tag:blogger.com,1999:blog-5154389358831836369.post7570027432219573673..comments2024-03-19T06:56:54.644-04:00Comments on The Slack Wire: That Safe Asset Shortage, ContinuedJW Masonhttp://www.blogger.com/profile/10664452827447313845noreply@blogger.comBlogger36125tag:blogger.com,1999:blog-5154389358831836369.post-36973718955495912762013-05-28T00:41:37.035-04:002013-05-28T00:41:37.035-04:00Incomplete markets is not about rent-seeking or di...Incomplete markets is not about rent-seeking or different types of competition, although they can be viewed as contributing to thesersjhttps://www.blogger.com/profile/05489955485750918419noreply@blogger.comtag:blogger.com,1999:blog-5154389358831836369.post-57549615550786594562013-05-27T23:28:56.346-04:002013-05-27T23:28:56.346-04:00I think that, in practice, people want easy math. ...I think that, in practice, people want easy math. I don't think the problem is principled opposition to models with more realistic descriptions of the human animal, but rather unprincipled acceptance of models with unrealistic behavioral assumptions. rsjhttps://www.blogger.com/profile/05489955485750918419noreply@blogger.comtag:blogger.com,1999:blog-5154389358831836369.post-58572982947156935442013-05-27T21:56:24.518-04:002013-05-27T21:56:24.518-04:00Microfoundations is not the same as rational expec...<i>Microfoundations is not the same as rational expectations</i><br /><br />In principle, yes, they are different. In actual usage by most economists, I think they are the same. Do you disagree?<br /><br />JW Masonhttps://www.blogger.com/profile/10664452827447313845noreply@blogger.comtag:blogger.com,1999:blog-5154389358831836369.post-7414571934277360652013-05-27T21:50:39.550-04:002013-05-27T21:50:39.550-04:00@RSJ There seems to be some of what Rob Kuttner ca...@RSJ There seems to be some of what Rob Kuttner calls the is-ought confusion with regard to incomplete markets.<br /><br />By incomplete market do you mean markets of any kind or just competitive markets? Reality seems to serve up a rich menu of potential market failures, asymmetries, moral hazard, rent-seeking and so on. And the constellation of possible failures varies according to the current political and institutional realities.<br /><br />The reason why in principle we should not treat all individuals as mini-portfolio managers is because that model of rationality seems woefully inadequate to account for reactions to all varieties of market failure out there (especially information asymmetry), for starters. <br /><br />And frankly, doesn't the tendency toward rent-seeking blow up all the mainstream models.<br /> Wallflyhttps://www.blogger.com/profile/03852136998154262919noreply@blogger.comtag:blogger.com,1999:blog-5154389358831836369.post-52711570822941224652013-05-27T21:24:57.866-04:002013-05-27T21:24:57.866-04:00Josh, very clear explanation and nice examples. Fr...Josh, very clear explanation and nice examples. From this (and frankly from rsj's arguments) the issue also appears the type of rationality in the mainstream models (which notoriously get trashed most other places in the social sciences).Wallflyhttps://www.blogger.com/profile/03852136998154262919noreply@blogger.comtag:blogger.com,1999:blog-5154389358831836369.post-3893070119194986842013-05-27T20:07:00.091-04:002013-05-27T20:07:00.091-04:00That is not true. Microfoundations is not the same...That is not true. Microfoundations is not the same as rational expectations. You can have learning. You can assume that there is a continuum of agents, each with a different estimated distribution, etc. rsjhttps://www.blogger.com/profile/05489955485750918419noreply@blogger.comtag:blogger.com,1999:blog-5154389358831836369.post-47769022744214561572013-05-27T14:23:26.728-04:002013-05-27T14:23:26.728-04:00"(I am not so enthusiastic about behavioral e..."(I am not so enthusiastic about behavioral economics -- I think useful microfoundations need to deal with the concrete institutions of modern capitalism, and not human behavior in general. But even behavioral econ would be a lot better than what we get.) "<br /><br />Yes. The promise of agent-based simulations -- with all of the necessary assumptions about heterogeneous and mutually modifying reaction functions (Type 1-style) -- seems to be far off. Sector-based simulations (i.e. Keen's Minsky modeling) require far fewer and less complex encoding of reaction functions. Even there, though, developing and encoding those reaction functions, and testing the resulting models through back-bearings (what else do we have?) is going to be a very long project, I think.Steve Rothhttps://www.blogger.com/profile/11895481216028771016noreply@blogger.comtag:blogger.com,1999:blog-5154389358831836369.post-35804280521792613172013-05-27T13:48:55.628-04:002013-05-27T13:48:55.628-04:00So, just to give some concrete