tag:blogger.com,1999:blog-8764541874043694159.post3097489313225217469..comments2024-03-28T12:23:39.665+00:00Comments on Coppola Comment: Sumner on PikettyFrances Coppolahttp://www.blogger.com/profile/09399390283774592713noreply@blogger.comBlogger19125tag:blogger.com,1999:blog-8764541874043694159.post-62161147755966561442014-07-11T02:41:51.724+01:002014-07-11T02:41:51.724+01:00This comment has been removed by a blog administrator.jessise13http://www.spmeno.comnoreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-59709808017685464312014-07-10T23:21:12.298+01:002014-07-10T23:21:12.298+01:00Vivian,
1. Failing to enforce existing regulation...Vivian,<br /><br />1. Failing to enforce existing regulations is a failure of regulation under definition 1. If you prefer you may call it a failure TO REGULATE. It is the same thing. <br /><br />As I said before, your interpretation of the "original offer" is no more valid than mine. I have dug no holes. <br /><br />3. I did not argue that tax relief did not encourage borrowing. I said that since it had not changed, it could not encourage borrowing any more than it had done previously, when there was no lending boom. <br /><br />Frances Coppolahttps://www.blogger.com/profile/09399390283774592713noreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-13328922476824385842014-07-10T20:31:49.628+01:002014-07-10T20:31:49.628+01:001. No, I'm criticizing you for originally cri...1. No, I'm criticizing you for originally criticizing Sumner on the basis that "regulation" or "de-regulation" includes failure to enforce regulations on the books. The definition you cite does not include failure to enforce existing regulations. You also seem to be insisting on your own definition to the exclusion of the likely usage of the original offer. I'm afraid you are digging an even deeper hole for yourself.<br /><br />3. Frances, when a legislature passes a law, and an administrative agency passes a regulation, those rules remain in effect throughout the term of those laws and regulations being in force. It does not make any sense to argue that a law or a regulation ceases to encourage (or discourage) activity the moment after it has entered into force. The encouragement continues as long as the rule is in effect.<br /><br />And, your argument here seems to directly contradict the idea that your unique definition of "de-regulation" includes not enforcing rules on the books ("light regulation as you alternatively referred to it). You need to be a bit more consistent.Vivian Darkbloomhttps://www.blogger.com/profile/18362419878968863283noreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-46366809190266719602014-07-10T19:37:47.462+01:002014-07-10T19:37:47.462+01:00Vivian,
Re interpretation: with respect, my inter...Vivian,<br /><br />Re interpretation: with respect, my interpretation of what Scott meant is every bit as valid as yours. We will simply have to agree to differ. <br /><br />Regarding language, I have two comments to make. <br /><br />1, The noun "regulation" has three meanings, none of them exclusively British. This is the definition from Merriam-Webster, which is an American dictionary:<br /><br />Full Definition of REGULATION<br /><br />1<br />: the act of regulating : the state of being regulated<br />2<br />a : an authoritative rule dealing with details or procedure <br />b : a rule or order issued by an executive authority or regulatory agency of a government and having the force of law<br />3<br />a : the process of redistributing material (as in an embryo) to restore a damaged or lost part independent of new tissue growth<br />b : the mechanism by which an early embryo maintains normal development<br /><br />3 is clearly of no consequence in our discussion, but both 1 and 2 apply. You are criticising me for using 1 instead of 2.<br /><br />2. You have focused so much on my use of language that you actually missed the point I was making. I neither agreed or disagreed with Scott about deregulation in the sense of removal of rules. I pointed out that it made no difference whether or not rules existed, because regulators weren't enforcing them anyway. <br /><br />3. The reason why the tax treatment cannot be regarded as specific encouragement of home equity lending AT THAT TIME is because both home equity lending and tax relief on it had already been in existence for many years. I don't deny that tax relief encourages mortgage borrowing, but it does not explain the boom in home equity lending that started in 2001, peaked in 2004 and continued at an elevated rate until 2009. <br /><br />Regarding your implied criticism of my use of the term "equity release mortgages": it is completely reasonable for me to use British terminology on this site. It is a UK blogsite and most of my readers are British. If I had used the term "home equity mortgages", I would be using an Americanism.<br /><br />Frances Coppolahttps://www.blogger.com/profile/09399390283774592713noreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-13235109850975263722014-07-10T07:13:59.060+01:002014-07-10T07:13:59.060+01:00Frances,
