An alternative explanation, I suppose, would be that Mitt Romney is familiar with federal law
(specifically, the Full Employment and Balanced Growth Act of 1978). 
)
Either way, good for him. (h/t lambert)
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The TC rule right now says – it screams – “WE NEED MORE SPENDING”…. The rule itself is pretty simple. It uses our two biggest concerns of employment and inflation, and sets targets for them. It also accounts for population growth, so we can keep per capita GDP growing…
The rule itself is pretty simple. It uses our two biggest concerns of employment and inflation, and sets targets for them. It also accounts for population growth, so we can keep per capita GDP growing.
I suggest using 4% for an unemployment target.
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May 4 (Bloomberg) — Mitt Romney raised the bar for what comprises an unemployment rate worth celebrating as he used the latest jobs figures to criticize President Barack Obama’s management of the economy while campaigning in Pennsylvania.
“Anything over four percent is not cause for celebration,” the presumptive Republican presidential nominee said inside a warehouse of a specialized cement and corrosion- resistant materials manufacturer in Pittsburgh.
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The medium-term goals in the first three Economic Reports and… in each Economic Report thereafter shall include… reducing the rate of unemployment, as set forth pursuant to section 1022(d) of this title, to not more than… 4 per centum. 15 USC 1022a(b)
One of the mysteries of government is why Congress lets the CBO (which works for Congress!) piss all over an Act of Congress by using 5.2% as the target full employment U3 rate. The difference between 4% and 5.2% is approximately $300 billion in economic activity. To put it another way, whenever you hear economists drone about the output gap, mentally add $300B to the total.
Update: Like clockwork, a former CBO director defends his own neglect of federal law by…. blaming Romney.
A leading conservative economist took issue with Mitt Romney’s claim that, “anything over four percent [unemployment] is nothing to celebrate.”
“I understand the desire for low unemployment and the current 8.1 is unacceptable,” Douglas Holtz-Eakin, president of the American Action Forum told TPM via email Friday afternoon. “But 4% is not a realistic target.”
Update II: From what critics are saying (e tu, Krugman?) you’d think Romney was endorsing a crazy impossible pipedream, like, say, (1) landing a man on the Moon and (2) returning him safely to the Earth (I shudder to think how the Fed would balance THAT dual mandate). In fact, the 4% target has been reached as recently as the Clinton administration; U3 rate bottomed out at 3.8% in the spring of 2000, without accelerating inflation.
I have a question on the TC rule. There is an unemployment target and an inflation target. Which one takes precedence if they are in opposition? For example a circumstance where unemployment is above target and falling but inflation is also above target and rising?
The law covers that too. Full employment trumps price stability.
The medium-term goals in the first three Economic Reports and.. in each Economic Report thereafter shall include… [1] reducing the rate of unemployment, as set forth pursuant to section 1022(d) of this title, to not more than… 4 per centum… [And]
[2] reducing the rate of inflation, as set forth pursuant to section 1022(e) of this title, to not more than 3 per centum…Provided, That policies and programs for reducing the rate of inflation shall be designed so as not to impede achievement of the goals and timetables specified in clause (1) of this subsection for the reduction of unemployment…15 USC 1022a(b)
Hey! I didn’t know that!
In the TC rule math, just plug in the numbers and see what happens. You can run a variety of scenarios and see what levels of spending are suggested.
The climate could have very high inflation and very high unemployment and the TC rule might spit out neutral fiscal policy. If the inflation persists in the face of high unemployment, it’s very likely the problem isn’t due to deficit levels. It suggests there are scenarios and solutions which are outside the power of active fiscal policy.
Fiscal policy doesn’t cure too much private credit easily. It *might* pre-empt private credit creation, and it might help to clean up the mess after this credit is issued.
But it’s not a cure.
It seems like this legal 4% target wasn’t chosen at random. I bet there were studies done and this number is based on those studies.
Based on what assumptions? That’s always the kicker.
“Based on what assumptions? That’s always the kicker.”
http://cbo.gov/sites/default/files/cbofiles/ftpdocs/110xx/doc11067/76doc149.pdf
Original bill (Full Employment and Balanced Growth Act of 1976) called for 3% target, the CBO thought this was a bit overambitious. Without the addition of Vickrey’s “ailerons”*, that was probably accurate.
*“Trying to control an economy in three major macroeconomic dimensions [inflation rate, the unemployment rate, and the growth rate] with only two instruments is like trying to fly an airplane with elevator and rudder but no ailerons; in calm weather and with sufficient dihedral one can manage if turns are made very gingerly, but trying to land in a cross-wind is likely to produce a crash”. (Fallacy 6)
Boy that’s an interesting document! Who would have thunk they would discuss an “Employeer of Last Resort” or a “so-called job guarantee”?
