Brad DeLong

Yet More Misinformation from the Pointless Pain Caucus...

Barkley Rosser calls out Russ Roberts and John Papola:

EconoSpeak: Did Keynes Support Having a "Central Plan"?: That he did is charged by "Hayek" in the freshly released "Keynes versus Hayek: Round 2"... by Russ Roberts and John Papola.... I do find it disturbing that increasingly Austrians and some others have taken to charging Keynes with having supported "central planning," as indeed done in this video. Is this correct? I think that the answer is largely "no," with it certainly being that answer if one means by that command central planning of the Soviet type that Hayek criticized in his Road to Serfdom (which Keynes praised, btw, when it first came out)...

Indeed.

Keynes did not believe in "central planning," for any not-stupid claim as to what "central planning" means.

Strategic interventions in financial markets to eliminate excess demands for liquidity, safety, or duration are not "central planning." Direct government expenditures to put the unemployed to work are not "central planning." Let's give the microphone to John Maynard Keynes: the close of his General Theory.

I think anybody who has read it is not honest when they claim that Keynes supported "central planning":

Greg Mankiw Gets It Wrong...

Greg Mankiw does not get it:

Greg Mankiw's Blog: People Talking Past Each Other: I am regularly struck by how bloggers so often want to pick fights with other bloggers.  Rather than giving others the benefit of the doubt, they often seem to interpret the writing of others in the worst possible light so they can then point out how foolish it is.... As far as I can tell, all Steve [Landsburg] is saying is that the true incidence of a tax is not necessarily on the person who writes the check to pay the tax bill.  He just made the point in a particularly dramatic way.  At its heart, however, his point is pretty standard and hard to argue with.

But Landsburg did not say that the person who writes the check is not necessarily the person who really pays the tax bill. He said:

The Man Who Can’t Be Taxed: Stevens wants to tax the “idle rich”.... [I]t is quite literally impossible to raise revenue by taxing the likes of Mr. Kendrick. We could argue about whether it’s desirable, but because it’s impossible, the discussion is moot.... For the government to consume more goods and services, somebody else must consume fewer. But Mr. Kendrick, by Ms. Stevens’s account, consumes almost no goods or services whatsoever.... [T]he heart of Ms. Steven’s confusion. She thinks that green pieces of paper, or a series of zeroes and ones in a bank computer, can somehow help supply the government’s demand for actual goods and services. It can’t. So what happens if the government takes Mr. Kendrick’s $84 million away? Answer: A bunch of zeros and ones get shifted around on bank computers. Mr. Kendrick goes right on pushing his cars around. And nothing else has changed...

Landsburg did not say that the person who writes the check is not necessarily the person who really pays the tax bill.

Landsburg did not say that somebody else really pays the extra taxes if the government taxes Mr. Kendrick and devotes the money to debt reduction.

Landsburg, instead, said that nobody pays any extra taxes if the government taxes Mr. Kendrick--not that somebody else "really" pays the tax, but that there is no tax to pay..

And that is simply wrong.

That is not "making the point in a particular dramatic way."

That is saying something that is not so.

It is simply not the case that "a bunch of zeros and ones get shifted around on bank computers.... And nothing else has changed."

Sufficient Cause for Breaking Cambridge University Press's Copyright

I think it's time for somebody to scan and upload Keynes's Collected Writings...

Paul Krugman: Back to The Future: Teaching Graduate Students Useful Macro

Paul Kreugman:

There's something about macro: Macro I... is supposed to cover the "workhorse" models of the field - the standard approaches that everyone is supposed to know, the models that underlie discussion at, say, the Fed, Treasury, and the IMF.... [Y]ou might think that any trained macroeconomist could teach it. But it turns out that that isn't true. You see, younger macroeconomists - say, those under 40 or so - by and large don't know this stuff.... [O]ur younger macro people are certainly very smart, and could learn the material in order to teach it - but they would find it strange, even repugnant. So in order to teach this course MIT has relied, for as long as I can remember, on economists who learned old-fashioned macro before it came to be regarded with contempt. For a variety of reasons, however, we can't turn to the usual suspects this year: Stan Fischer has left to run the world, Rudi Dornbusch is otherwise occupied, Olivier Blanchard is department head, Ricardo Caballero - who is a bit young for the role, but can swallow his distaste if necessary - is on leave. All of which leaves me.

Teaching Graduate Students Useful Macro: In Which Noahpinion Calls the Spirit of Francis Bacon from the Vasty Deep...

Note that the Michigan second-year macro field courses are--like the Berkeley courses--at the history- and demand-heavy fringe of the graduate discipline of economics.

Noahpinion:

Noahpinion: What I learned in econ grad school: [A]s someone who never studied econ as an undergrad (I was a physics major), I learned everything I know about macro from my grad courses. If there is an aspiring economist out there whose understanding of macro has been hurt by an overly narrow graduate curriculum, it would be me.

So, what did I learn in my first-year graduate macro course at the University of Michigan?

Why We Need More and Cheaper Public Higher Education

A world in which we had kept on upgrading the educational attainment of our citizens at the pre-1950 cohort pace would be a world with (a) fewer less-educated Americans, (b) more educated Americans, (c) higher wages for less-educated Americans, (d) higher labor force participation and employment for less-educated Americans, (e) lower salaries for more-educated Americans.

Or so Goldin and Katz argue, and I think they are right.

Has QEII Been Effective?

Robert Waldmann asks what would convince me that QEII has not had a positive effect on the economy:

Angry Bear: I recall two claims about monetary policy which were not controversial until this year. First that the effects of a shift in monetary policy peak after roughly 6 months. Second that it acts through investment and especially housing investment (the second follows from the view that it acts via interest rates but not the short term rates which the Fed can control but medium and long term rates which matter a lot for housing and some for investment in productive capital).... [W]hat evidence could possibly convince you that QE2 was ineffective. You have a powerful imagination and should be able to think of something (I can't)...

If market expectations of future inflation had not risen but had declined since QEII was mooted last August, I would conclude that QEII has been ineffective. They have not.

A Task I Have Failed At...

... is to take chapter 17 of Karl Marx's Theories of Surplus-Value and boil it into a coherent theory of financial panics and business cycles. Has anybody ever succeeded in this?

The Federal Reserve Responds to Political Pressures

Kash Mansouri:

The Street Light: How the Inflationistas Have Shaped Fed Policy: [A]ny concern about inflation by the Fed right now is a bit ridiculous. In fact, the more "hawkish" Bernanke on the topic of further expansionary actions by the Fed seems at odds with the Fed's own data and projections. Most significantly to me, it also seems at odds with Bernanke's remarkably detailed and perceptive explanation of exactly why he finds the long-term unemployment problem to be so very "distressing":

BERNANKE: You're absolutely right. Long-term unemployment in the current economy is the worst, really, the worst it's been in the post-war period. Currently, something like 45 percent of all the unemployed have been unemployed for six months or longer. And we know the consequences of that can be very distressing, because people who are out of work for a long time, their skills tend to atrophy; they lose contacts with -- with the labor market, with their other people working, the networks that they have built up. Very concerning.

