Frederic Mishkin, a former Federal Reserve Board member, wrote a WSJ opinion piece defending the core inflation measure. I've called core inflation a useless, misleading number:
http://willworkforjustice.blogspot.com/2008/08/inflation-revisited.html
I was eager to see how Mr. Mishkin would defend a statistic seemingly designed to insulate the government from macroeconomic criticism. Mr. Mishkin's article is below:
http://online.wsj.com/article/SB122169336538749851.html
To his credit, Mr. Mishkin intelligently argues that the Fed must maintain a "nominal anchor," and food and gas prices (what he refers to as "headline inflation") fluctuate too much to maintain a steady beacon.
As any statistician knows, however, there are ways to mitigate the extremes in any number sample. The Dallas Fed Reserve does just that by publishing "trimmed mean" figures, which are basically inflation numbers sans the extremes on either the high or low side. Mr. Mishkin provides a good defense of core inflation in principle, but I am still not convinced. A "nominal anchor" isn't going to provide any predictability if everyone knows the real numbers are much different than reality. Numbers need to have credibility first. That starts by acknowledging inflation numbers should include items most Americans use daily, such as food and gas prices.
"And if an epitaph be my story, I'd have a short one ready for my own: I had a lover's quarrel with the world." -- Robert Frost
Showing posts with label Frederic Mishkin. Show all posts
Showing posts with label Frederic Mishkin. Show all posts
Friday, September 19, 2008
Tuesday, July 29, 2008
WSJ Review, 7/29/08
Just when I'm ready to throw in the towel on the WSJ's steadily "dumbing down" of content and language and subscribe to the LA Times or NYT, it comes out with a fantastic issue. Here are the highlights:
1. One, a great quote from John Adams I'd never seen before, reminding Americans they are a republic, not a true democracy (Letters to the Editor section):
"Democracy never lasts long. It soon wastes, exhausts and murders itself. There was never a democracy that did not commit suicide."
-- John Adams, Letter, April 15, 1814
2. A reference to Frederic Mishkin's final speech as a Federal Reserve Board (FRB) employee:
http://www.federalreserve.gov/newsevents/speech/mishkin20080728a.htm
All FRB speeches in 2008 can be found here:
http://www.federalreserve.gov/newsevents/speech/2008speech.htm
Mishkin advocates for more FRB transparency and a publicly stated inflation target:
"By establishing a transparent and credible commitment to a specific numerical inflation objective, monetary policy can provide a firm anchor for long-run inflation expectations, thereby directly contributing to the objective of low and stable inflation."
Common sense stated simply and persuasively. Sigh. Why can't the FRB hold onto to someone like this? If the Dallas FRB's Fisher leaves, we won't have any inflation hawks left.
3. An article on Turkey's current turmoil caught my eye. Basically, Turkey has mandated secularism. At one point, it outlawed head scarves. This strict separation of religion and citizenry has caused internal turmoil, as more Turkish citizens demand free exercise of religion reminiscent of the original Americans. Turkey seems to have gone too far, because by outlawing certain religious aspects, it has intruded into its citizens' personal lives. Still, it bears noting and repeating: Muslims in the U.S. have greater religious freedom than in many Muslim countries. On the other hand, Malaysia and Indonesia, as prosperous Muslim countries, are good examples of how to run a religiously-inclined state.
4. Speaking of Indonesia, few people know Indonesia is an OPEC member. However, like Iran, Indonesia is experiencing difficulty with very low domestic oil prices, and needs to import more and more of it. As a result, Indonesia's power grid relies somewhat on coal. The problem is Indonesia's privately owned coal companies can get more money exporting coal (33% more, apparently) than selling it domestically. As a result of the difference in pricing, Indonesia's power grid is becoming inconsistent, like Enron's refusal to power California, causing state-wide problems. Hence, the question: should Indonesia pay more to the private coal companies, or does a state have an interest in demanding lower prices because power is a necessary item for its citizens? The coal companies may not pay much in taxes and do benefit from being in Indonesia, with its low labor costs, rich resources, and wonderful people.
I tend to believe in regulation of essential items, such as food and energy, but of course, the question is always, "How much regulation?" One cannot make the usual argument that regulation should be extended up to a point before the coal companies leave and do business elsewhere. Resource-rich countries have more leverage because of the finite nature and necessity of many natural resources; in other words, services may be regulated differently than natural resources because services, unlike natural resources, are usually more fungible. In any case, an interesting discussion can surely be had about this topic.
1. One, a great quote from John Adams I'd never seen before, reminding Americans they are a republic, not a true democracy (Letters to the Editor section):
"Democracy never lasts long. It soon wastes, exhausts and murders itself. There was never a democracy that did not commit suicide."
-- John Adams, Letter, April 15, 1814
2. A reference to Frederic Mishkin's final speech as a Federal Reserve Board (FRB) employee:
http://www.federalreserve.gov/newsevents/speech/mishkin20080728a.htm
All FRB speeches in 2008 can be found here:
http://www.federalreserve.gov/newsevents/speech/2008speech.htm
Mishkin advocates for more FRB transparency and a publicly stated inflation target:
"By establishing a transparent and credible commitment to a specific numerical inflation objective, monetary policy can provide a firm anchor for long-run inflation expectations, thereby directly contributing to the objective of low and stable inflation."
Common sense stated simply and persuasively. Sigh. Why can't the FRB hold onto to someone like this? If the Dallas FRB's Fisher leaves, we won't have any inflation hawks left.
3. An article on Turkey's current turmoil caught my eye. Basically, Turkey has mandated secularism. At one point, it outlawed head scarves. This strict separation of religion and citizenry has caused internal turmoil, as more Turkish citizens demand free exercise of religion reminiscent of the original Americans. Turkey seems to have gone too far, because by outlawing certain religious aspects, it has intruded into its citizens' personal lives. Still, it bears noting and repeating: Muslims in the U.S. have greater religious freedom than in many Muslim countries. On the other hand, Malaysia and Indonesia, as prosperous Muslim countries, are good examples of how to run a religiously-inclined state.
4. Speaking of Indonesia, few people know Indonesia is an OPEC member. However, like Iran, Indonesia is experiencing difficulty with very low domestic oil prices, and needs to import more and more of it. As a result, Indonesia's power grid relies somewhat on coal. The problem is Indonesia's privately owned coal companies can get more money exporting coal (33% more, apparently) than selling it domestically. As a result of the difference in pricing, Indonesia's power grid is becoming inconsistent, like Enron's refusal to power California, causing state-wide problems. Hence, the question: should Indonesia pay more to the private coal companies, or does a state have an interest in demanding lower prices because power is a necessary item for its citizens? The coal companies may not pay much in taxes and do benefit from being in Indonesia, with its low labor costs, rich resources, and wonderful people.
I tend to believe in regulation of essential items, such as food and energy, but of course, the question is always, "How much regulation?" One cannot make the usual argument that regulation should be extended up to a point before the coal companies leave and do business elsewhere. Resource-rich countries have more leverage because of the finite nature and necessity of many natural resources; in other words, services may be regulated differently than natural resources because services, unlike natural resources, are usually more fungible. In any case, an interesting discussion can surely be had about this topic.
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