Sorry for using an "i" in the ...Frances,<br /><br />Sorry for using an "i" in the spelling of your name rather than an "e". At least I was consistent. :-). (That's not sarcasm),<br /><br />Just a couple of responses before I let this drop.<br /><br />Much of your critique of Scott's post seems to be based on your use of a different language and understanding of his usage. Rather than try to understand where he was coming from, you seem to see everything through your own lenses, as well as the British language, and insist other do, too. *That* is parochial. The Chinese savers is one example. Your interpretation of what he meant is certainly not the only one and, in my view, not the correct one.<br /><br />The other example, again, is your continuing critique of an American writer for failing to use a British understanding of the term "regulation" and "de-regulation". Your comment above only reinforces that problem rather than rebuts it. I have no disagreement what your understanding of those terms might mean in the UK, but you were responding to an American writer's usage of those terms! Europe may be only a continent, and the UK may be an island off that continent, but the latter is not the world. If you want to criticize someone then please try to understand the language he or she is speaking.<br /><br />Finally, regarding those US equity loans. As I previously pointed out, had it not been for the original loans to those borrowers, they would have had no home and no (temporary) equity from which to borrow against. You wrote "It (the favorable tax treatment) cannot in any way be regarded as specific encouragement of the sort of lending I described. I'm really scratching me head on this: You mean that providing tax preferred treatment to home equity loans in no way encourages that lending? You indicated that "equity release mortgages were a major problem! (despite the fact that "equity release mortgages" is an apparent Britishism, I understand you are talking about home equity mortgages).<br /><br />So, in sum, "US regulation" encouraged imprudent lending in two ways that contributed to the financial crisis: By encouraging (and indeed demanding) that more home loans be given to low income persons and second, once this contributed to price inflation, to take out tax-advantaged home equity loans against that newly created "equity".Vivian Darkbloomhttps://www.blogger.com/profile/18362419878968863283noreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-58060009268422318372014-07-09T13:42:54.980+01:002014-07-09T13:42:54.980+01:00Vivian,
1. Your comment came across to.me as supp...Vivian,<br /><br />1. Your comment came across to.me as supporting Scott and misrepresenting me. However, on reflection perhaps you did not intend to misrepresent me. You may regard this as petty, but the fact that you persistently mis-spell my name is to me clear evidence that you do not read things properly. <br /><br />2. It is not meaningful to compare a country with an entire continent. Would you compare the US with Africa, or Asia? We could compare North America with Europe, but then we would have to include Canada.<br /><br />However,, Scott's statement that Europe had a worse financial crisis than the US is wrong anyway.<br /><br />3. I'm not going to argue with you about the extent to which in a state communist system "the people" can be said to "own" anything. The profits of China's state-run enterprises go to the State. It is those, not the meagre savjngs of poor Chinese households, that are invested in USTs. That is the point I was making.<br /><br />4. As the term I have just quoted to you was easily found in a Google search, and featured in mainstream media. it is hardly unique to me. It may br that using the term "regulation" to mean what regulators do is more common in Britain. But that does not make it either wrong or egocentric of me to use it in this way. On the contrary, it is parochial of you to expect a British writer on a UK blogsite to use words in an American way.<br /><br />5. Yes, I know there is tax relief on US mortgages. It has existed for decades. It cannot in any way be regarded as specific enouragement of the sort of lending I described.<br /><br />No, I missed the smiley face. But I would not have understood it. in my world, a smile is a smile, not an indicator of sarcasm.<br />Frances Coppolahttps://www.blogger.com/profile/09399390283774592713noreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-86330793859928911882014-07-09T11:42:45.173+01:002014-07-09T11:42:45.173+01:00Francis,
