank policy and/or individual banks becoming less willing to lend out money. In 2008 banks became insolvent and many ceased lending money which tends to contract the money supply. This was also a problem during the Great Depression when banks not only became insolvent, but many went bankrupt and even healthy banks were reluctant to loan out money because they were afraid of ‘bank runs’ by their depositors.
• Once central banks lower their interest rates to zero, they have no more ability to increase money supply using this conventional tool.
• Instead they can do “quantitative easing” and “unconventional monetary policy” which is more experimental. The central bank increases the money supply by buying up securities from banks, giving them new money to lend. These securities could be government bonds, commercial loans, asset backed securities, or even stocks.
  
• Alternatively, they could actually print more cash to increase the money supply, but they are loathe to do that for fear of losing investor confidence and future inflation. The US government borrows vast amounts of money each year and if they began printing money, they might have a hard time continuing to borrow money. I’m not sure these fears are rational. Nobody has ever tried it to combat deflation. Usually printing money is caused by governments that cannot raise taxes nor borrow money and printing money is the only way that they can pay for stuff. Printing money is associated with economic collapse because it is often caused by economic collapse and in normal times it causes hyperinflation, but a deflationary spiral is NOT normal times. This is a risky option for combating deflation simply because nobody has tried it and so the empirical result is completely unknown.
  
• Increasing money demand is caused by
• Expectations of deflation. If you expect 5% deflation, that means that cash gives you a real return (risk free) of 5%/year! Cash becomes a good investment whereas during inflation it is not an investment, but something that is costly to hold and is mainly used for transactions rather than as a store of wealth.
• Deflation of other assets in investor portfolios means that the prices of stocks, bonds, and land are going down. If you think your other investments are going down in value, then you would be better off to sell them and hold more cash.
  
• Expectation of higher risk in other portfolio options. If the stock market and bond market experience higher volatility and greater chances of default, then money becomes less risky in comparison.
• If you think that you might loose your job, then your appetite for risk goes down and you would be more likely to transfer some of your portfolio out of more risky assets like stocks and long-term bonds towards more liquid assets like cash.
  
• Both of these factors (increasing money demand and decreasing money supply) tend to happen at the same time during a general deflation.
  

Problems caused by deflation:

• It raises the real interest rate = the nominal market rate minus inflation. (Thus if prices fall 5 percent per year and the nominal interest rate is a modest 3 percent, the real interest rate is actually a high 8 percent.)
• Real interest rates (r) must be larger than the negative deflation rate because the opportunity cost of lending money is to just keep it buried in a vault and it increases in value risk free.  Also r = i - inflation and because nominal interest rates (i) are always positive, the real interest rate (r) must be bigger than the negative inflation rate.  A big deflation then forces big real interest rates which hurts investment.
  
• Nominal interest rates cannot be negative. Nobody is going to pay you to borrow their money. Ever.
• Deflation rewards creditors and those with cash at the expense of debtors and those with illiquid assets.
• Can increase foreclosure problems. Incomes decline, but real loan payments do not decline (or not as much as incomes decline). This increases lending costs and also pushes up real interest rates.
  
• Deflation increases the incentive to save and decreases the incentive to borrow which decreases aggregate demand.
  
• It increases the real value of debt which increases loan defaults because nominal wages (and incomes) decline, but nominal loan payments are fixed. Higher defaults and foreclosures further reduce bank lending which reduces the money supply (see above).
  
• Decreases aggregate demand due to expectations of lower future prices.
• ↓C: consumers will tend to delay discretionary purchases if they anticipate that prices will drop.
  
• ↓I: Businesses that are able to expand will tend to choose not to expand if they anticipate that prices will drop.

Economist's View: "The Unfortunate Uselessness of Most 'State of the Art' Academic Monetary Economics"

Economist's View: "The Unfortunate Uselessness of Most 'State of the Art' Academic Monetary Economics":

...in order to get to mathematical forms that can be solved, the models had to be simplified. And when they are simplified, something must be sacrificed. So what do you sacrifice? Hopefully, it is the ability to answer questions that are the least important, so the modeling choices that are made reveal what the modelers though was most and least important.