Karl Smith Is Shirll

Karl Smith:

Stephen Williamson’s Baffling Conjecture: I, for the life of me, can not understand where Stephen Williamson is coming from in the recent posts he’s done claiming that Quantitative Easing is ineffective, and that the Fed is completely out of tools which it can use to boost the economy.... [It] simply baffles me.... [T]he blanket statement that monetary policy causes inflation is misleading.... In recessions... an accommodative monetary policy which shifts the AD curve to the right would result in much higher output growth than inflation.... [W]hy would Ben Bernanke be worried about headline inflation when nearly every forecast from the Federal Reserve views the current rise in headline as temporary?... Is Williamson advocating tightening policy while NGDP is still FAR below trend, and we are not experiencing enough growth to catch up to the previous trend?... [T]he fourth point is the one that floored me the most. I’ll outsource commentary to David Beckworth....

Steve,

Why do you keep saying there is nothing the Fed can do? You acknowledged in the comment section in your last post that the Fed could do something more via a price level or ngdp level target. By more forcefully shaping nominal expectations with such a rule the Fed could do a lot.... [F]olks were saying the same thing about monetary policy in the early 1930s.... Then FDR came along and change expectations by devaluing the gold content of the dollar and by not sterilizing gold inflows. His “unconventional” monetary policy packed quite a punch...

Shame on the Cato Institute for Promoting the Mendacious Michael Cannon

Cato used to have a bunch of people who were honestly interested in better public policy. Now it looks as though most of them have been pushed out, leaving only the hacks. Howard Pollack observes the trainwreck:

Cato Institute exposes leftist plot: Medicare’s Independent Payment Advisory Board: Medicare’s Independent Payment Advisory Board (IPAB).... Last weekend I posted an item at American Prospect lamenting Congress’s deep opposition to IPAB and its unwillingness to address its own misaligned incentives in setting health policy. The guts of my argument were simple: IPAB attracts bipartisan opposition because it might constrain the ability of Senator X or House Chairman Y to quietly help that local wheelchair manufacturer or academic medical center, to make sure that this national association of orthopedic surgeons or home care providers has proper cover in the legislative process.... In short, we face a massive collective action problem. Every Democratic and Republican policy expert knows that we must reduce congressional micromanagement of Medicare policy. Unfortunately, every Democratic and Republican legislator knows that mechanisms such as IPAB that might do so would thereby constrain their own individual prerogatives. As Maggie Mahar notes, there’s nothing novel in this argument. Liberals, conservatives, and libertarians have said similar things for years. As I recall, Republicans are rather fond of noting the incompetence and venality of Congress, at least under Democratic majorities.

Apparently, I said something wrong. Yesterday’s Cato Institute blog includes an entry by Michael Cannon, titled “Inside Every Leftist Is a Little Authoritarian Dying to Get Out.” Cannon regards my support for IPAB as literally another step on The Road to Serfdom. Supplying the requisite slippery-slope Hayek quotations, Cannon intones, “This isn’t how it starts. This is how it snowballs.” No, it isn’t. It makes no sense, from any ideological or political perspective, for Congress to approach regulation and financing of our health care colossus as a fragmented, rent-seeking mob....

Hayek was right to warn about the dangers when welfare states go too far. He was quite wrong to see this possibility as an inexorable threat to our freedom or one that couldn’t be addressed through democratic means. He was even more wrong to disparage the commitment to freedom embraced by those who hold more egalitarian economic views.

Cannon describes me as a “leftist” and an (aspiring) “little authoritarian.” There is a certain authoritarian mindset in Cannon’s own writing, which flattens basic distinctions between conventional technocratic liberalism and socialist central planning. Unfortunately, the internet encourages and rewards precisely this sort of boorish overstatement.

Ironically, such overstatement trivializes the real blows to human freedom that people have endured, many at the hands of actual leftist authoritarians. Before I get frightened by some panel of health services researchers exploring effectiveness of back surgery, I remember people I know who have seen much worse.

Anyone seen anything honest and worth reading from Cato this year?

If there's anyone there who still wants to be part of reality-based American policy discourse, it is time to leave.

Bruce Bartlett Says the Debt Ceiling Is a Dead Letter

BB:

The Debt Limit Option President Obama Can Use: [T]he debt limit is statutory law, which is trumped by the Constitution which has a little known provision that relates to this issue. Section 4 of the 14th Amendment says, “The validity of the public debt of the United States…shall not be questioned.” This could easily justify the sort of extraordinary presidential action to avoid default that I am suggesting.

Some will raise a concern that potential buyers of Treasury securities may be scared off by a fear that bonds sold over the debt limit may not be backed by the full faith and credit of the United States. However, given that the vast bulk of Treasury securities are 3-month bills that will turn over many, many times before this issue ever reaches the Supreme Court, it is doubtful than anyone will be concerned about that. And the Federal Reserve could assure investors that it will always be a buyer for such securities.

People smarter than I am tell me that the Treasury has an almost infinite ability to avoid a debt crisis. I hope they are right. But I am hypothesizing a situation in which the Treasury reaches the end of its rope and a day comes when it needs $X billion to pay interest and it has less than $X billion in cash. Under those circumstances, when default is the only possible alternative, I believe that the president and the Treasury secretary would be justified in taking extraordinary action to prevent it, even if it means violating the debt limit...

Bruce is right. At least, Bruce is right in the sense that lawyers could argue and five Supreme Court justices could with a straight face affirm that the Treasury Secretary's duty to ensure that the validity of the public debt not be questioned overwhelms his duty not to sell bonds in excess of the debt ceiling.

Whether five justices would so rule--that is pure politics.

Mike Konczal: Bernanke Upside Down

Mike Konczal:

Bernanke Gives a Press Conference: The big takeaway from Federal Reserve chairman Ben Bernanke's historic press conference was that the focus, both of questions asked and Bernanke's own remarks, addressed a situation that would be the exact opposite of the one we're in now.... We have seven million people out of work since the crisis (on top of the number of those who would have been out of work without the crisis)... it will take years, 2014 or beyond, before the country approaches a normal unemployment rate.... [T]he Fed is doing neither of its two jobs. Unemployment is too high, and inflation too low, so it should be doing whatever it takes to stimulate the economy. The natural question that puts pressure on Ben Bernanke is: "Are you worrying too little about unemployment? And are you worrying too much about inflation?"

But if you got all your sense of the world from the questions that were asked during the press conference, you would expect that unemployment wasn't a major problem and crushing inflation was just around the corner.

At the press conference, roughly nine questions worried about inflation, a weak dollar, the country's S&P rating, oil prices, and whether the government can fashion an appropriate response to the financial crisis or long-term unemployment at all. These all reflect the worry that government is doing too much instead of too little. Meanwhile, there were only two questions asking why the Federal Reserve wasn't doing more to lower unemployment. When Binyamin Appelbaum asked, "Is it in the Fed's power to reduce the rate of unemployment more quickly? How would you do that? Why are you not doing it?" it was almost out of place.

Bernanke himself reflected these priorities. He cited keeping the financial sector from collapsing as the extraordinary measure the Federal Reserve has accomplished. He discussed current Federal Reserve efforts as something that will prevent a slow down rather than promote a faster recovery towards the long-term trend of growth. He seemed far more worried about inflation than about the current level of unemployment, and more worried about the Federal government's deficit than putting fiscal policy into play...

Ta-Nehisi Coates Is Shrill

TNC:

Your Lying Eyes: I'm going to concur with Jeff and say that it's always cool when Fallows gets angry:

This alone disproves Donald Trump's crock-of-shit insulting and preposterous assertions that Obama was an affirmative action or charity admittee to the Ivy Leagues who couldn't really cut it on his own IQ or test scores, as if there weren't already evidence enough: It is his use at time 0:50 of the word "bemusement" in its proper sense (puzzlement, confusion) rather than what most people think it means (mild amusement). I would like to have someone ask Trump what he thinks the word means. Maybe some variant on "easement"?