1. I'm not "supporting Scott&q...Francis,<br /><br />1. I'm not "supporting Scott". I am supporting my own views of your post and, if you read Money Illusion regularly, you'd know that I do not shy away from disagreeing with Scott when I think that is appropriate. Your suggesting otherwise and that my comments are meant merely to support Sumner do *you* "no favors" and strike me as rather condescending. And, misrepresentation and omission is very much part of my critique of your critique of Scott's post.<br /><br />2. The idea that one cannot refer to "Europe" in a discussion of economic policy and its consequences is disingenuous and rather petty. True, there are differences in degree of economic integration, but that should not eliminate the Europe or EU from discussion any more than it should eliminate North Dakota and New York, as I pointed out.<br /><br />3. You are avoiding the point. The Chinese government (just like the US government) is not a person. It savings are derived from the people and ultimately belong to the people, not to the government. The vast majority of the Chinese people happen to be poor. I doubt these facts are disputable. I'm here reminded of that rather insightful comment of Mitt Romney about corporations...<br /><br />4. "Light touch regulation" is not a term in common parlance in the United States. You are making objections to Sumner's post on the basis that he refuses to use your own, rather unique, terminology. On this point, however, you seem to agree with Sumner: if you view is that the crisis had nothing to do with "de-regulation", as Sumner originally wrote, then it is absurd to now claim that taking regulations off the books (e.g., Clinton era deregulation) had little to do with the risks taken by banks? Or, is "de-regulation" in your unique lexicon a synonym for "light-touch regulation"? Just for fun, I googled the latter term and, much not to my surprise, the first ten links were to usage by the BBC, the Guardian and the FT. When critiquing the posts of others, I suggest that one be a bit more careful not to substitute your lexicon for that of the original writer. I think you are caught here in a rather narrow ego centric point of view (see also, in this respect, 3, supra, which suffers from the same problem).<br /><br />5. "You do realise that new mortgages can be taken out on properties that people already own, don't you? Equity release mortgages were big, big business in the early to mid 2000s."<br /><br />And, do you, Francis, realize that *due to government regulation*, the interest paid on home equity loans is tax deductible (within certain monetary limits, generally not of concern to lower income folks)? Government regulation makes this a rather cheap credit card. And, that the very practice of government encouraging and demanding home loans to lower income people fueled not only additional lending, but the temporary rise in house prices that enabled these home equity loans to be made? Think about it: if it were not for those initial loans, the subsequent (tax advantaged) home equity loans would not have been possible.<br /><br />No, you did not say that the US government's "sole contribution" was to discourage close investigation of banks. However, you perhaps missed the little smiley face appended to that comment. It was, in fact, a little rejoinder to your own misrepresentation of Sumner's post that he "exonerated" banks. I hope that didn't fly over your head.Vivian Darkbloomhttps://www.blogger.com/profile/18362419878968863283noreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-43282648095472680012014-07-09T09:59:36.662+01:002014-07-09T09:59:36.662+01:00Vivian,
