The Real News Network has the video interview How Can Fed Policy Help Main Street?

I do have a couple of complaints.  In light of my previous posts Janet Yellen on Problems Controlling Bank Excess Reserves and Janet Yellen On Problems of Fiscal Drag and in light of  what Pollin has to say in this interview, it is just ridiculous for the video to start off with “Man In The Street” interviews. 

It is silly to have interviews with people on the street who couldn’t possibly know what Pollin knows about the Fed, how it works, and how the monetary system works. Please, The Real News Network, do not fall into the lamestream media habit of asking people for opinions on things they are unlikely to have an informed opinion about. Would you ask people what they thought about the way surgeons are doing heart transplants in their local hospital? What you asked of the people on the street is just about as ridiculous.

The other complaint is that it would have been good to ask Pollin how his suggestions for taxing the excess reserves might impact the concern of the Fed explained by Janet Yellen.

POLLIN: … All that said–and the Fed is operating by historic standards an extremely aggressive policy by keeping the interest rates for banks so low. But that policy is only a stimulus for the banks so far. The banks have piled up $2 trillion in cash reserves–nothing like that has ever happened, 12 percent of U.S. GDP, while the small business sector overall is still starved for credit. In fact, overall they have not gotten a dime of net new create credit since 2008–again, also unprecedented.

So the problem is not stimulus/no stimulus. The problem is Yellen and Bernanke are practicing a stimulus program that is not well designed to accomplish what needs to get accomplished, which is to deliver affordable credit to small businesses and to expand opportunities for working people, not just for the banks.
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POLLIN: Well, I think they could do two simple things. One, tax the banks for holding so much cash in reserve. The banks are getting this money for free. It’s a zero interest rate policy that the Fed is practicing, and the banks have piled up $2 trillion in cash reserves. So the banks are sitting on a cash hoard. That should be taxed–not all the way down so that it would owe nothing. They do need to have cash reserves to get through any future crises as a cushion, as a safety net, but $2 trillion is wildly excessive. I mean, we could pump in $1 trillion–that’s about 6 percent of GDP–and they would still have $1 trillion in reserve. So that’s number one.

In Janet Yellen’s testimony at her confirmation hearings, Senator Warner asked about the issue of banks having excess reserves on deposit with the Fed. He proposes lowering the interest that the Fed pays the banks on the $2.4 trillion of excess reserves. Yellen talks about his suggestion, and also provides a caution on the problems of implementing his suggestion.

Janet Yellen’s testimony could have been so educational if only more of the public could have heard it. Too bad the press doesn’t understand these issues well enough to realize the need to provide a forum for the public to learn about these topics.

At Janet Yellen’s confirmation hearings, Senator Warner asked a question about the impact of fiscal drag on the economy.  The question is a good one, and Yellen’s answer is also very good.

Yellen explains a little bit about the size of the fiscal drag, the need for the Fed to try to offset it. She does mention that the Fed’s tools for offsetting fiscal drag are not the most effective.

Don Berwick is running for Governor of Massachusetts. I just received an email from him directing me to his web site about His Health Care Platform For Our Commonwealth.

The Triple Aim is absolutely achievable. The current health care payment system pays most hospitals and doctors for volume (how much they do) rather than for results (how well patients do). And, it is not sufficiently focused on the upstream prevention of disease. The result is very high cost without sufficiently high value. Those high costs come right out of the wages of workers – in taxes, deductions, and out-of-pocket payments – and rob both government and families of opportunities to use their hard earned income for other important purposes.

Here is one answer: move our state away from fee-for-service payment and from fragmented delivery into coordinated, team-based, integrated care. For patients and families, this will lead to care that is much more responsive, helpful, and respectful. Outcomes will be better and costs will fall significantly. And, in addition, we need to focus much more on prevention.

This plan is something we ought to consider when deciding who should be our next Governor.

Chairman of the Sturbridge Board Of Selectmen, Tom Creamer, announced his resignation on November 18, 2013. The video of the entire meeting is available from Sturbridge Cable Access TV video on demand.

I have excerpted just the resignation announcement from that video.

From MSNBC we have Will the Senate go nuclear?

Chris Hayes talks about the “nuclear option” with Senator Jeff Merkley Dahlia Lithwick and Alan Frumin.

Of course MSNBC is just a shill for the sane, but what are you going to do?

It’s amazing what you find posted on people’s Facebook pages.   Thanks to Dante Comparetto for putting this on his Facebook page. The title and quote come from Amazing Oasis.

A little girl donates some coins to a street musician and gets the best surprise in return. Well, that’s certainly money well spent.

I just enjoyed the music. I’ll let you think of any political connection that merits me posting it here.