Update: OK, it's a sign of defeat to resort to profanity. My exasperation is a sign of how I feel about this line of slurs. First, whatever is wrong with Obama, no sane person thinks he's stupid. Second, I wonder how many people think Donald Trump is in a position to judge Obama's smarts. Third, there is no avoiding the racist connotation of saying that a successful black person got there -- wink wink -- through special treatment. "Of course the black guy ended up as editor of the Law Review. What do you expect?" So I should just have said that rather than "crock of shit." On the other hand, a crock of shit is what this is.

I don't agree on the profanity point. I think cursing was quite appropriate. 

But beyond that, it is impossible to miss the racism at work here. This is not Vince Foster. This is not Swiftboating. This is the dude who passed health care reform as "the biggest Affirmative Action in history." This is the whitey tape. This you are an "Indonesian welfare thug." This is the host of "Celebrity Apprentice," questioning the intellect of the past editor of the Harvard Law Review. This is the scion of inherited money as populist, and the scion of a teen single-mother as elitist. This is, if you were white, you and the black dude who came before wouldn't be here. This is we don't believe you. 

In other words, this is a racism of the bone.

My ire is not so much for those who see their interests in that frame, but for the Very Serious People, who see nothing in the fact that those who are sorry that this country wasn't cleaved in half by Genosha, and those who believe the first black president is a Muslim sleeper agent, are all at the same party. Who with a straight face chalk it up to the inexplicable vagaries of the human mind, or mere chance. 

My ire is for those who claim to know better, but do not.

Hoisted from the Archives: Macroeconomics Is Not Hard

Gene Callahan reminds me that this is pretty good, and I should promote it more:

Is Macroeconomics Hard?: "Math is hard," said Malibu Barbie, famously--and a ton of criticism came down on her for the implicit message that her auditors should go off and do other, easier, things instead and leave the math to the trained professionals. Is macroeconomics hard in this sense? I confess that I do not think so. I think that macro is pretty easy...[1]

Let's go back in time almost two centuries, to the days when--first after the end of the Napoleonic Wars and then in 1825-6--the nascent intellectual community of economists confronted the question of whether the circular flow of economic activity as mediated by the market system could break down and the economy become afflicted by a "general glut" of commodities.

There was no question that there could be a "glut" of particular commodities. An example may make this clear:

Suppose--this is Berkeley, after all--that households decide that they want to spend less than they have been spending on electricity to power large-screen video and audio entertainment systems and more on yoga lessons to seek inner peace. The immediate consequence--within the "market day," as late-nineteenth century British economist Alfred Marshall would have put it--of this shift in preferences is excess demand for yoga instructors and excess supply of electric power. Prices of electricity (and of large-screen TVs, and of audio systems) fall as unsold inventories pile up in stores and as generators spin down and stand idle. Yoga instructors, by contrast, find themselves overscheduled, working ten-hour days, and stressed out--and find the prices they can charge for their lessons going through the roof. Workers in electric power distribution and in video and audio production and sales find that they must either accept lower wages or find themselves out on the street without jobs.

Duncan Black Is Shrill...

From Atrios:

Eschaton: Galtian Overlord Fail: Yes I'm on repeat...but the economy doesn't have to be like this. The people in charge have the knowledge, power, and ability to fix things. They have chosen not to.

And Joe Gagnon:

[O]ne of the biggest goals of QEI was to push down the mortgage rate to spark a refinancing boom to encourage households and enable households to reduce their expenditures and repair their balance sheets and be able to spend again. That worked not quite as well as we hoped because the administration’s program for getting underwater borrowers to borrow didn’t work and I think that’s a true disaster that has no excuse. I have nothing but incredible, there’s just, the blame the administration on not doing this is just incredible. This could have been a huge success. We got the lowest 30-year mortgage rates in history and we couldn’t take advantage of them to the extent that we could. We got about a trillion dollars in refinancing when we should have gotten two or three trillion dollars in refinancing.

Dan Kuehn on Sectoral Disequilibrium and General Gluts

DK:

Facts & other stubborn things: Why can't we all just get along?: My take on Callahan and DeLong's Macroeconomic History: Gene Callahan points us to an oldie-but-goodie from Brad DeLong on the history of economic thought.... [T]he "fight of the century" has really been over the general glut. In a lot of ways it's an extension of the earlier fight that Adam Smith fought over zero-sum thinking on trade. The vulgar mercantilists (there were some good ones) lived in a zero-sum world and they did not think that you could grow the pie from specialization and exchange. In a similar way, the general glut deniers operate off of zero-sum game thinking on the economy. How many times have you heard someone say "every dollar the government spends is a dollar that the private sector can't spend"? We just recently heard Stephen Landsburg say that, did we not? Classical assertions that we can't fall below the production possibilities frontier are the mirror image of mercantilist assertions that we can't move the production possibilities frontier further out. This zero-sum economics is bad economics. Smithian, Malthusian, and Keynesian economics dispels this notion of the zero-sum game.

But my title - "why can't we all just get along" - laments this tendency to pit sectoral shifts against general gluts. I noticed a line in Papola's video that he has brought up in conversation with me a lot in the past - that because some sectors are worse than others there can't be a general glut (see 4:54). Why would anyone think this? At any point in time - boom or bust - some industries are doing well and some aren't. In the midst of these sectoral situations, all sectors together can be better off than they would have been or worse off than they would have been. There's nothing in the claim that the economy is generally worse off than it would be that excludes the prospect of sectoral downturns.

So why do John Papola and others seem to think these ideas contradict each other? Why is this the fight of the century? Can't we conceive of both sectoral and macroeconomic processes and figure out what's more relevant at any given time?

Nothing is stopping general glutters from accepting sectoral downturns. You will never, ever hear a Keynesian or any monetary disequilibrium theorist for that matter say "it's impossible to have downturns that hit some sectors worse than others". You'll never hear it. You will occasionally hear people say that general gluts can't happen. That's zero-sum economics, and it's been proven wrong empirically and theoretically time and time again. We need more Smithian and Keynesian economics, but I don't think that means we need less Hayek or Lucas. It simply means that this paradigm shift needs to be more completely integrated and we've got to stop this balkanization of the discipline that is always looking for grand ideological fights.

Damned if I know why Lucas thinks that there can never be an excess demand for bonds the flip side of which by Walras's law is a deficient demand for goods and services, and which could be cured by getting the government to spend-and-borrow and thus issue bonds to soak up the planned excess demand. The logic is exactly parallel to the idea that when the money stock is too low there is an excess demand for liquidity the flip side of which by Walras's law is a deficient demand for goods and services. Or why Lucas thinks that disrupting the credit channel--which in this framework means that the private sector cannot create safe assets and so there is an excess demand for safety, etc.--cannot have an impact on production and employment, but he doesn't. Damned if I know what Hayek thought about anything macroeconomic. "His logic was not at its best," was what Milton Friedman once said to me--and Friedman had tried to teach.

Karl Smith on the Recovery: If We Had Ham, We Would Have Ham and Eggs, If We Had Eggs...