examples, consider ...So, just to give some concrete examples, consider a Minskyan story like "the longer it has been since the last crisis, the less worried people are about a future crisis, and the more willing they become to take risks"; or, Keynes story about the bond market, "In general bnd prices representat a balance between 'bull speculators' who expect interest rates to fall and 'bear speculators' who expect interest rates to rise." Both of these are perfectly microfounded in my sense 1, they are coherent stories of individual behavior. But they are not and cannot be microfounded in the formal economics sense, sense 2, because they include statements about the "expectations" in people's heads that are not simply the value of the expectations operator on the true probability distribution function.<br />JW Masonhttps://www.blogger.com/profile/10664452827447313845noreply@blogger.comtag:blogger.com,1999:blog-5154389358831836369.post-52145753117340035852013-05-27T13:20:19.161-04:002013-05-27T13:20:19.161-04:00Is, to some extent, the issue here "reduction...<i>Is, to some extent, the issue here "reductionism"? (aka, the desire for microfoundations)</i><br /><br />Yes, I guess that is what I was saying in my last comment. But in general, I've come around to the view that we should NOT be arguing against reductionism in general. The question is what kind of reductionism. The real problem is that the term "microfoundations" is used in two very different senses in economics, and a great deal of confusion in discussions in methodology comes from slippage between them.<br /><br />In sense 1, "microfoundations" means that if we want to postulate a relationship between aggregates, it must in principle be compatible with some logical and empirically defensible account of the behavior of the individual units that make up those aggregates. In sense 2, microfoundations means that all economic models must be formulated epxlicitly in terms of optimization by some agent(s) with model-consistent expectations. (Aka "rational expectations", but note this is not that the meaning of rational here is not the same as in ordinary language.) In discussions with the general public, economists tend to talk about the importance of microfoundations in sense 1, while when it comes to the methodological standards enforced within the profession, it's almost always meant in sense 2. This is a big part of what it means to "think like an economist," but it's almost never spelled out. You have to spend some time with economists before you realize that when they say a story is or is not microfounded, what they actually are talking about is whether it is formalized as the maximization under constraints of some quantity, given the true expected probability distribution of all future events.<br /><br />So I think when critics of mainstream economics -- including me at times, like in the comment above -- argue against reductionism in general, we're giving modern macro too much credit, and missing the real problems. I would have no problem at all with the case for better microfoundations if that meant paying more attention to how real businesses describe their investment decisions, or more use of survey data, or closer attention to the actual patterns of household expenditure, or anything like that. But instead there's this bait and switch, where the case is made for microfoundations in sense 1, and then the actual requirement is for microfoundations in sense 2. <br /><br />(I am not so enthusiastic about behavioral economics -- I think useful microfoundations need to deal with the concrete institutions of modern capitalism, and not human behavior in general. But even behavioral econ would be a lot better than what we get.) <br /><br />Note that it's perfectly possible for a model to satisfy the requirement for sense-2 microfoundations and lack them in sense 1, in fact this is common. A growth model, say, is considered adequately microfounded if you can show the path followed by GDP would be optimal for a representative agent, even if you have no story for why the behavior of a large number of firms and households should aggregate up to that agent.<br />JW Masonhttps://www.blogger.com/profile/10664452827447313845noreply@blogger.comtag:blogger.com,1999:blog-5154389358831836369.post-27650442532610842012013-05-27T09:38:59.584-04:002013-05-27T09:38:59.584-04:00Josh,