The models we built were very useful for asking whether the federal funds rate should go up or down a quarter point when the economy was hovering in the neighborhood of full employment ,or when we found ourselves in mild, 'normal' recessions. The models could tell us what type of monetary policy rule is best for stabilizing the economy. But the models had almost nothing to say about a world where markets melt down, where prices depart from fundamentals, or when markets are incomplete. When this crisis hit, I looked into our tool bag of models and policy recommendations and came up empty for the most part. It was disappointing. There was really no choice but to go back to older Keynesian style models for insight.

The reason the Keynesian model is finding new life is that it specifically built to answer the questions that are important at the moment. The theorists who built modern macro models, those largely in control of where the profession has spent its effort in recent decades,; did not even envision that this could happen, let alone build it into their models. Markets work, they don't break down, so why waste time thinking about those possibilities."

Part of the reason that macroeconomics has not developed tools (models) to deal with economic crises is that they are rare. Why bother building models when there isn't enough data to test them? One's academic career is better served analyzing normal economic times (like 1945-2007) for which there is ample data to test the theories.

Economist's View

Are those who sweat the big stuff in meltdown?, by Tim Harford, Commentary, Financial Times:

...I am struck by the soul-searching that has gripped the [macroeconomics] profession in the face of the economic crisis....

Paul Krugman ... thinks macroeconomics is in a dark age, in the sense that rather than discovering new insights, we are actually going backwards and forgetting what we used to know. Mark Thoma ... opines: “I think that the current crisis has dealt a bigger blow to macroeconomic theory and modelling than many of us realise.”

We shall see. While many commentators have reached for Keynes – or some caricature of Keynes – as a solution to this crisis, this is not because he is the fount of all knowledge, but because he was asking good questions about problems that now seem relevant again.

Keynesianism vs. Monetarism

DeLong: Simple Keynesianism for Monetarists: A Primer - Brad DeLong's Scrapbook: "DeLong: Simple Keynesianism for Monetarists: A Primer (follow link)

Marginal Revolution: My email to Brad DeLong: "I think, however, you put too much emphasis on interest elasticity. Which is the relevant 'M' in the equation of exchange? Surely not currency. Yet I can earn an interest return on most parts of M2, if I care to.

The key arguments for sometimes using fiscal rather than monetary policy have, I think, to do with targeting very particular parts of the real economy.

Plus maybe the Fed doesn't have a strong enough political constituency to be asked to handle the entire macroeconomic problem."

Politics of Macroeconomic Theories

Matthew Yglesias » Home Page: "the real dynamic of the debates here are that many people on the left hope and many people on the right fear that the coincidence of a major economic meltdown occurring shortly before an election in which progressive candidates did very well can lead to a lasting change in the policy environment. After all, when you engage in some temporary deficit spending the deficit could be temporary in two ways. The spending could vanish. Or taxes could be raised. Progressives hope, and conservatives fear, that much of the new deficit spending will prove popular and anchor expectations about levels of federal services.

This hope/fear is extremely realistic. It seems very unlikely to me that all of the American Recovery and Reinvestment Act’s spending increases will actually be undone when the legislation expires."

Economies of Scale in Banking? Or Market Failure?

FT.com / Comment / Opinion - Ten principles for a Black Swan-proof world: "1. What is fragile should break early while it is still small. Nothing should ever become too big to fail. Evolution in economic life helps those with the maximum amount of hidden risks – and hence the most fragile – become the biggest."

What if there are economies of scale in banking? Suppose there are economic reasons that larger banks (that are too big to fail) are more efficient than smaller banks at certain activities. Should we then allow them to exist and just bail them out with taxpayer money when they fail? An alternative reason that banks might be so big is that there is a strong correlation between the size of a company and the pay its management gets. There is little correlation between profitability and CEO pay. Thus, a smart CEO is better off maximizing his (it is usually a he) pay by merging with and acquiring new firms than by actually doing profit maximizing deals. Regardless of the reason banks evolve to become too big to fail, there should be an increasing fee (like a progressive taxation) upon banks as they become too big. If there are really strong economic efficiency reasons for the banks to grow anyway, then they can still do so and they will at least generate some of the tax money to compensate for the risk that taxpayers must bail them out.