I received an email from Arun Muralidhar in response to my sending him a link to my previous post Elizabeth Warren: We should be talking about expanding Social Security benefits.

Hi Steve:

Thanks for the email and for the link to Sen Warren’s comments on Social Security. I totally agree with her that benefits need to be preserved, but sadly preserving benefits without making any changes to the current system will place an unfair burden on our kids. The only way to do so would be to implement our plan immediately as every delay adds to the cost of bolstering the program.

On your idea about allowing the Social Security investment option to be an offering for 401(K) plans, Franco and I had anticipated this kind of need. In fact, the World Bank pension fund was reformed in 1999 to allow such an option so that even retirees in 401Ks could be protected from market volatility, and it became the default option for staff who did not want to select equity/bond funds.

Thanks again for your thoughts.

Arun Muralidhar
Founder
Mcube Investment Technologies

Arun is co-author with Franco Modigliani of the book  Rethinking Pension Reform. I was glad to hear Arun confirm that the idea of a 401K public option is not farfetched at all.  The fact that the World Bank offers this type of investment in its pension plan, is as close as I know to an existence proof that such a plan is possible  on a national scale.

I note in Arun’s comments the use of an insight I first read about in the works of behavioral economists.  That is, that when you offer a bunch of complicated options to people, the best outcome happens if you make a good option be the default option.

Reader RichardH sent me the link to The Guardian article Academics back students in protests against economics teaching.

The Academics said in a letter to the Guardian that a “dogmatic intellectual commitment” to teaching theories based on rational consumers and workers with unlimited wants “contrasts sharply with the openness of teaching in other social sciences, which routinely present competing paradigms”.

They said: “Students can now complete a degree in economics without having been exposed to the theories of Keynes, Marx or Minsky, and without having learned about the Great Depression.”

Before reading the article, I had no idea that the teaching of economics had deteriorated so badly since I first learned economics in the early 1960s. Perhaps this article explains why I was so mystified by what Paul Krugman had to say as noted in my previous post How Milton Friedman Fooled The Economists. In that post I marveled at how Krugman was seemingly only recently remembering what he learned in the early 1960s just as I had learned it.

If the award laden economists who had learned all of this in their youth could forgot it as they advanced in their careers, I guess I shouldn’t be so harsh on President Obama for his failure to understand economics.  After all he was taught by these forgetful bozos.

I can imagine in other disciplines that what previous scholars may have taught can go in and out of fashion, but it was hard for me to imagine that the teaching of fairly recent historical events can go out of fashion.

It’s as if some grad student in an economics class would say, “Professor, I just read in the news about the elimination of the Glass-Steagall act during the Clinton administration.  What was that all about, and why did we think we needed a Glass-Steagall act in the first place?”  Would the Professor say, “Oh we don’t teach about that anymore.  That pertains to historical events that can never happen again, because things like the Glass-Steagall act was created to prevent a recurrence.”

No wonder there was not a whole generation of new economics students reacting to the abolition of Glass-Steagall the way I reacted to it.  As it was happening, I was thinking, “How can they do that?  Do they want to repeat the Great Depression?”

Democracy Now has the video interview Leaked Memo Reveals U.S. Plan to Oppose Helping Poor Nations Adapt to Climate Change.

Newly leaked documents have revealed how U.S. negotiators at the U.N. climate summit in Warsaw are opposing efforts to help developing countries adapt to climate change. According to an internal U.S. briefing memo seen by Democracy Now!, the U.S. delegation is worried the talks in Warsaw will “focus increasingly on blame and liability” and that poor nations will be “seeking redress for climate damages from sea level rise, droughts, powerful storms and other adverse impacts.” We speak with Nitin Sethi, a journalist with The Hindu newspaper who first reported on the leaked document.

This seems typical of the U.S. strategy, say one thing in public, but be a roadblock in private, and here we are talking about a Secretary of State from a Democratic administration. Also we don’t want to allow messy lawsuits from people seeking that pesky concept called justice.

Also of interest is some talk about India’s role in climate change. The interview tries to mask, a little bit, the problem that India has as both a sufferer from climate change and a cause of climate change. Developing countries, rightly or wrongly, do not want their economic development constrained by rules that did not constrain the already rich countries when they were in a similar stage of development. Of course, we would all like to reap only benefits without taking on responsibility (as shown by the U.S. position). This is one reason this is such a tough issue to resolve.

Maybe this is the only way these international negotiations can work, but going in with a preconceived notion of what you want to get and what you are willing to give may prevent the discussion of the best and most equitable way to achieve the most success. For instance, if you wanted to achieve the least amount of global warming pollution, maybe the solution is to concentrate your efforts where the worst sources are. If some of those polluting sources are in or will be in developing countries, maybe the developed countries need to spend their money in helping the developing countries generate and use power more efficiently.