Is, to some extent, the issue here "re...Josh, <br />Is, to some extent, the issue here "reductionism"? (aka, the desire for microfoundations). Reductionism does not even always serve physics well. A (social) science that has a very limited access to controlled experiments probably should not be obsessed with reducing.<br />Wallflyhttps://www.blogger.com/profile/03852136998154262919noreply@blogger.comtag:blogger.com,1999:blog-5154389358831836369.post-52020068011448199322013-05-25T14:32:43.576-04:002013-05-25T14:32:43.576-04:00while I agree that economies tend to be characteri...<i>while I agree that economies tend to be characterized by an income-expenditure relationship, I would propose that we not use this as an assumption or constraint on behavior, but model behavior in some other way and see if we get an income-expenditure link as a result of some more fundamental processes.</i><br /><br />Sure, you and every other economist. This is all the profession has been doing for the past 30 years.<br /><br />Look: There is not a "true" model of the economy out there. We use models as tools, to think carefully about particular sets of logical relationships. It can be interesting to think about what features of credit markets might explain a regular relationship between current expenditure and current income. It can ALSO be interesting to say, given such a relationship, what kind of dynamics might we see? They're two different questions, both potentially interesting.<br /><br />But there's this weird, really almost compulsive thing in the economics profession where if you try to ask the second sort of question, people immediately start shouting that you cannot even ask it until you give them a satisfying answer to the first question. <br /><br />Yes, your project is interesting. But that does not give you any right to dismiss the DIFFERENT project that starts from aggregate relationships. JW Masonhttps://www.blogger.com/profile/10664452827447313845noreply@blogger.comtag:blogger.com,1999:blog-5154389358831836369.post-4065942185801114012013-05-25T01:47:00.693-04:002013-05-25T01:47:00.693-04:00J.W.,
I agree that there is an income-expenditur...J.W., <br /><br />I agree that there is an income-expenditure correlation. But I think this is descriptive, not explanatory. So you posit that the economy is divided into two groups, one which spends a proportion of its income and one which spends "autonomously". <br /><br />Why doesn't the second group spend autonomously? Why are they modelled with a cash-in-advance constraint whereas the other group is not? <br /><br />I posit that you can explain this difference by assuming, for example, that one group has primarily labor income which is unsuitable as collateral for loans, and so is subject to a cash-in-advance constraint. Of course, not entirely so, because individual households do spend in excess of their income on occasion.<br /><br />Moreover this second group -- the primarily autonomous group -- why is it autonomous, and to what degree is it autonomous? <br /><br />It chooses to spend because it expects a future income stream from current investment, and the value of that income stream, discounted by some rate, is the borrowing capacity of that group. <br /><br />The second group can refuse to invest either because the discount rate is too high, or because the expected future income stream is too low. <br /><br />But then why have two separate frameworks for the two groups? <br /><br />Why not assume that both groups are making the same trade-offs, except that the assets of one group (household labor income) is less suitable as collateral versus the assets of the second group (firms). Firms can be liquidated to their creditors whereas households cannot. Firms can promise a share of future income in a more legally binding way than households. Firms provided detailed accounting statements to creditors that households cannot (e.g. households do not have in house accountants that are somewhat independent of management), nor do they publish quarterly financial statements audited by third parties.<br /><br />And this framework explains other things as well -- in a recession, it is not just those who lose income who spend less. Everyone spends less. Even households that are still employed. Even households whose income has gone up. Why? Because all households perceive their labor income as more at risk, and therefore discount it more. <br /><br />A recession reduces only some people's incomes, but it makes everyone poorer, in terms of their present wealth. <br /><br />A pure income-expenditure model does not take account of this, nor of precautionary buffer stock savings demands more generally.