Karl Smith says that if we had (i) an expansionary fiscal policy and (ii) had fixed housing financing that we would be having a strong reovery right now:

Notes on Bernanke GDP and Growth: The headline on this report is sobering but the internals don’t look as bad. Government knocked over 1 point off GDP. About .69 of that was defense spending. State and local continued to drag at .41 percent.... Equipment and software continues to be strong, adding .8 points to GDP. We have experienced a strong rebound in equipment and software, that would be indicative of a mini-boom if there wasn’t the drag from construction.... Residential and non-residential structures continued their drag on GDP, knock .7 or so off of growth.... The fundamentals still seem like they are shifting towards stronger growth. We are not seeing depressed personal consumption expenditures. We are not seeing industrial production stall out. We are not seeing no new investment in equipment and software.

So why don't we have more expansionary fiscal policy right now? Why haven't we fixed housing finance?

Republicans Turning America into a Third-Rate Nation Watch: Infrastructure

The Economist:

America's transport infrastructure: Life in the slow lane: America... often seems to be falling apart.... [C]ommon shortcomings. America’s civil engineers routinely give its transport structures poor marks, rating roads, rails and bridges as deficient or functionally obsolete. And according to a World Economic Forum study America’s infrastructure has got worse, by comparison with other countries, over the past decade. In the WEF 2010 league table America now ranks 23rd for overall infrastructure quality, between Spain and Chile. Its roads, railways, ports and air-transport infrastructure are all judged mediocre against networks in northern Europe.

America is known for its huge highways, but with few exceptions (London among them) American traffic congestion is worse than western Europe’s. Average delays in America’s largest cities exceed those in cities like Berlin and Copenhagen. Americans spend considerably more time commuting than most Europeans; only Hungarians and Romanians take longer to get to work (see chart 1). More time on lower quality roads also makes for a deadlier transport network. With some 15 deaths a year for every 100,000 people, the road fatality rate in America is 60% above the OECD average; 33,000 Americans were killed on roads in 2010.

There is little relief for the weary traveller on America’s rail system. The absence of true high-speed rail is a continuing embarrassment to the nation’s rail enthusiasts.... America’s trains aren’t just slow; they are late.... Air travel is no relief. Airport delays at hubs like Chicago and Atlanta are as bad as any in Europe. Air travel still relies on a ground-based tracking system from the 1950s, which forces planes to use inefficient routes in order to stay in contact with controllers....

All this is puzzling. America’s economy remains the world’s largest; its citizens are among the world’s richest. The government is not constitutionally opposed to grand public works. The country stitched its continental expanse together through two centuries of ambitious earthmoving. Almost from the beginning of the republic the federal government encouraged the building of critical canals and roadways. In the 19th century Congress provided funding for a transcontinental railway linking the east and west coasts. And between 1956 and 1992 America constructed the interstate system, among the largest public-works projects in history, which criss-crossed the continent with nearly 50,000 miles of motorways. But modern America is stingier. Total public spending on transport and water infrastructure has fallen steadily since the 1960s and now stands at 2.4% of GDP. Europe, by contrast, invests 5% of GDP in its infrastructure, while China is racing into the future at 9%. America’s spending as a share of GDP has not come close to European levels for over 50 years. Over that time funds for both capital investments and operations and maintenance have steadily dropped.... The Congressional Budget Office estimates that America needs to spend $20 billion more a year just to maintain its infrastructure at the present, inadequate, levels. Up to $80 billion a year in additional spending could be spent on projects which would show positive economic returns. Other reports go further. In 2005 Congress established the National Surface Transportation Policy and Revenue Study Commission. In 2008 the commission reckoned that America needed at least $255 billion per year in transport spending over the next half-century to keep the system in good repair and make the needed upgrades. Current spending falls 60% short of that amount...

A (Hopefully) Last Word on Taylor vs. Krugman

According to the CBO baseline, mandatory spending in fiscal 2019 is now projected at $2.96 trillion; discretionary spending at $1.52 trillion; and net interest at $0.45 trillion.

In January 2009, before Barack Obama took office, projected mandatory spending in 2019 was $2.89 trillion; discretionary spending $1.39 trillion; and net interest $0.70 trillion. The rise in net interest is overwhelmingly the consequence of the burst of countercyclical deficits caused by the recession--and thus not Obama's responsibility.

The combination of changes in budgetary and economic assumptions and changes in legislation have thus raised fiscal 2019 spending by $0.20 trillion--rather less than 1% of GDP. Not all of those changes are the responsibility of Obama: I would say about 1/3 of them are, with the rest mostly being flaws in how CBO constructs it's current-law baseline estimates. But say they all are: then Obama has raised projected federal spending by something less than 1% in the ten-year medium run, and has lowered it in the long run relative to baseline as the ACA policies cumulate.

Thus I believe that any rational and reality-based look concludes that Obama has been good news for long-run federal spending restraint. And even an irrational, fantasy-based position cannot claim that Obama has raised projected federal spending by more than a small amount--a much smaller amount than either George W. Bush or Ronald Reagan.

The thing I think Paul finds most annoying about John is that there are no signs in the record that Taylor used his position as Undersecretary of the Treasury in the Bush administration to argue for spending restraint at all--and that now he is trying to shift responsibility for the spending increases set in motion by his president to Obama. You can think that the unfunded Medicare D is a good thing or a bad thing, but it is a Bush thing.

Liveblogging World War II: April 28, 1941

Two Possible Responses to Paul Krugman's Posting of "My City Was Gone"

First: When the Routine Bites Hard/And Ambitions Are Low: Damhnait Doyle: Love Will Tear Us Apart:

Second: Every Living Thing/Pushed into the Ring: Metric: Stadium Love:

---

This last courtesy of Cosma Shalizi of Carnegie Mellon, who comments:

Every Living Thing, Pushed into the Ring: DeLong asks for the best response to "My City Was Gone", itself a response to "Mountains beyond Mountains". Since the content of the game has clearly moved from "sprawl" to "one-upmanship", I claim that the best response is in fact "Stadium Love". I actually prefer the official video, but concert footage seems to be an implicit rule of the game. Had the conversation not strayed, "Nothing but Flowers", or "The Big Country" would have been admissible. (I am vexed by the fact that I cannot instantly call up high-quality video recordings of these songs performed when first released, several decades ago. Where's my jetpack Logic named Joe?)

It's not clear to me what this sequence of best-responses is converging to, or if it is converging at all...

A Bad First Quarter GDP Number

The FT:

US economic growth slows to 1.8%: By Shannon Bond: The US economy grew at an annualised rate of 1.8 per cent in the first three months of the year as rising prices took a toll on consumer spending. Preliminary figures from the Bureau of Economic Analysis showed growth slowing from the 3.1 per cent rate in the fourth quarter of 2010. The rise was slightly below the 2 per cent rate expected by economists.

The slowdown “was due principally to the surge in energy prices, adverse weather, and a sizeable drop in public sector spending,” said Paul Ashworth, chief US economist at Capital Economics. “All things considered, it could have been worse. Nevertheless, in a quarter when the economy began to benefit from additional monetary and fiscal stimulus, we had originally expected a lot more.“ Personal consumption spending grew 2.7 per cent in the first quarter, compared with a 4 per cent rise in the fourth quarter. Prices increased 3.8 per cent, faster than the previous quarter’s 2.1 per cent, driven in large part by food and energy costs.