Right, to be “safe” the want to idle extra resources “at the margin” and increase inefficiency as the price. Brilliant solution, worthy of the mainstream.
As I said, it’s all in the assumptions.
“One of the mysteries of government is why Congress lets the CBO (which works for Congress!) piss all over an Act of Congress by using 5.2% as the target full employment U3 rate. The difference between 4% and 5.2% is approximately $300 billion in economic activity.”
The mystery is why they accept anything other than transitional, since everything beyond that is waste of potential GDP through idling resources. “Controlling inflation” by idling resources is just dumb.
Of course you’re right Tom. I absolutely endorse Bill Vickrey’s goal of
a way to give money to corporations that they did not earn. But not to the unemployed.driving unemployment well down below NAIRU (the striked text is from my favorite part of the NEP-MMP thread, where I was tossed a softball named “Randy or Mitchell or Mosler”).http://neweconomicperspectives.org/2012/05/responses-to-blog-48-mmt-and-the-job-guarantee.html#comment-14630
While Vickrey thought target U3 rate should be less than 2% and Hubert Humphrey thought it should be 3%, the important thing is that federal law RIGHT NOW sets a full employment target of “not more than 4 per centum”. Except for Dean Baker (and, apparently, Mitt Romney) nobody seems to care whether this law is, as they say, faithfully executed.
I like Bill Vickrey, as you know. The how is irrelevant to me. Accomplishing the objective is the important thing.
A market based solution would likely more palatable politically than a “socialist” one, without a progressive Democratic administration and Democratic Congress controlled by progressives. That’s not in the numbers anytime soon, barring a sea-change in the US political scene.
You’re always rational Tom. I admire MMT’s passion to try to be very progressive, but we also have to work with what we have. And unfortunately, the world just isn’t ready for many of the progressive solutions that MMT would like to push forward. Baby steps. I like to think that MMR could be a stepping stone to make MMT more palatable. One can dream at least….I know a lot of the rhetoric has gotten heated lately, but I assure you we are not the enemies….
I hope you guys aren’t stuck indoors for Cinco de Drinko. Have a good weekend.
The how is irrelevant to me. Accomplishing the objective is the important thing.
target dictates weapons, weapons dictate movement.
A market based solution would likely more palatable politically than a “socialist” one…
Right, the problem Vickrey was addressing was cost-push inflation. He saw his gross markups market as the cap and trade equivalent of an excess gross profits tax (with the “tax” being paid to companies with below average gross margins).
Right. Moreover, it is possible for different teams to choose different tactics suitable for them. I personally don’t like any solution that leaves labor being treated as commodity, but let’s be realistic, that is going to take an overhaul of politics.
I appreciate the MMT JG as an elegant theoretical solution and one that those committed to it should pursue. I also like Bill Vickrey’s market-based resourcefulness. Both would have an uphill fight in today’s political climate tactically. I think it worth pursuing both and seeing how things shake out. Better to have many options on the table that can be picked up depending on how the political wind is blowing, instead of waiting for the wind to shift.
Abba Lerner is a good example. He began as a committed socialist but modified his views when he studied with Hayek at LSE. Later, with Colander he put forward MAP as a fourth leg of functional finance. He, too, was a pragmatist that believed that the perfect is the enemy of the good. Moreover, democracy is about compromise. Not everyone can get with they want, and when one party does, the other party immediately goes all out to undo it.
“He, too, was a pragmatist that believed that the perfect is the enemy of the good. Moreover, democracy is about compromise. Not everyone can get with they want, and when one party does, the other party immediately goes all out to undo it.”
Is ramming policy onto an unwilling population immoral? Its a tough question.
It’s called “majority rules.” Used to “to the victor belong the spoils.”
“Your representative owes you, not his industry only, but his judgment; and he betrays, instead of serving you, if he sacrifices it to your opinion.”
Edmund Burke, Speech to the Electors of Bristol 3 Nov. 1774
Mike,
While that may possibly be true, If you do not demand the perfect, you will never get to even an acceptable solution. This is because you are the supplicant, and not the one holding the power, and the PTB are not willing to give you what you demand. In politics, the first one to compromise loses. So in my view, if you do not demand JG/BIG, and stick to your guns, you will never get the TC rule. Compromise by the Democratic Party, and the search for consensus over the last 35 years has cost the bottom 80% of the US population dearly.
Clonal,
I don’t know if this is exactly true. I can see pushing for a JG as a way to extend the Overton window, but that’s not my self-appointed task in this world.
There are times to go the extremes to get what you want. I just don’t think the JG is one of those make or break ideas. We could easily get 90% of the benefit and clean up the mess after instead of not getting any part of it.
We’re engaging with some Market monetarists here, so MMR is a big tent.