<br /><br />So while I agree that economies tend to be characterized by an income-expenditure relationship, I would propose that we not use this as an assumption or constraint on behavior, but model behavior in some other way and see if we get an income-expenditure link as a result of some more fundamental processes. These processes would be changing the discount rate applied to different types of income, changing expected future income, and in the case of the current recession, changing the collateral value of the single biggest non-labor asset that households have, namely housing wealth.rsjhttps://www.blogger.com/profile/05489955485750918419noreply@blogger.comtag:blogger.com,1999:blog-5154389358831836369.post-13793899036217211052013-05-24T11:18:29.909-04:002013-05-24T11:18:29.909-04:00To me, the critical thing is a strong, reasonably ...To me, the critical thing is a strong, reasonably stable link from current income to current expenditure. (This includes a model of investment where current sales and/or profit flows are important.) This link can be motivated either by expectations of the future that are formed by extrapolating current conditions; or by ubiquitous credit constraints that limit most units' borrowing to some multiple of their current income. I think both of these are true facts about the world, so it doesn't really matter to me in this context which is more important in maintaining the income-expenditure link. The link itself is the key thing. (As it was for Keynes- arguably the consumption function was the key innovation between the <i>Treatise</i> and the <i>General Theory</i>.) <br /><br />So I have no problem with credit constraints as a central part of the story. What I do have a problem with is the idea that any time you see persistently depressed expenditure, it must be (1) mainly or entirely due to a lower credit supply, independent of borrowers' incomes, which (2) is in turn due to changes in the proportion of safe or liquid assets in the portfolios of lenders. I don't think this idea is always wrong -- I think it plays a central role in initiating many, even most, downturns. But I do not think that it explains the persistence of a depressed state once it is established. In particular, I do not think the US at the present moment can be described as experiencing shortage of safe assets or risk-bearing capacity, and I do not see any evidence that **similarly credit-worthy borrowers** have more difficult borrowing than they did in past periods of relatively full employment. <br /><br />I think we need the income-expenditure link both to talk about policy in a sensible way, and to be able to think of the capitalist economy as a system with dynamics in historical time. For instance, you often hear metaphors like the economy having a "stall speed," or being like a car at the bottom of an icy slope -- with enough speed, it will make it to the top and then be stable there, but with moderate speed it will end up right back where it is now. These kinds of multiple-equilibria situations come very naturally from income-expenditure models, but are much harder to justify in terms of varying credit constraints. In the safe assets story, in particular, there is a unique level of output associated with each aggregate asset mix, so it makes no sense to talk about stuff like stall speed. JW Masonhttps://www.blogger.com/profile/10664452827447313845noreply@blogger.comtag:blogger.com,1999:blog-5154389358831836369.post-76935004512031136422013-05-24T10:19:57.046-04:002013-05-24T10:19:57.046-04:00@rsj: reduced private sector (non-bank) spending c...@rsj: reduced private sector (non-bank) spending could a priori be caused by reduced credit demand or supply. But you seem fixated, like monetarists, on credit supply constraints, to the extent of barely acknowledging demand issues (you go so far as to suggest that lower demand for credit is probably caused by would-be borrowers not even trying to borrow because of credit constraints).<br /><br />What you identify as "demand for marketable securities", I would interpret as "desire to save". <br /><br />It's not that people look at their portfolio of assets and suddenly want their assets to be more liquid. A minimum of liquidity is important, sure, but in a balance sheet recession people just want higher equity (/ lower net debt) overall.<br /><br />In Richard Koo's vocabulary, you and monetarists are stuck in a "yang" paradigm where credit constraints are the limiting factor, instead of acknowledging that we are now in a "yin" world where non-bank actors mainly want to boost their balance sheets and saving.<br /><br />What is your response to this?Andersnoreply@blogger.comtag:blogger.com,1999:blog-5154389358831836369.post-71064689512562462352013-05-21T11:43:56.479-04:002013-05-21T11:43:56.479-04:00.... What does matter is that the orchard owner wo....... What does matter is that the orchard owner would borrow more if his mix was 80/20, not 20/20.<br /><br />Looking at the workers in the orchard -- they now believe that their wages are at risk, so they will value the NPV of their labor income much lower. Say from $50 to $20. Now, they too will have more savings demands and will borrow less. Many will defer buying a house, or making a residential investment, or buying a car/durable good.