Gross domestic product growth was also slowed by a “sharp upturn” in imports, falling exports and a steeper decline in government spending. Federal government spending sank 7.9 per cent, much faster than the 0.3 per cent decline recorded in the fourth quarter and local and state government spending fell 3.3 per cent, compared with a 2.6 per cent drop in the last three months of 2010. The pullback in government spending, particularly at the state and local level, “reflects the ongoing budget problems that will continue to be a drag on the overall economy for some time yet”, Mr Ashworth said...

Contractionary fiscal policy is contractionary.

Is Bernanke Aiming for One Percent Inflation?

Is Bernanke Aiming for One Percent Inflation? - Room for Debate - NYTimes.com: A few years ago former Federal Reserve governor Larry Meyer said: “If you have not noticed that the Federal Reserve is pursuing a 2 percent per year inflation target, you have not been paying attention.”

To me the most surprising thing about Chairman Bernanke’s press conference was his apparent abandonment of that 2 percent per year inflation target.

I see no signs anywhere in the marketplace that there is any threat of rising inflation expectations. He stated that he was unwilling to undertake more stimulative policies because “it is not clear we can get substantial improvements in payrolls without some additional inflation risks.”

But the personal consumption expenditure deflator (excluding food and energy) has not seen a 2 percent er year growth rate since late 2008: over the past four quarters it has only grown at 0.9 percent. At a 3.5 percent real G.D.P. growth rate, unemployment is still likely to be at 8.4 percent at the end of 2011 and 8.0 percent at the end of 2012 — neither of those levels of unemployment would put any upward pressure at all on wage inflation.

It thus looks like 1 percent is the new 2 percent: with current Federal Reserve policy, we are looking forward to a likely 1 percent core inflation rate for at least another year, and more likely three. If the Federal Reserve were aiming for a 2 percent per year inflation rate, it would be aggressively employing stimulative policies right now. But that is not what the Fed is doing.

Would that we had a 2 percent per year inflation target — or even a 3 percent per year inflation target. In that case, recovery would be faster. Unemployment would be lower. I see no signs anywhere in the marketplace that there is any threat at all of rising inflation expectations.

Why Oh Why Can't We Have a Better Press Corps?

What inflation have we had outside of commodity markets, Megan? For that matter, what inflation have we had in commodity markets? Only the price of gold is outside its historic range, and we really do not want to make monetary policy based on the price of gold, do we?

For some reason, the New York Times's "Room for Debate" picks Megan McArdle to talk about the Federal Reserve. And she talks about how Ben Bernanke has been "recklessly ignoring inflation":

Problems He Can't (or Won't) Solve: Mr. Bernanke firmly indicated that he was not going to pursue more quantitative easing, frustrating liberals who think that he has not gone far enough to fight joblessness. And yet he has not satisfied conservatives, who think he has been recklessly ignoring inflation, particularly in commodity markets...

Tim Duy on Bernanke: Very High Bar for QE3

TD:

Very High Bar for QE3 - Tim Duy's Fed Watch: The initial phase of Bernanke’s press conference was also in line with my expectations.  He noted that the expectations for trend growth and the natural rate of unemployment were beyond the control of the Fed, while inflation was directly determined by monetary policy.  He explained the reasoning for a positive rate of inflation, explicitly pointing to the concern about deflation, defined as falling wages and prices.  This was, I believe, the last we heard about wages.... The most interesting comments came in response to questions about whether the Fed should do more to lower unemployment and if QE2 is effective, shouldn’t the program continue?  Here was a more hawkish Bernanke.  As I noted earlier, growth forecasts returned to the pre-QE2 range, which should be a red flag.  Unemployment remains high, with only moderate job creation.  Core-inflation remains low, while the impulse from commodity prices on headline inflation is expected to be temporary.  Finally, he claims that QE2 was in fact effective.  So why not do more?  Because the Fed needs “to pay attention to both sides of the mandate” and the “tradeoffs are less attractive.”  Much talk by Bernanke at this point about inflation expectations, and the importance of maintaining those expectations, and not much (none, I think), about the issue (or non-issue) of wage inflation. 

Apparently the threat of headline deflation off the table, Bernanke is not inclined to pursue sustained easing despite low core inflation and high unemployment.... I get the sense that the basic Fed policy is summarized as follows:  “The economic situation continues to fall short of that consistent with the dual mandate, we have the tools to address that deviation, but will take no additional action because some people in the Middle East are seeking democracy.”

Mark Thoma: Green Shoots and the Fed

MT:

Economist's View: Green Shoots and the Fed: The Fed’s dual mandate requires it to pursue both full employment and price stability. Currently, however, the Fed is falling short on both of these goals. Employment is far below its full employment level, and inflation is running below the Fed’s preferred range of 1.5 to 2.0 percent. Inflation is expected to rise a bit in the short-run due to rising commodity prices, but the Fed says it expects commodity price increases to be transitory. Thus, none of the Fed’s forecasts show any long-run concern about inflation at all. The main question I wanted to hear Bernanke answer is, given that inflation is expected to remain low, why the Fed isn’t doing more to help with the employment problem? Why not a third round of quantitative easing?

Bernanke was asked this question, but his answer was unsatisfactory. The potential benefit of further policy moves by the Fed is higher growth and lower employment. The potential cost of more quantitative easing is inflation. So the decision on whether to provide more help to labor markets comes down to a comparison of the expected employment benefits to the expected inflation cost. Even though there is no evidence of a problem in the Fed’s own projections, and the prices of long-term financial assets dependent upon future inflation show no evidence of inflation worries either, Bernanke nonetheless said that he believes the costs have risen relative to the benefits — that is, the Fed’s worry about inflation is standing in the way. But I think there is something else behind the Fed’s reluctance to continue easing. The Fed first began seeing “green shoots” in April of 2009, a full two years ago. At every step since, the Fed has used the prospect of better times just around the corner as a reason to downplay the benefits of further easing.

But the growth of the green shoots has been stunted, or they have wilted away entirely. In retrospect, more aggressive action by the Fed was warranted in every instance. Perhaps this time is different — I sure hope so — but the recovery has been far too slow to be tolerable. Green shoots require more than hope, they require the nourishment, and with fiscal policy out of the picture it’s up to the Fed to provide it.

BREAKING: Donald Trump: "WHERE IS THE PLACENTA?"

Courtesy of Xeni Jardin:

Dual Mandate

Frank Tantillo:

What’s on Ben’s mind? | Front Row Washington: We’ve created a quick and dirty word cloud of what Fed Chairman Ben Bernanke said in his historic press conference this afternoon. Words he used more often are larger than less-used words. For bonus points try to find the word “jobs” in there...

Hoisted from Comments: Delco Nightingale

Re: in the center ring we have Duncan Black with Delco Nightingale: Yes My Darling Daughter:

Brendan Skwire writes:

What Is My Best Response?: all I gotta say is "thanks for the link", we all appreciate it. we're on the road right now, poor as hell, sitting in a hotel room somewhere in california, and (speaking for me at least) missing being home in Philly.

cheers,

brendan skwire (aka brendancalling.com, aka, bass player for delco nightingale).

And:

Philly’s Delco Nightingale to perform at the Turner Classic Movies Film Festival in Hollywood | The Key: Delco Nightingale will be heading west to Los Angeles at the end of April to join classic film luminaries and fans alike, performing at the Turner Classic Movies Film Festival in Hollywood. From April 28th-May 1st...