Vehicle Sales: Cliff Diving in February

Calculated Risk: Vehicle Sales: Cliff Diving in February: "This graph (see larger version) shows the total number of registered vehicles in the U.S. divided by the sales rate - and gives a turnover ratio for the U.S. fleet (this doesn't tell you the age of the fleet).

Currently this ratio is at 26.8 years, the highest ever. This is an unsustainable level (I doubt most vehicles will last 27 years!), and the ratio will probably decline over the next few years. This could happen with vehicles being removed from the fleet, but more likely because of a sales increase."

Inventories and sluggish recession recoveries

Economics and Politics - Paul Krugman Blog - NYTimes.com: It’s now looking like a reasonable bet that growth will turn positive later this year, mainly because businesses will decide they’ve cut inventories enough, and ramp up production again. Many will herald this as the end of our problems. But they’ll be wrong, for reasons I laid out during an earlier false dawn, back in early 2002 (the unemployment rate continued to rise for more than a year after that point). I still think this was a pretty good explanation:

Imagine a company that produces widgets (companies in these examples always produce widgets), normally selling 100 each month. The company tries to keep one month’s sales, 100 widgets, in inventory. But for some reason sales drop off, to 90 per month. And it takes a month before the company realizes what has happened.

At the end of that month the company, having produced 100 widgets but sold only 90, finds itself with 110 in inventory, but wants to hold only 90. To eliminate the excess inventory quickly, it might slash production to 70 for the next month, then bump production back up to 90. But unless sales increase again, that’s where it ends: production never recovers to its original level.

As go the widget-makers, so goeth the economy. When demand drops, inventories build up, then production drops sharply as businesses work off the overhang. Finally, there’s an “inventory bounce” when the overhang is gone. But the bounce doesn’t necessarily presage a true recovery. To get that, you need increased sales to final buyers.

GDP and the Underground Economy

In the 1800s, most economic activity was not recorded in GDP. Most people were self-sufficient farmers or wives engaged in home production, or producing outside of written records. As markets expanded and the government increased its tracking abilities (much through income tax records), the underground economy shrank as a percent of GDP. Now the reverse is happening again.

Matthew Yglesias » Home Page: "

One noteworthy trend we’re experiencing of late is the rising prominence of social production—the creation of valuable information goods on a non-commercial basis. Probably the clearest example is Wikipedia, a hugely useful service that doesn’t produce any economic “value” in GDP terms. Of course valuable activity that doesn’t register in GDP is nothing new—just ask moms spending time taking care of their kids. But the transition to the digital economy is changing things in important ways. In particular, it’s simultaneously making it cheaper than ever to produce and distribute information goods, but harder than ever to capture revenues from information goods. ...we’re almost certainly shifting from a world in which a large and important set of activities aren’t captured in the national economic statistics to a world in which a large, important, and growing set of such activities isn’t captured in the conventional statistics."

Also this:

...the true essence of the “new economy” of the digital era is that there will be lots of activity going on that people enjoy and find useful, but that has very little in the way of economic value that’s captured by profit-making firms. The quintessential enterprises of this era are things like Wikipedia, which may no money, or CraigsList which makes a very modest sum of money, even while they both revolutionize certain spheres of endeavor. Certainly the revenues associated with CraigsList are tiny compared with the revenues that used to exist in the rapidly-dying newspaper classified ad market.

Twitter seems like something that could become extremely widespread, and that lots of people could receive a small-but-real amount of daily enjoyment from, all without ever generating much money. And I think that will be pretty typical of the digital realm. The fact that Google itself is a very successful company sometimes serves to obscure the fact that the total amount of money being made off the internet is pretty small considering how ubiquitous internet use has become. Ultimately, I think understanding this growing de-linkage between value and monetizability, or perhaps between “use value” and “exchange value” as Marx would say, is important to understanding the world we’re increasingly living in.

