Skip to comments.Janet Yellen is shocked that the Fedís price models donít work
Posted on 04/27/2014 12:07:12 PM PDT by Kaslin
So are we. Just shocked.
Hey, at least she said it publicly. Thats more than Mr. Bernanke ever did.
Ms. Yellen says doesnt understand why inflation is running hotter in the US than her models say it should be and why it ran cooler in Japan recently than her models predicted.
Models, its always the models with Keynesians.
Many modern economists like to think of themselves as scientists, or at least something close to scientists. But instead of white coats they wear tweed jackets and instead of verifiable results they produce excuses.
Ok thats a bit harsh but its not far from the truth.
Some believe that Yellen is too enamored with a natural rate of unemployment that is too low. That she thinks the rate of unemployment where wages will start to drift up and which represents mostly transitional movement between jobs and not layoffs in the economy is around 5.5%. But others think the natural rate is closer to 7%.
If the natural rate is closer to 7% and the official employment rate is at 6.7% (as the Fed says it is now) then that means there may be serious pressure on prices to move northward long before we get into the 5.5% range. (If we ever do.) This could spur significant upward pressure which in turn will necessitate harsh interest rate moves up in the future to get things under control. (They are never under control. Prices, even strongly manipulated ones are never under control.)
Add that Yellen also said recently that the employment number coming from the Fed wasnt particularly accurate and one can see why brows are furrowed around the table of the FOMC.
Pretty much it all comes back to the fact that the equations which never work for the folks at the Fed are not working yet again.
(From Bloomberg Businessweek)
We remain far from having a full understanding of the recent behavior of inflation, wrote the Romers, who are professors of economics at the University of California at Berkeley. Christina Romer is also a former chair of President Barack Obamas Council of Economic Advisers.
Yellen referred to the conundrum in her speech last week. During the recovery, very high levels of slack have seemingly not generated strong downward pressure on inflation, she said. We must therefore watch carefully to see whether diminishing slack is helping return inflation to our objective.
There are a number of possible explanations here. 1 that there isnt as much slack as Ms. Yellen thinks as noted above. 2 that the nature of slack has changed in a somewhat post industrial society with all sorts of welfare state provisions, which was also sort of noted. Add in people hiding in college with loans, the emergence of the Obamacare part-time army, and the Internet DIYers and things dont fit the models conceived even 10 years ago. (Of course they never did.)
And dont forget the ether through which all of these factors move, Quantitative Easing and the complete undermining of the pricing mechanism of capital in the economy. That might make things hard to figure out too.
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Obama, “Spread the wealth around a little.”
Oh I see.... It’s not your moronic incompetence, it’s the models. Good luck with that when the angry citizens with their pitchforks come out looking for you.
Maybe their models don’t work because the Obama administration has been fudging the inflation rate all along.
Any working stiff buying food and gasoline know that inflation has been surging over the last two years while our earning power has stayed stationary or has fallen.
Maybe the models don’t work, because they were not meant to be run in a universe where our biggest competitor is a low-cost monopoly, with 1.2 billion people, and a one-party state running it all.
I was going to bash this statement for believing the official unemployment rate. But now I'll just point out that this sentence says the official employment rate is 6.7%. Not unemployment, but employment.
I like that Yellen is focused on unemployment. I suspect she knows that the official unemployment rate is bogus.
Her initial solution is going to be more easy money, like her predecessor. But I’m hoping that she continues to look past that and eventually realizes we need to restore the import tariffs.
Just shows how stupid she is.
The reality of 330,000,000 people making independent decisions in their own self interest will frustrate the best model.
No, it's not. It is not possible to criticize Keynesian economics with sufficient force.
Gas prices - Historical Price Charts
Up up up. Add taxes to that number. Then add price of food and everything else. Inflation is high.
Good For Janet Yellen!She Hasn’t Drunk As Much Of The Kool-Aid As Her Predecessor!!!!!!!!!!!
“...when the angry citizens with their pitchforks come out looking for you.”
Progressive citizens don’t get angry at Progressives, they get angry at George Bush. (And they’ll keep voting Progressive, ad nausem, ad infinitum.)
Remember all those deeply complex mathematical models showed how you could re-hypothecate the same home loan, insure it all against default, and make a ton of money for the banks. It all worked well until it didn’t.
Socialists/Communists have no idea how economics work.... because their understanding of basic human nature is wrong.
“Models, at best, can only give you a rough idea of future trends in economics.”
But, models have been so very effective in convincing many that the temperature of Earth’s atmosphere is becoming warmer and warmer, dangerously warmer. Not accurate, but effective.
This yellen thing is a marxist just like her boss.
Why is 0bama fascinated by shriveled up old hags? (sibelius, yellen, lerner, hillary)
That’s a great poster — but:
1. Keynesian economists aren’t the only ones who use models — all quants do. In Keynes’ time nearly all economists used a few key indicators, and their particular economic theory to do analysis. The number of quants have increased with the increase in cheap computer power. Quants know little about any economic theory, or even economics (which is, fundamentally, a social science, regarding the behaviour of “economic man”), and plenty about making econometric models, with hundreds of variables.
2. Keynes was not a Keynesian, as we understand the term today. He specified a narrow set of circumstances (mainly involving a “liquidity trap”) that would justify government deficit spending. He also insisted that government debts should be repaid ASAP.
Their models CAN’T be wrong because they are liberal models. Liberals cannot be wrong and if their ideas don’t work it is just because they didn’t do them enough.
Models, at best, can only give you a rough idea of future trends in economics.
That’s because models only know how to walk on a runway and be way too skinny so the clothes they wear look a certain way. They are also sketchy at predicting very long weather traits (global warming) because they are so skinny they are cold all of the time.