Nationwide RomneyCare Is a Profoundly Conservative Initative

Jay Ackroyd:

Eschaton: Better Than Ezra: Ezra Klein, 2007:

Medicine may be hard, but health insurance is simple. The rest of the world's industrialized nations have already figured it out, and done so without leaving 45 million of their countrymen uninsured and 16 million or so underinsured, and without letting costs spiral into the stratosphere and severely threaten their national economies.

Even better, these successes are not secret, and the mechanisms not unknown. Ask health researchers what should be done, and they will sigh and suggest something akin to what France or Germany does. Ask them what they think can be done, and their desperation to evade the opposition of the insurance industry and the pharmaceutical industry and conservatives and manufacturers and all the rest will leave them stammering out buzzwords and workarounds, regional purchasing alliances and health savings accounts. The subject's famed complexity is a function of the forces protecting the status quo, not the issue itself.

Ta-Nehisi Coates Appeals for Help...

He is reading John Locke, and trying to understand Locke's "justification" of slavery:

Talk To Me Like I'm Stupid: Locke's State Of Slavery And War: So I think the point here is something I was driving at yesterday--that slavery, from Locke's perspective, is the continuance of war. But I think there's also a lot more here that I'm probably missing. There's certainly quite a bit that I don't understand. And so I appeal to the Horde for interpretations--especially those who've read Locke before, or have some background in philosophy. I'm closing comments for now to dissuade people from speaking because they can. I'll re-open in an hour and edit according to that same standard. Thanks.

As I see it, there are four questions raised by Locke's discussion:

1. Can somebody lawfully and morally own a slave--that is, order somebody around?
2. Can somebody lawfully and morally keep a slave they have bought from somebody else--that is, if the slave says "enough of this: I'm leaving," can the owner lawfully and morally threaten and then use deadly force to keep the slave enslaved?
3. Is it immoral and unlawful for a slave to try to escape?
4. Is it immoral and unlawful for a slave to use deadly force to escape?

I think Locke's answer to (1) is "yes," but only if you are engaged in a just and lawful war that gives you the right to kill enemy combatants--you can then give the enemy combatant a choice between accepting slavery and death, and so lawfully and morally hold them as a slave. Note that this makes it impossible to every lawfully and morally hold women and children as slaves--only former prisoners.

I think Locke's answer to (2) is a flat "no." When the slave declares that he wants to leave, you can only use deadly force to stop him if you have just cause to wage lawful war against him, and you don't.

I think Locke's answer to (3) is "of course not."

I think Locke's answer to (4) is "no": you always have just cause to wage war against somebody attempting to hold you as a slave.

But let me say that the political and philosophical intentions that Locke has in these passages is obscure to me, and the intended audience is also obscure...

Paul Krugman vs. John Taylor

I score this one 6-0, 6-0, 6-0 for Paul Krugman. Barack Obama has not shifted the course of the American government to produce markedly bigger spending and bigger deficits in the long run.

Paul Krugman:

2021 and All That: Taylor... claimed that there had been a huge expansion in government under Obama; I pointed out that about half the rise in the ratio of spending to GDP reflected low GDP, not high spending, and that the other half was basically safety net programs.... Taylor now claims that Obama must have expanded government, because his budget projected spending of 24 percent of GDP in 2021, up from 19.6 percent in 2007, before the crisis struck. But the great bulk of this projected rise has nothing whatsoever to do with Obama’s policies.

Let’s compare the CBO projections for 2021(pdf) with the historical data (pdf) for 2007. The projections shows spending rising from 19.6 percent of GDP to 24 percent.... So, Social Security is up. That has nothing to do with Obama, who hasn’t changed the program at all; it’s just demography, the baby boomers retiring. Medicare is also up. Obama actually cut funds from Medicare, a fact trumpeted by Republicans. Nonetheless, projected spending is up, both because of demography and because of rising health costs. Medicaid is up. Some of that is due to the expansion in the Affordable Care Act, but much of it is just more demography — most Medicaid funds are spent on the elderly and disabled — plus health care costs. And net interest is up because of recent and current deficits, largely the result of the Great Recession....

The whole reason we’ve been having a debate about entitlements is that spending on those programs was projected to rise dramatically even under pre-Obama policies; the fact that they’re still projected to rise says nothing about what Obama did...

Of course, George W. Bush--whom Taylor worked for--did shift the course of the American government to produce markedly bigger spending and bigger deficits in the long run. And I have never found anyone to claim that Taylor uttered a peep of complaint about these policies while in the Bush administration.

I'm Swinging Around to the Belief that the Reappointment of Ben Bernanke Was Barack Obama's Biggest Unforced Error

David Leonhardt explains why:

Holding Bernanke Accountable: The Fed’s own forecasts suggest that the unemployment rate won’t fall below 5 percent for perhaps another five or six years. Mr. Bernanke believes the Fed “retains considerable power” to reduce unemployment faster, despite the fact that its benchmark interest rate is zero, as he’s said before. Yet he has been hesitant to use that power.... Several other voting members of the Fed’s monetary policy committee — and some prominent members of Congress — oppose aggressive action, because they worry it will set off inflation. But these critics always worry about inflation. They have been wrong again and again... they don’t have enough power to keep Mr. Bernanke from pursuing the policy he thinks is best. So the Fed’s decision to permit high unemployment for an extended period rests on his shoulders.

More Results from the British Austerity Experiment

Paul Krugman writes:

UK, Not OK: The bad GDP number for the UK isn’t a surprise — in fact, judging from market response, investors seem to have expected something even worse. Still, if you step back and look at what has been happening, it’s doubleplusungood: zero growth over the past 6 months, with every reason to be worried on the downside looking forward, as Cameron’s austerity bites deeper. Jonathan Portes gets to the nub of it.... Portes hits, in particular, on a point I’ve tried to make a number of times, here and more recently here: right now, we’re living in a world in which basic economics points to conclusions utterly at odds with what Very Serious People are supposed to believe, in which radical outsiders base their views on standard economics while orthodox types turn to heterodox, highly dubious speculations.

Econ 101, buttressed if you like by fancier New Keynesian models, says that contractionary fiscal policy is, well, contractionary. Yet much of the world of movers and shakers bought into the exotic notion that expectational effects — the confidence fairy — would make contractionary policy expansionary. And they clung to this belief even as the supposed historical evidence in favor of expansionary austerity was thoroughly debunked. And now we’re watching Econ 101 in the process of being confirmed. I wish I thought this would change anyone’s mind.

I must say that I, back in 2007, would not have believed that the world would turn out to be as fundamentalist-Keynesian as it has turned out to be. I would have said that there are full-employment equilibrium-restoring forces in the labor market which we will see operating in a year or two to push the employment-to-population ratio back up. I would have said that the long-run funding dilemmas of the social insurance states would greatly restrict the amount of expansionary fiscal policy that could be run before crowding-out became a real issue.

I would have been wrong.

What Is My Best Response?

Paul Krugman escalates to Chrissie Hynde:

after I had escalated to Arcade Fire: Mountains Beyond Mountains in response to his Arcade Fire: Haiti which was a response to my Grace Potter and the Nocturnals: Paris.

And, meanwhile, in the center ring we have Duncan Black with Delco Nightingale: Yes My Darling Daughter:

What is my game-theoretic best response?

Hey! Go out and buy some of these people's music, people! I want our modern music industry to flourish...

Hoisted from Comments: Celtic Tiger Edition

Hoisted from Comments: funniest thing I have read today:

eightnine2718281828mu5: said...

Larry Kudlow doesn't seem to use the phrase 'Celtic Tiger' so much these days.