Your support of Scott is admirable, but m...Vivian,<br /><br />Your support of Scott is admirable, but misrepresenting what I said and omitting key parts of it does you no favours. <br /><br />1. The US is a unified federation and full currency union with federal programs and fiscal transfers. In that respect it is much more like the UK, Germany or Switzerland than like the EU, or Eurozone, both of which are loose (to varying degrees) associations of sovereign states. So in that respect, no you can't meaningfully compare "Europe" (whatever that means) to the US.I did explain this briefly in the post and provided a link to another post that explains it more fully. <br /><br />2. Scott said that as incomes were not rising, there was no reason for people to borrow. He did not mention expectations, which is what I am discussing here. <br /><br />3.When the Chinese government buys US treasuries, it uses its own savings. Employed labour does not own the profits generated by its efforts. China is still a Communist economy: most profits go to the State one way or another. <br /><br />4. "Regulation" has two common uses in relation to banks. When people use the term "light-touch regulation" they are talking about the behaviour of regulators, not the existence or otherwise of rules. I am therefore consistent with general parlance. <br /><br />5. If you read my comment CAREFULLY you will realise that lending to poorer people for primary residence purchase was a very small part of mortgage lending even though government directly encouraged it. Lending specifically for debt refinancing and consumption was much larger. You do realise that new mortgages can be taken out on properties that people already own, don't you? Equity release mortgages were big, big business in the early to mid 2000s. I did provide a link to a post discussing this in more detail. I suggest you read it. <br /><br />The US government also encouraged lending against property to support consumption in the aftermath of the dot-com bubble and 9/11. But that encouragement was not specifically aimed at poorer people. <br /><br />I did not say the US government's "sole contribution" was to discourage close investigation of banks. <br />Frances Coppolahttps://www.blogger.com/profile/09399390283774592713noreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-21577062002755188052014-07-09T09:29:37.493+01:002014-07-09T09:29:37.493+01:001. New York was hit much harder by the financial ...1. New York was hit much harder by the financial crisis than was North Dakota and the two have very different economies. Does that mean we can't include them when referring to "the United States"?<br /><br />2. "Indeed, it seems that low-to-middle income people in the US did borrow excessively in the early to mid 2000s, probably driven by a combination of (irrational) expectations of higher incomes".<br /><br />I'm pretty sure that was exactly Scott's point. Their expectations were irrational.<br /><br />3. "The US "savings glut" came from poor Chinese households, not the well-to-do."<br /><br />I think you are taking this too literally. Whose efforts, exactly, contributed to that Chinese trade surplus? Solely the efforts of "rich" Chinese? When the Chinese government buys US Treasuries, whose "savings" does that represent?<br /><br />4. "I should make it clear that by "inadequate regulation" I do not mean lack of rules. I mean a laissez-faire attitude on the part of regulators."<br /><br />Nearly everyone else using the term "inadequate regulation" and/or "deregulation" mean that there were/are too few regulations on the books. Common usage for what you are trying to communicate is "lack of regulatory enforcement". You can't fault Scott merely because you are using your own rather arcane usage.<br /><br />5. " Sumner wishes to blame government for banks' enthusiastic lending to lower-income borrowers. He does have a point: government certainly discouraged close investigation of the activities of banks. But is he right to exonerate banks?"<br /><br />Come on. Did Sumner really "exonerate banks"? <br /><br />'Government did indeed encourage lending to poorer people in order to extend to them the American dream of home ownership. But Mian & Sufi's research, and Greenspan's, that I've cited above shows that lending for primary house purchase was not the primary driver of the property and lending boom. It was lending for consumption, either directly or via refinancing of unsecured lending."<br /><br />This doesn't make a lot of sense as a rebuttal to the idea that the US government contributed to the crisis by encouraging lending to low and middle income persons (as you admit in the first sentence!!). Sure, a lot of money lent ostensibly to purchase homes ended up increasing other consumption. Money is, after all, fungible. Home equity loans were utilized due to rising prices, etc. But, how does this "exonerate" government :-) ? Should not government have foreseen that by encouraging (and in a real sense, demanding) the extension of mortgage loans to low and middle class borrowers all of that would happen? What makes you think that the US government's (sole) contribution to this increased lending was to "discourage close investigation of banks"? This seems to contradict your admission that the government did indeed encourage increased