Also this

And yet in the name of halting “piracy” there are those who would so tighten intellectual property rules as to make it impossible for these kinds of creative works to be made. That would boost the financial incentives for for-profit corporations to produce high levels of cultural content, but it would also raise substantial barriers to the creation of amateur, hobbyist, or not-for-profit content creation. That’s worth keeping in mind whenever you hear debates about intellectual property issues. Strong IP is usually branded as “good” for “creators” but the main impact of the digital revolution has been to advantage non-commercial producers relative to commercial producers, and the main impact of strong IP law is to shift the balance of power back to the commercial world. We’re accustomed to thinking of capitalism in opposition to socialism, state-direction production, but in the information realm the main opposition is between capitalism and activity that is simply non-commercial in nature.

Other reasons for an underground economy is to sell things that are banned like drugs or to avoid taxation (like offshore banking).

The world economy is tracking or doing worse than during the Great Depression | vox - Research-based policy analysis and commentary from leading economists

The world economy is tracking or doing worse than during the Great Depression | vox - Research-based policy analysis and commentary from leading economists: It’s a Depression alright

To sum up, globally we are tracking or doing even worse than the Great Depression, whether the metric is industrial production, exports or equity valuations. Focusing on the US causes one to minimise this alarming fact. The “Great Recession” label may turn out to be too optimistic. This is a Depression-sized event.

That said, we are only one year into the current crisis, whereas after 1929 the world economy continued to shrink for three successive years. What matters now is that policy makers arrest the decline. We therefore turn to the policy response.
...the world is currently undergoing an economic shock every bit as big as the Great Depression shock of 1929-30. Looking just at the US leads one to overlook how alarming the current situation is even in comparison with 1929-30.

The good news, of course, is that the policy response is very different. The question now is whether that policy response will work. For the answer, stay tuned for our next column.

Grasping Reality with Both Hands: An Appeal for Help: Recent History of Economic Thought

Grasping Reality with Both Hands: An Appeal for Help: Recent History of Economic Thought: "An Appeal for Help: Recent History of Economic Thought

Somewhere, somehow, without as far as I know leaving any paper trail, Chicago-School economists became convinced of two false things:
1. Ricardian equivalence means not just that deficit-financed tax cuts have no short-term stimulative effects but also that deficit-financed spending increases have no short-term stimulative effects on nominal spending.
2. There are no issues worth discussing at the zero nominal interest rate bound: monetary expansion via open market operations retains its full potency and power to affect the level of nominal spending spending even when open market operations are just the swap of one zero-yielding government liability for another."

Robert Lucas:

Why a Second Look Matters: [1929-1932]

[W]ould a fiscal stimulus somehow get us out of this bind, or add another weapon that would help in this problem? I've already said I think what the Fed is now doing is going to be enough to get a reasonably quick recovery committed. But, could we do even better with fiscal stimulus? I just don't see this at all. If the government builds a bridge, and then the Fed prints up some money to pay the bridge builders, that's just a monetary policy. We don't need the bridge to do that. We can print up the same amount of money and buy anything with it....

But if we do build the bridge by taking tax money away from somebody else, and using that to pay the bridge builder... then it's just a wash.... [T]here's nothing to apply a multiplier to. (Laughs.) You apply a multiplier to the bridge builders, then you've got to apply the same multiplier with a minus sign to the people you taxed to build the bridge... taxing them later isn't going to help, we know that...

John Cochrane wrote:

Economist Debates: Keynesian principles: The basic Keynesian analysis... is simply wrong. Professional economists abandoned it 30 years ago when Bob Lucas, Tom Sargent and Ed Prescott pointed out its logical inconsistencies.... Robert Barro's Ricardian equivalence theorem was one nail in the coffin. This theorem says that [fiscal] stimulus cannot work because people know their taxes must rise in the future...