It's quite a mystery as to why.

Hoisted from the Archives: Abraham Lincoln ≠ Roger B. Taney

This from Ta-Nehisi Coates puts me in mind of this from my archives:

Law Professor Mark Graber Strikes Again: When last we saw law professor Mark Graber, he was celebrating Martin Luther King, Jr. birthday weekend by asserting that Roger Taney's opinion in Dred Scott was sound--an act of judicial statesmanship--and had wedged himself into a position to the right of John C. Calhoun, arguing that the 1787 U.S. Constitution incorporated principle of "concurrent majorities" that made it substantively unconstitutional for any legislation affecting slavery to be passed by a section-specific majority.

Now Mark Graber is back: This time it is one of the most bizarre ripping-of-quotations-from-context I have ever seen.

Graber asserts that the differences on slavery between Roger B. Taney and Abraham Lincoln were "almost trivial."

In making this argument, Graber lets Lincoln speak for one single clause before silencing him and hustling him offstage:

Paul Krugman: The Confidence Fairy Has Left for the Gamma Quadrant

Paul Krugman:

The Confidence Fairy Has Taken a Leave of Absence: Was it only last June when Alan Reynolds was holding Ireland up as a role model, not just for troubled European economies, but for the United States? Yes, it was:

“The Irish approach to tackling the recent recession,” investment adviser Michael Johnston said, “was vastly different than the strategies implemented by the U.S. and much of the rest of the developed world. Most governments cranked the printing presses into high gear and began injecting round after round of capital into the global economy. Ireland went the opposite direction, imposing draconian budget cuts and reeling in government spending.”

The Irish approach worked in 1987-89 — and it’s working now.

This is a lesson that Washington should learn sooner rather than later.

Um: Ireland: 10-year bond rates

Meanwhile, Greek austerity is failing even to do much to reduce the deficit, because the economy is shrinking. The usually discreet Calculated Risk sums it up:

More austerity coming – the beatings will continue until morale improves!

Even Business Insider seems to be getting it. Contractionary policies, it turns out, are contractionary. And don’t tell anyone, but this means that Keynesian economics is right.

Hey! Obama! Recess-Appoint Somebody to Kevin Warsh's and to Peter Diamond's Seats on the Federal Reserve Board Already!

I recommend Joe Gagnon and Christie Romer. But any of a huge number of people would be good...

Why the Ryan Plan for the Abolition of Medicare Would Be a Bad Idea

As John Ellwood said to me outside Berkeley's Goldman School earlier this week (after I had said: "Gee, Paul Ryan really snookered Alice Rivlin, didn't he?"), the more a North Atlantic country's health-care financing system relies on markets--on patient choice and private provision--the more expensive it is without any apparent gain in outcome measures.

Mark Thoma explains why:

Health Care Vouchers vs. Program Cuts by Experts: As part of his plan to reduce the budget deficit, Republican Congressman Paul Ryan of Wisconsin proposes replacing Medicare as we know it with a voucher system... seniors would receive a credit from the government that can be used to purchase health insurance from private sector providers. The Ryan plan would... leave many without the means to obtain the care they need. But even if the vouchers were adequate, I would still not be in favor of a voucher system for health insurance. I am not opposed to vouchers in general. They are offered as an alternative whenever government wants to broaden the availability of private sector services, e.g. vouchers for housing and education, and sometimes vouchers are the best available solution. But not always. So how can we tell if a voucher program is likely to work? And what does this tell us about the Ryan proposal?

Department of "Huh?!"

Cheap Talk writes that Steven Landsburg's critique of Elizabeth Lesly Stevens is correct:

Cheap Talk: [Landsburg's] point being that... by taxing Mr. Kendrick... since he is consuming nothing any increase in consumption by the goverment must be taking resources away from somebody else.... Suppose Kendrick puts all of his assets into a pile of cash and burns it....  If at the same time the governement prints an equal number of dollars and spends it, consumption allocations have been altered but not Mr. Kendrick’s. Whatever goods and services the government consumes must come from somebody other than he.  Now observe that there is no difference at all between the scenario in which the money is burned by one party and printed by another and the scenario in which it is handed over directly through a tax. Professor Landsburg makes a contribution by presenting these examples which force us to think carefully about concepts we normally take for granted...

Cheap talk writes that Steven Landsburg's critique of Elizabeth Lesly Stevens is irrelevant:

we should recognize that this exercise is really beside the point.

And Cheap Talk writes that Elizabeth Lesly Stevens is correct and Steven Landsburg is wrong:

The government certainly can raise revenue by taking Mr. Kendrick’s assets... his assets are a claim on goods and services that will eventually be exercised by whomever inherits the assets. Taxing his assets today means taking those claims away.... [T]he real allocation of resources will be altered in a way that is right in line with the spirit of the original columnist’s motivation. The government will consume more today, others will save more today. Those savers will consume more in the future and Mr. Kendrick’s windfall heirs will consume less.

Cheap Talk manages to make all three of these claims in one weblog post, in six paragraphs.

Is Paul Ryan a "Deficit Hawk"? I Say No. Diane Lim Rogers Says Yes.

Diane Lim Rogers writes:

What Is a Deficit Hawk?: The Washington Post’s Greg Sargent questions the true “hawkishness” of some who label themselves “deficit hawks”:

As I noted some time ago, the term “deficit hawk,” as it’s commonly used in Beltway discourse, simply doesn’t mean “someone who fully committed to reducing the deficit by any means necessary, even if it means tax hikes and — paradoxically enough — new government programs.” Rather, it means “someone who is fully committed to reducing the deficit through tax cuts, entitlement reform and an unswerving adherence to general hostility towards expansive government.”… [I]magine if everyone who used the term “deficit hawk” agreed that it should refer only to those want to reduce the deficit by any means necessary, with nothing at all taken off the table. The conversation would start to sound very different, wouldn’t it?

The Death of Republican Technocracy and Rationality

Andrew Samwick tries to figure out what happened to his party:

Moderates? Republicans? | Capital Gains and Games: The way Ezra Klein tells it is largely the way I remember it, too.  Antecedents of President Obama's policies -- an individual mandate in health insurance, cap-and-trade on emissions, and some willingness to raise taxes to close deficits -- can be found in Republican policies of the George H.W. Bush era.  I supported them then and support them now, though in a way that comes from the right side of the political spectrum rather than the left.  More specifically:

• I would implement the individual mandate as a default into Medicaid with a fairly rapidly rising premium schedule collected on the tax form as income increased, rather than explicit subsidies for the purchase of health insurance.
• I would take cap-and-trade under the presumption that the permits are auctioned off rather than given away, and I'd prefer a comprehensive fossil fuel tax to either version of cap-and-trade.
• I would start my budget policy changes with letting the Bush-era tax cuts expire for everyone and cutting defense spending by at least 10%.  I would then move to the entitlement programs, phasing in increases in eligibility ages and other benefit reductions linked to income.  The small piece of the federal budget that's "non-defense discretionary" would also see reductions, but that's not where the heavy lifting can be done.  I wouldn't stop until the budget was in balance on average over the business cycle and the debt-to-gdp ratio was projected to remain steady at a number not larger than about 60 percent.

But I am not a dictator, don't think I should have the only or final word on this, and would expect to have to compromise.  I don't find Obama's policies to be beyond compromise.  Transported to a different era, Obama would have been a Rockefeller Republican -- actively using the government's powers to try to solve public policy problems and willing to go to the voters to get more revenues to do so.