They are, however, more accurate with their predictions than the computer models these jerks use.
Fed people are academic. Have no clue about real world and real people. Greenspan was asked about how the gov failed to react to the growing numbers of liar loans that help implode the financial system in 2008. He was shocked that businessmen would have such a short viewpoint of business and be willing to embark on short profits first and leave someone holding the bag down the road. Bernanke thinks one can go into debt in order to pay off debt, somehow one can fool people who possess money after the 2008 implosion into buying assets artificially propped up by printing money and debt. Both persons thinking go against what history has shown. Since ancient times, rulers were always advised to keep an eye on the business class. Failure to do so will result in businessmen cheating the people and worst corrupting officials. IAW we do not need more regulations but gov monitoring of business activity to make sure they follow laws. Finally more debt to deal with debt has destroyed many empires, republics and nations in the past. Somehow the Fed Reserve thinks they have a better handle then past great nations that failed. When one sits back one wonders is their something flawed in our academia, gov and the ruling 1 percent in our society to pursue such counter historical lessons, or is there something behind the scene that masks desperation.
At best, a model will only give you a range between which you can anticipate an outcome. And even then, it will still have an inherent level of inaccuracy. For a group (economists) that like to tout statistics, they sure seem to be lacking in understanding of the limitations of statistics.
I call that the $hit salad model. If we spread the $hit among the lettuce no one will notice when the sun comes out. Yea right. BTW they are doing it again.
Please never insult we science types be comparing any economist to us.
It is completely unexpected for us to normally use the word “unexpected”.
Can happen,, yes, but that is unexpected.
They’ll “discover” higher interest rates soon after the Republicans take over the Senate.
Clearly they haven't modeled a trade war with the tactics that China is using or they would have taken corrective action by now.
And none of their other models have that scenario modeled either.
The Fed's printing is not the problem. Let me put it in terms your 6 year old can understand.
Your 6 year old has a mom that turns out fresh cookies every couple of days. Your 6 year old knows a girl named Ching Chang has some brownies that your 6 year old wants.
Ching Change is willing to trade her brownies. But not for cookies. Ching Change wants the cookie factory. Ching Chang wants a claim on Mom.
Would your 6 year old make that trade? No way, would your 6 year old sell out her Mom for Ching Chang's brownies. But America is making that trade every day since we lowered the import tariffs.
We buy cheap imports and instead of insisting that the dollars are only exchangable for trade goods, we sell debt and equities. We are selling our factories and putting Mom in slavery.
But our money should be backed by GOLD.
Really? Shocked? Obama anti xL Keystone pipeline made sure the printing of money was going to be wasted into the little product markets.
When bartering there always is a residual credit as all barter are never equal. Money credit residual or remainders are thus created. They are a liability unless they can be fund raised into a church or big project, thus collected and revalued.
Yellen has no concept of what she is talking about or she is too afraid to blame Obama for creating a stockpile of pre credited residual credits and washing them off into mundane transactions without meaning which go into the consumed trash can.
So we spent 17 trillions for nothing but trinkets and this 17 trillion now will sit there used up and without any value. That means hyper inflation. Because even if the governemnt reraised taxes to pay their workers, there is no way in heck a salesman would agree to be paid by said government workers with this trashy cash.
So here we come price control which will worsen the inflation yet.
I agree with your scenario 100%.
Both of our parties, are selling Mom.
Both of them are. Very good scenario you illustrated with.
Someone, somewhere get with it. Please.
We need to RESHORE (that is the term for returning jobs back to America). Some companies are doing it, because costs of doing business is rising overseas. Some companies are building Mexican factories and leaving China. Transportation costs are cheaper.
Any of us could have told her.
Yellen is what my dad used to call “educated beyond her capacity to learn.”
I get the feeling that Janet does not know what she is doing.
Mugabe was probably a little shocked at the performance of his models as well. Currency debasement is funny that way.
RE post 5: well, yeah.
“Employment stabilization” causes price DEstabilization. It’s a dirty scheme to rob one group to buy the votes of another using inflationary macro policies.
Thanks, Keynesian scholars!
Food and Energy are not part of the index for inflation; those two categories alone are running 10% higher every year... Working fewer hours... Government cutting back your welfare... Everyone has less - Obama has both printed more money (buying stocks via the Fed), and made everyone working poorer!
I don't think very many are doing it. I thing the offshoring stills swamps the reshoring. The only reshoring I've heard about is where the company is returning with very highly automated factories so that labor cost is no longer an issue, as there is very little.
I'd rather have highly automated factories in the U.S. than have them overseas and foreign owned. But to help the labor situation we need to reshore industries that still need some labor. That's going to take restoring the tariffs.
The most recent reshoring I've heard about, appeared to have simply relocated a plant to Mexico to eliminate the union, and then relocated again to the U.S. with ultra high automation. I don't want to prevent automation. It's coming. And it's going to cause massive labor dislocations. All the more reason to get as many jobs back as we can now.
All that’s true, and so is the fact that limey poofter Keynes was wrong about everything.
If Kamarade Franklin Delano Rooseveltovich had gone with sane economists instead of the pickle-smoocher from Piccadilly, there need have been no Great Depression.
“Any working stiff buying food and gasoline know that inflation has been surging over the last two years while our earning power has stayed stationary or has fallen.”
I have observed that continuously since my return to the States in 2006.
“Socialists/Communists have no idea how economics work.... because their understanding of basic human nature is wrong.”
Terse, concise...I’m going to steal it, replace Socialist/Communists with “Leftards,” and replace the four periods with a comma.
Maybe he feels guilty at how he treated his grandmother before she died.