<br /><br />Yes, this is a coordination problem, but that is what it means to have incomplete markets. If we had complete markets in all things, then the market price would serve to coordinate everything. In particular, the orchard owner could sell both present and future apples, and the workers in the orchard could sell their present and future labor, buying present and future apples, and only when all of these markets clear would the economy begin. <br /><br />That we cannot do that means that we risk coordination failure. I don't see a difference between the coordination failure explanation and the incomplete markets explanation. <br /><br />I focus on credit constraints because I believe these are the most important missing markets -- e.g. inability to hedge labor income and business revenue causes excess conservatism and prevents investment.<br /><br />If the unemployed worker *could*, he would sell a type of debt contract in which he can buy apples now and pay back the loan when he is hired again, being able to roll over the loan at the risk-free rate during the interval of unemployment with no fees. If he did that, the owner would sell more apples and hire the worker back. The owner's equity would rise, and he would have enough to borrow more to invest, etc. <br /><br />That is why I agree with Miles Kimball and think that national credit cards charging only FedFunds as interest with generous repayment terms would be a great idea. I understand that it is just one idea. <br /><br />Another idea is to have the government buy the apples from the orchard owner, taking out debt, and then paying the risk-free rate in future periods on the debt. Those payments would go to the orchard owners, not the workers, so effectively the workers are still transferring real resources to the orchard owner, except the government has an allocation problem as to who to give the apples to. Giving the workers credit cards that effectively empower them to borrow for themselves at the risk free rate would be better in this regard. This is not a substitute for increased provision of public goods during recessions, nor for unemployment insurance.<br /><br />There can be many things wrong with the economy, with many approaches needed.rsjhttps://www.blogger.com/profile/05489955485750918419noreply@blogger.comtag:blogger.com,1999:blog-5154389358831836369.post-3501899777988565492013-05-21T11:41:02.503-04:002013-05-21T11:41:02.503-04:00JW,
To take the example of the orchard, the owne...JW, <br /><br />To take the example of the orchard, the owner of the orchard, seeing less demand for his apples, assumes that he will earn less income. The credit markets will too, so the enterprise value of the orchard shrinks and equity must absorb that. This may make it more difficult for the orchard owner to borrow and he has to pay higher rates to do so; before he had $80 of equity and $20 of debt for an enterprise value of $100, corresponding to making profits of $10 per period at some (fixed) discount. Now, he has $20 of equity and $20 of debt, corresponding to an expectation of only $4 of profits at the same discount. The orchard owner is now a riskier business.<br /><br />But the way that we measure spreads is to normalize risk and look at the yield over time. BAA-AAA spreads will not change.<br /><br />Now it does not matter whether, at the new 20% equity/debt mix corresponding to depressed sales, the orchard owner chooses not to borrow or goes ahead and borrows but the markets charge higher interest rates or allow him to borrow less (after all, he can only borrow $20 now, because borrowing doesn't increase enterprise value).<br /><br />rsjhttps://www.blogger.com/profile/05489955485750918419noreply@blogger.comtag:blogger.com,1999:blog-5154389358831836369.post-86475976129781223832013-05-21T00:11:26.772-04:002013-05-21T00:11:26.772-04:00(continued)
It seems to me that stories two and ...(continued)<br /><br /><br />It seems to me that stories two and three have several important implications compared with story four. First, they imply that only the aggregate stock of money or safe assets matter. It doesn't make any difference where they are injected into the system. So in case 3, the lender who sees a positive value loan they could make *if* they held more safe assets will bid new safe assets away from anyone else who holds them and can't use them that way. Conversely, the current level of activity doesn't matter. For each quantity of safe assets or money, there is a unique associated level of real activity. Finally, a fall in the price of current goods and factor services, *if* it could be achieved, would stimulate demand just as much as raising the stock of money/safe assets. <br /><br />Whereas in story 4, the coordination-failure story, a change in the mix of assets won't have any effect, and the effect of an increase in the total stock of assets will depend on who specifically gets the new wealth. And there is not a unique mapping from the asset stock to the level of activity -- it takes more favorable credit conditions to increase current expenditure among people who think their lifetime incomes are low, than to maintain it among people who think their lifetime incomes are high.