lending to those income groups. If your point is that the government encouraged such lending, but later didn't enforce against imprudent lending, why do you think banks had failed, in the first instance, to make those loans? Perhaps, because they thought it imprudent before government intervened?Vivian Darkbloomhttps://www.blogger.com/profile/18362419878968863283noreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-68196860557567316272014-07-08T18:20:22.775+01:002014-07-08T18:20:22.775+01:00Lovely! So I could be forgiven for thinking that i...Lovely! So I could be forgiven for thinking that if household consumption is not actually rising as much as it looks as if it is, because it includes employer spending on healthcare, then perhaps wages aren't stagnating as much as they look as if they are either? After all, if consumption figures include employer-paid healthcare on the grounds that it is really part of wages, then it should show up in wage figures too.....which it doesn't. Alternatively, we exclude it from both consumption AND wages and tell a story of flat consumer spending because of flat wages and high debt burdens. Which would you prefer? Or both, maybe?Frances Coppolahttps://www.blogger.com/profile/09399390283774592713noreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-41070237701794136982014-07-08T18:01:52.261+01:002014-07-08T18:01:52.261+01:00Also, here is your statutory reminder from Doug He...Also, here is your statutory reminder from Doug Henwoood (always up to no gooood) that US personal consumption expenditure in the last 20 years was mostly driven by healthcare: http://www.leftbusinessobserver.com/Consumption.html<br /><br />JW Mason drives the nail in deeper:<br /><br />http://slackwire.blogspot.co.uk/2014/05/the-nonexistent-rise-in-household.htmlAlexhttps://www.blogger.com/profile/17153530634675543954noreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-17704116252088466562014-07-08T17:57:32.936+01:002014-07-08T17:57:32.936+01:00The People's Bank of China (PBOC)'s State ...The People's Bank of China (PBOC)'s State Administration of Foreign Exchange (SAFE).Alexhttps://www.blogger.com/profile/17153530634675543954noreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-66277110088697106782014-07-08T06:50:52.633+01:002014-07-08T06:50:52.633+01:00China 'exports its surplus' for the fairly...China 'exports its surplus' for the fairly simple reason that it would never sell more abroad than it imports otherwise. <br /><br />It is a consequence of the currency system China chooses to run. The financing arm and the trade arm of any deal has to be in place at the same time or the trade will simply not happen. <br /><br />All export surplus countries have to 'vendor finance' their export business otherwise the floating rate exchange system would eliminate the surplus due to a lack of the right kind of money at the right time. <br /><br />So China, overall, has no choice other than to buy foreign assets because its policy is to maintain a trade surplus. <br /><br /><br /><br />NeilWhttps://www.blogger.com/profile/11565959939525324309noreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-47970336378952122742014-07-08T03:42:07.371+01:002014-07-08T03:42:07.371+01:00Frances,
"It is Chinese corporations, high n...Frances,<br /><br />"It is Chinese corporations, high net worth individuals and government that export their surpluses"<br /><br />Does anyone know who in China owns US Treasuries? Is the mainly the central bank? Any stats anywhere on this?Philippenoreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-47070493021733980472014-07-07T18:24:48.145+01:002014-07-07T18:24:48.145+01:00"Sumner also claims that 73% of Americans rea..."<i>Sumner also claims that 73% of Americans reach the top 20% of incomes at some time in their lives. He doesn't give a source for this "fact" and I have been unable to substantiate it. Can any reader here do so?</i>"<br /><br />Sumner originally mentioned it in point two of <a href="http://www.themoneyillusion.com/?p=26877" rel="nofollow">this post</a> on June 4. That links to this NY Times article <a href="http://www.nytimes.com/2014/04/20/opinion/sunday/from-rags-to-riches-to-rags.html" rel="nofollow">From Rags to Riches to Rags</a> from April 18. Which in turn refers to a study by Mark Rank (Washington University) and Thomas Hirschl (Cornell). Presumably, they discuss it in more detail in their book, "<a href="http://www.amazon.com/Chasing-American-Dream-Understanding-Fortunes/dp/0195377915" rel="nofollow">Chasing the American Dream: Understanding What Shapes Our Fortunes</a>", but I haven't read it.Don Geddishttp://don.geddis.org/noreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-55443898060546095892014-07-07T16:12:08.675+01:002014-07-07T16:12:08.675+01:00In the interests of not being a hypocrite, I'm...In the interests of not being a hypocrite, I'm happy to provide citations if anyone's interested. However, since I'm lazy I won't do it until prompted.Unlearningeconhttps://www.blogger.com/profile/13687413107325575532noreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-91906083240711450792014-07-07T16:09:35.734+01:002014-07-07T16:09:35.734+01:00Nice work, although I doubt it will make much impa...Nice work, although I doubt it will make much impact.