Barro's "Ricardian equivalence" case describes the conditions under which permanent tax cuts do not affect interest rates or consumption spending. Barro's case has no implications whatsoever for the effect of government spending increases on employment, production, and output. None.

William Poole: The self-correcting nature of markets will ultimately prevail. We should not underestimate the power of monetary policy; with the sharp increase in the nation’s money stock starting in September, monetary policy is now extraordinarily expansionary. I believe, though without great confidence, that the recession will end in the second half of this year.... [G]overnment spending can’t lead the way to sustained recovery, because its stimulating effect will be offset by anticipated higher taxes and the need to finance the deficit.

Henry Paulson: Rogue Treasury Trader?

Henry Paulson: Rogue Treasury Trader?: "Paulson “truly meant” to the use the $700 billion in TARP money to buy assets from the banks, not to buy shares in the banks, because he saw it as “a fundamentally bad idea to have the government involved in the ownership of banks.” He changed his mind when markets deteriorated and “he well understood that directly adding capital to the banking system provided much greater leverage.”"

Econbrowser: Causes of the Oil Shock of 2007-08

Econbrowser: Causes of the Oil Shock of 2007-08: "some degree of significant oil price appreciation during 2007-08 was an inevitable consequence of booming demand and stagnant production. It is worth emphasizing that this is fundamentally a long-run problem, which has been resolved rather spectacularly for the time being by a collapse in the world economy. However, the economic collapse will hopefully prove to be a short-run cure for the problem of excess energy demand. If growth in the newly industrialized countries resumes at its former pace, it would not be too many more years before we find ourselves back in the kind of calculus that was the driving factor behind the problem in the first place. Policy-makers would be wise to focus on real options for addressing those long-run challenges, rather than blame what happened last year entirely on a market aberration."

A special report on the rich: An end to inequality? | More or less equal? | The Economist

A special report on the rich: An end to inequality? | More or less equal? | The Economist

Paul Kedrosky's Infectious Greed

Paul Kedrosky's Infectious Greed
graph

Economist's View

Economist's View:

...the previous decades can be broken into a recent time period in which expectations appear to be well-anchored, the time period 1993 through 2008 is cited in the linked discussion, and a time period in the late 1960s and the 1970s when inflation expectations do not appear to be anchored (based upon Orphanides and Williams 2005).

...But past history shows us that expectations can move from one state to the other, from untethered to tethered, and there's no reason that cannot happen again, but in the other direction. So here I agree with Martin Wolf, it's dependent upon the credibility of policymakers. So long as people believe that the Fed is committed to preventing an outburst of inflation, and that they are capable of carrying through on that commitment, expectations will remain well-anchored. But if people believe that that Fed's hands are tied because of the harm reducing inflation would bring to the real economy, an out of control deficit, or due to political considerations that force them to accept inflation they could and would battle otherwise, then we have a different situation and long-run inflation expectations will change accordingly.

So there is nothing at all - except the credibility of the central bank - that guarantees expectations will remain anchored. I still believe that the Fed can and will prevent an inflation problem from developing, and I am not alone, but there are respected analysts who see it otherwise, or who are at least very worried, and that means the public can't be too far behind (the original is quite a bit longer, and explains the argument in more detail):

anchored inflation expectations

FRB: Speech, Bernanke--Inflation Expectations and Inflation Forecasting--July 10, 2007: "long-run inflation expectations do vary over time. That is, they are not perfectly anchored in real economies; moreover, the extent to which they are anchored can change, depending on economic developments and (most important) the current and past conduct of monetary policy. In this context, I use the term 'anchored' to mean relatively insensitive to incoming data. So, for example, if the public experiences a spell of inflation higher than their long-run expectation, but their long-run expectation of inflation changes little as a result, then inflation expectations are well anchored. If, on the other hand, the public reacts to a short period of higher-than-expected inflation by marking up their long-run expectation considerably, then expectations are poorly anchored."

Lessons from the New Deal

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