<br /><br />And I do think the credit constraints version is testable by looking at spreads. If the reason the orchard is employing fewer people than it used to, is because it can no longer find anyone who will hold the liabilities it would need to issue to hire people, then credit markets should show some sign of reduced demand for orchard liabilities.<br />JW Masonhttps://www.blogger.com/profile/10664452827447313845noreply@blogger.comtag:blogger.com,1999:blog-5154389358831836369.post-62029502108452897362013-05-21T00:11:09.416-04:002013-05-21T00:11:09.416-04:00Rsj,
I'm glad you wrote this, since it's ...Rsj,<br /><br />I'm glad you wrote this, since it's exactly the position I'm arguing against, and one wants to be sure one is arguing against something smart people actually believe. <br /><br />Let's take a step back. We're in a world where on the one hand there are hungry, unemployed people, and on the other there are orchards where apples are rotting on the ground. It would seem there's a welfare-improving trade where the hungry people sell their labor to the orchard owners in exchange for the apples they harvest. Why isn't it happening?<br /><br />One option is the RBC or New Classical answer, that this situation is impossible. If people aren't working in the orchard, that means the apples they would harvest are less valuable than their time. Nobody here believes that, obviously.<br /><br />Two is the monetarist answer. People want to hold "money." Since there is a fixed supply, and its price relative to other goods is also fixed, when people try to shift expenditure from consumption to increasing their money holdings, the result is just that incomes fall until the marginal value of an additional unit of consumption equals the marginal value of holding an additional unit of money. In the more strictly monetarist version of this story, demand for money is directly related to current income; in the Keynesian version, demand for money shows up first in the market for existing asset stocks.<br /><br />That brings us to the safe assets or credit constraints version. Here the welfare-improving trade doesn't happen because at least one of the participants would have to initially borrow for their side of the transaction. That means someone has to be willing to hold their liabilities. More specifically, the story here is that in principle, these liabilities have positive present value, but holding them involves bearing risk, which is only acceptable if the lender also holds sufficient safe assets. <br /><br />Both these stories assume that people know there is a welfare-improving trade. A fourth answer is that people don't have knowledge the whole universe of potential trades, only local knowledge. (I know you're sympathetic to this idea.) I.e., there's no auctioneer. In the safe-assets story, the orchard owner knows that it would be profitable to hire more workers, and the unemployed person knows they would be better off consuming more apples in the present period, they just can't get credit to do so. Whereas, with only local knowledge, the orchard owner may think that the current state of demand for apples will continue indefinitely so there is no point in producing more; and similarly, the unemployed person may think that their lifetime income is now low so their low current consumption is as it should be. Call this the pure coordination-failure story.<br /><br />(It also may be that credit constraints are real, but don't depend on the stock of safe assets. Maybe debt contracts aren't enforceable, so no one will lend to the unemployed person no matter how many safe assets the lenders hold.)<br />JW Masonhttps://www.blogger.com/profile/10664452827447313845noreply@blogger.comtag:blogger.com,1999:blog-5154389358831836369.post-35808097303703664932013-05-20T20:03:05.167-04:002013-05-20T20:03:05.167-04:00I like Schiller, and I should read this. Also, Mil...I like Schiller, and I should read this. Also, Miles Kimball has proposed national credit cards to be given to the population. I believe that welfare would be improved if we gave every W2 earner received a credit card with <br /><br />1) a large credit limit -- e.g. 3x average annual income over the last few years<br />2) low interest rates -- the card should charge only FedFunds with no late fees ever (risk free rollover)<br /><br />3) Once the limit is reached, you would elect a repayment plan which consisted of payroll deductions, managed by the IRS<br /><br />I think this would greatly reduced the fear (and sting) of unemployment. People would no longer need to worry about losing their homes, for example, if they lost their job for a year. During a recession, the rates would be lowered, etc. People could also borrow on the same terms as banks, and labor income would be viewed as more valuable.rsjhttps://www.blogger.com/profile/05489955485750918419noreply@blogger.comtag:blogger.com,1999:blog-5154389358831836369.post-65330879751130897552013-05-20T09:52:53.094-04:002013-05-20T09:52:53.094-04:00@RJS: If you haven't read it already, you'...