<br /><br />A few points to add:<br /><br />First, you can be sure there are no "experts" that agree with Sumner, and no source for his claim about income mobility. This is a standard tactic he uses - making claims about facts or appeals to authority based on nothing. Milton Friedman also used to do it, maybe there's something in the water at Chicago that makes people intellectually dishonest.<br /><br />Second, here's Piketty on the China-US thing:<br /><br />"Quite obviously, if the increase in inequality had been accompanied by exceptionally strong growth<br />of the US economy, things would look quite different. Unfortunately, this was not the case: the<br />economy grew rather more slowly than in previous decades, so that the increase in inequality led to<br />virtual stagnation of low and medium incomes.<br /><br />Note, too, that this internal transfer between social groups (on the order of fifteen points of US<br />national income) is nearly four times larger than the impressive trade deficit the United States ran in<br />the 2000s (on the order of four points of national income). The comparison is interesting because the<br />enormous trade deficit, which has its counterpart in Chinese, Japanese, and German trade surpluses,<br />has often been described as one of the key contributors to the “global imbalances” that destabilized<br />the US and global financial system in the years leading up to the crisis of 2008. That is quite possible,<br />but it is important to be aware of the fact that the United States’ internal imbalances are four times<br />larger than its global imbalances. This suggests that the place to look for the solutions of certain<br />problems may be more within the United States than in China or other countries."<br /><br />So he clearly deals with Sumner's objection about China.<br /><br />People wanted to spend more because they were keeping up with economic growth! New products. higher incomes for the wealthy, plus available funds -> people try to keep up even if their incomes fall short. Sumner should look up Robert Frank's work on the Relative Income Hypothesis and expenditure cascades over the (empirically unsupported) PIH he leans on.<br /><br /><br /><br /><br />Unlearningeconhttps://www.blogger.com/profile/13687413107325575532noreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-46337813579281674882014-07-07T15:39:07.214+01:002014-07-07T15:39:07.214+01:00Excellent post. The most bizarre assertion for me ...Excellent post. The most bizarre assertion for me was "Sumner also claims that 73% of Americans reach the top 20% of incomes at some time in their lives."<br /><br />However I do agree with Sumner on NGDP level targeting and his point that low rates don't necessarily mean "loose policy."<br />Peterhttps://www.blogger.com/profile/08272747870634233567noreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-36404570313194427782014-07-07T15:33:04.383+01:002014-07-07T15:33:04.383+01:00I don't know which "experts" Sumner ...<i>I don't know which "experts" Sumner refers to here</i><br /><br />I've read a few of these studies, the most thorough of which was a San Francisco Fed report, based on the Loanware database. What's happened here is that Sumner's made a classic speed-reading error (picking up factoids from working paper abstracts is an occupational hazard of the "explainer" industry). The data shows that underwriting standards on a loan-by-loan basis didn't change over the pre-crisis period - this wasn't a case where credit standards were compromised, it was a case where the same standards suddenly got hit by a surge in demand. <br /><br />But of course, "underwriting standards" isn't the same thing as "risk taking". Simply writing a much larger volume of business on the same capital base is riskier, even if you keep the same credit standards. This is much, much, wronger than it's right and "most experts", including the ones he's implicitly cited, agreeThe Rioja Kidhttps://www.blogger.com/profile/06462814606739183471noreply@blogger.com