I’d say the TC rule (and other fiscal rules) fill in the policy space so people can say something like “Those crazy MMTers want to give everyone a job!” and still embrace non-discretionary fiscal policy. But the point isn’t the TC rule as much as it is “We can make fiscal rules which make sense as a macro policy lever both upside and downside.”
For example, I had to point out to Nick R. we can make fiscal rules at all, and not everybody is a spend-only Keynesian. Of course, he already knows this (or should have), but just getting people to think about fiscal policy is a huge step. We won’t get many professional economists like Nick Rowe and Scott Sumner or ever Hamilton to consider fiscal policy until we provide them with something they can accept.
I’d say this discussion will take another full generation to win completely. That’s how I am approaching it.
Is Romney proposing more spending? I thought all he was proposing was more deregulation.
Romney’s a Keynesian. He just won’t say it until he’s in office (or back running Mass).
“If you just cut, if all you’re thinking about doing is cutting spending, as you cut spending you’ll slow down the economy.” – Mitt
Yes, now that he is finished fighting off the Orc pygmies he had to run against, I suspect he will move rapidly back to the center, and even look for selective ways to go to the progressive side of Obama. By October, he’ll be back in the classic Republican “deficits don’t matter” camp. And he’ll be lambasting Obama for his doom-and-gloom austerity agenda and confidence-killing budget fear-mongering. Obama and his idiot advisers will be wondering what hit him.
“Everything in Michael Kranish and Scott Helman’s biography “The Real Romney” confirms the view that until 2005 Mitt Romney was a liberal Republican cryogenically preserved from the pre-Reagan era…
Since 2005, Romney has made himself interesting by getting a lot of people, including those who might vote for him and those who definitely will not, obsessed with whether, and to what extent, and in spite of anything to the contrary he might be saying on the campaign trail, he is still that person.”
http://www.newyorker.com/arts/critics/atlarge/2012/03/19/120319crat_atlarge_menand
It’s time to call a spade a spade. Romney is a complete fucking idiot…
I despise Romney (see his comments on the Chen episode). If Beowulf still supports him, I despise Beowulf. ..
“Mitt Romney condemned the Obama administration’s handling of blind Chinese dissident Chen Guangcheng, calling the episode “a dark day for freedom” and “a day of shame” for President Obama if, he couched, reports are true that American officials communicated threats to Chen’s family.”
Read more: http://www.politico.com/news/stories/0512/75886.html#ixzz1u9BKVcky
What a fucking asshole. God Damn anyone who gives Romney the time of day…
“On November 4, 1956, Hungarian Cardinal József Mindszenty sought asylum in the U.S. embassy in Budapest as Soviet tanks invaded that country to restore communist leadership. Mindszenty didn’t leave until 15 years later, following years of negotiations between Budapest, Washington and the Vatican.” (James L Bruno).
Romney is taking the side of Cardinal Mindszenty and putting Obama on the side of the federal cop with an MP-5 to Elian Gonzalez’s chest.
http://cloud.frontpagemag.com/wp-content/uploads/2011/04/elian.jpg
Who’d have predicted that infuriating tens of thousands of Cuban-American Floridians would turn out badly for Al Gore 5 months later? Romney’s team is just going back to the well.
I took the TC rule and rearranged so that Ut is the variable. I assumed Uc=8.1, %Gt=7%, It=2%, Ic=2%, and pop=1.2%. Solving the equation gives an Ut=4.9%. So if 7% spending next year yields a 4.9% unemployment rate I think everyone in America will be overjoyed.
You might have done the math wrong. I get 8.5% unemployment. did you put the 1.8 multiplier into the equation for unemployment?
Too much math, a rough approximation that the public can understand is worth more than atomic clock precision formulas that leaves most people confused.
I believe most economists could get behind this assertion: Since full employment is the desired equilibrium (but don’t forget balanced trade!), payroll taxes should only be collected at rack rate when economy is at full employment.
We can debate whether spending should be higher or lower but adjusting tax rates like this should be an apolitical policy, like the Corps of Engineers opening or closing floodgates. Finally, regardless of whether you think 4% is too low (notional NAIRU is at least 1.2% higher) or too high (in 1944, U3 WAS 1.2%), its a goal that’s been reached as recently as 2000 and it has the added advantage of already being the legal definition of full employment.
I think the national unemployment target should be lower than 4 percent.
Why not 2 percent? Isn’t that the most accurate definition of full employment?
click on Dean Baker link above—
“The Humphrey Hawkins Full Employment Act, which governs the Fed’s operation, requires the Fed to pursue price stability and full employment, which is defined as 4% unemployment.”
That may be the law, but even canon law can be changed. What makes 4% sacred? That a lot of resources to be idled. Looks pretty inefficient on the surface of it. What do you see that I don’t?