@RJS: If you haven't read it already, you'd probably really like Shiller's "The New Financial Order." Proposes a whole lot of financial options addressing what you describe.Steve Rothhttps://www.blogger.com/profile/11895481216028771016noreply@blogger.comtag:blogger.com,1999:blog-5154389358831836369.post-30904127406579602062013-05-20T02:43:19.834-04:002013-05-20T02:43:19.834-04:00I would say that there is a shortage of marketable...I would say that there is a shortage of marketable or liquid assets, as labor income is a non-marketable asset.<br /><br />If you need to pay your bills and are unemployed, you would like some marketable assets to sell. Same for retirement. There was a one-two punch of households having their savings reduced via house price decline just as their labor income risk increased. <br /><br />To second order, safe assets are more desired now because you would like them to be uncorrelated with the business cycle.<br /><br />To first order, a big number in your brokerage account is pretty good, too. <br /><br />More important than the level, I would say that the problem is with distribution of market assets. <br /><br />I think that even if you increase incomes, people will primarily save up until they reach their target level of marketable assets so that they can sleep easier at night. Alternately, you can provide income guarantees that will make the labor income be more valuable. For those nearing retirement, an increase in SS benefits would help.<br /><br />I don't think that you can answer this question by looking at spreads or interest rates. You might be able to get more information by looking at household expenditure surveys.rsjhttps://www.blogger.com/profile/05489955485750918419noreply@blogger.comtag:blogger.com,1999:blog-5154389358831836369.post-87782772462538858382013-05-20T00:05:02.108-04:002013-05-20T00:05:02.108-04:00rsj,
Yes, no doubt people are more cautious about...rsj,<br /><br />Yes, no doubt people are more cautious about incurring liabilities secured by housing. That's not a sign of an economy-wide shortage of safe assets, though, is it?JW Masonhttps://www.blogger.com/profile/10664452827447313845noreply@blogger.comtag:blogger.com,1999:blog-5154389358831836369.post-31595313568490568282013-05-19T22:20:14.261-04:002013-05-19T22:20:14.261-04:00I'm not sure what you think this shows.
Cred...I'm not sure what you think this shows. <br /><br />Credit constraints exist because of incomplete markets. A worker is not able to hedge their labor income just as a firm is not able to hedge its earnings. Both sides face volatile income streams but are expected to make payments on the liability side that are independent of what the income stream is. <br /><br />The constraint is that they cannot find a counter party to guarantee their income. That concern is shared by both the party in question and any future creditor (including shareholders), but you cannot measure this reluctance to expand balance sheets purely by looking at the returns demanded by creditors because that only captures part of the story; the other part being those who would like to borrow but choose not to even try as a result of the inability to find an income hedging counterparty.rsjhttps://www.blogger.com/profile/05489955485750918419noreply@blogger.comtag:blogger.com,1999:blog-5154389358831836369.post-80575547076148638322013-05-19T17:53:06.745-04:002013-05-19T17:53:06.745-04:00Helocs.
And in general, people are more cautious...Helocs. <br /><br />And in general, people are more cautious about borrowing to buy a house and/or sinking a lot of money into renovations.rsjhttps://www.blogger.com/profile/05489955485750918419noreply@blogger.comtag:blogger.com,1999:blog-5154389358831836369.post-18831916209421626462013-05-19T16:53:35.264-04:002013-05-19T16:53:35.264-04:00Credit constraints are pretty much fundamental to ...<i>Credit constraints are pretty much fundamental to everything else.</i><br /><br />Of course you are correct, rsj. The final question of the post is poorly phrased. What I mean was something more like: <br /><br />What specific expenditure is more constrained by a lack of credit today compared with 2007, due to a financial intermediaries' unwillingness to hold risky assets and excess demand for safe ones?JW Masonhttps://www.blogger.com/profile/10664452827447313845noreply@blogger.com