The place where I disagree with Ezra's reasoning is here:

The normal reason a party abandons its policy ideas is that those ideas fail in practice. But that’s not the case here. These initiatives were wildly successful. Gov. Mitt Romney passed an individual mandate in Massachusetts and drove its number of uninsured below 5 percent. The Clean Air Act of 1990 solved the sulfur-dioxide problem. The 1990 budget deal helped cut the deficit and set the stage for a remarkable run of growth. Rather, it appears that as Democrats moved to the right to pick up Republican votes, Republicans moved to the right to oppose Democratic proposals.

What was not wildly successful was the impact of the 1990 budget deal on President Bush's re-election campaign.  If politicians are not rewarded at the polls for the choices they make, don't expect other politicians to make similar choices.  The first move to the right wasn't by the Democrats.  It was by the Republicans on issues of tax policy.  More recently, this dynamic has been at work -- on issues not related to tax policy, the Republicans are moving to the right to oppose proposals that were previously part of their platform.

John Holbo: The Flip-Side of Noble Lie-Side Economics?

Moral philosophy from John Holbo:

The Flip-Side of Noble Lie-Side Economics?: Matthew Yglesias points to this Arthur Brooks piece, “Obama says it’s only ‘fair’ to raise taxes on the rich. He’s wrong.” Brooks says he’s shifting from the usual perverse consequences argument – if we tax the rich it will actually cost more money – to a fairness argument. But really it’s just a twistier iteration of the perverse consequences argument. Basically the first part of the argument goes like this.

1) Americans think it’s fair to reward merit and hard work.
2) Americans think merit and hard work are in fact rewarded in America.
C1) Americans think it’s unfair to redistribute income. (from 1 & 2)

3) Obama’s proposal would change the way income is distributed (i.e. would be redistributive).
C2) Americans don’t agree that Obama’s proposal is fair (from C1).

This part of the argument is boringly bad. If you want to know whether Americans think it would be unfair to raise taxes on the wealthy, you can ask them....

[T]he argument now gets interestingly bad, as Brooks tries quietly to patch the logical badness of this first bit. The above argument is absurdly all-or-nothing. There is, after all, no contradiction – not even a tension – in believing 1, 2 and the denial of C1). All you have to believe is that reward for merit is imperfect, as things stand, and that changes to the existing rules would make the system a bit less imperfect. Brooks avoids considering this obvious possibility, proceeding to a sort of noble lie argument that addresses it indirectly.

Since equality of opportunity is not universal, doesn’t this invalidate — or at least weaken — the romantic notion of meritocratic fairness? Of course not.... [I]f we reject the ideals of opportunity and meritocratic fairness, we will end up with a system where outcomes are simply based on luck or political power.... [T]he more citizens believed in a merit-based system, the more their public policies produced such a system...

This is a variant on the old ‘some see the glass as half-empty, some see it as half-full’ adage. Some people see the half-full glass as completely full. And: we should be those people. If there is any element of meritocracy in the system, the system ought to be regarded, simply, as a meritocracy. It’s important that people think of America not as a half-functioning meritocracy but simply as a meritocracy. Otherwise (now finally we get to good old perverse consequences, for the first time without benefit of laffer curve) people will ask that the rules of the game be changed. And that’s a bad way to think. What we want is for people just to play the game as hard as they can.

Since this is an argument that belief that the system is perfect as it stands is a good belief for people to have, since it is regulatively healthful, whether it is true or not, one immediate and obvious consequence of Brooks’ argument is that one of the biggest threats to the health of the free-market system is … Arthur Brooks. If you keep telling people that Obama is a socialist, or is putting America on the road to European-style social democracy, you are attempting to convince them that Obama is introducing unfairness into the system. You are convincing Americans that the glass is only half-full, meritocracy-wise. But Brooks’ whole point is that people should not be encouraged to have that attitude...

Paul Krugman: QEII Did About What We Expected It to Do

PK:

QE2 Disappointment: QE2 has been implemented in such a way that there was no reason to expect a lot of traction on the economy; the only channel through which we might have had large effects was via expectations. And that part mainly happened before the policy actually began. What is the Fed actually doing? It... has been buying long term bonds, paying for them by adding to (interest-paying) bank reserves. In effect, it has been borrowing short and lending long.... But as [Jim] Hamilton points out, even as the Fed has been acting to reduce that maturity, the Treasury has been increasing the maturity of its borrowing, to such an extent as to swamp the Fed’s efforts. So we shouldn’t have expected much if any direct effect.... What QE2 might have done — and probably did do for a while — is act as a signal of the Fed’s determination to do whatever is necessary, and maybe of a willingness to accept higher inflation. But this only goes so far.... It’s also worth remembering that Joe Gagnon’s proposal called for a much bigger effort, as well as some more explicit efforts to change expectations (and notice that all I said was that it was worth trying, not that it would surely work). So what we’ve had is a much downsized version of the policy, more than offset by other government actions — a lot like the fiscal stimulus. And we’re supposed to be surprised that it proved disappointing?

Republican Presidential Front-Runner Donald Trump Speaks!

Duncan Black informs us that Donald Trump is playing the racism card and sends us to John Cole:

Balloon Juice » Affirmative Action, Baby!: I think we all know what Trump is getting at here:

Donald Trump is upping the ante against President Barack Obama’s legitimacy, raising questions on Monday night about how the president was admitted to two Ivy League schools.

Trump openly questioned how Obama, who he said had been a “terrible student,” got accepted into Columbia University for undergraduate studies and then Harvard Law School.

“I heard he was a terrible student, terrible,” Trump told the Associated Press in an interview, a claim he’s made in the past but one he doubled down on by suggesting he’s probing that area of the president’s life.

“How does a bad student go to Columbia and then to Harvard? I’m thinking about it, I’m certainly looking into it. Let him show his records,” he said, without providing backup for his claim.

Trump added, “I have friends who have smart sons with great marks, great boards, great everything and they can’t get into Harvard.”

“We don’t know a thing about this guy,” Trump said. “There are a lot of questions that are unanswered about our president.”

Apparently Trump is mad that Obama didn’t do things the right way- inherit his good fortune from daddy.

Ryan Abvent: QEII Has Not Disappointed: It Is the Fed Itself that Has Disappointed

Barack Obama! Recess-appoint Joe Gagnon to Peter Diamond's Fed slot right now!

Ryan Avent:

Monetary policy: Who's disappointed in QE2?: BINYAMIN APPELBAUM has written a story... "Stimulus by Fed is disappointing, economists say".... I find the piece itself a bit disappointing... it provides almost no sense of against which benchmarks QE2 has disappointed.... [T]he piece does illustrate the way in which the Fed left itself open to this kind of criticism and potentially reduced its ability to respond appropriately to economic conditions.... [W]hat did we expect QE2 to accomplish? Early in the third quarter of last year, immediately prior to Ben Bernanke's strong hint that additional asset purchases would be forthcoming, expectations for growth and inflation were falling, the probability of a double-dip recession was rising, confidence was lagging, and private employers were creating around 100,000 jobs per month. This deterioration is why the Fed acted. Did the Fed hope to influence interest rates? Sure, but that's just one of the means available to the Fed as it pursues its desired ends: a stable rate of inflation supportive of economic growth.

Reckless Governor Pawlenty...

Think Progress:

Polar Explorer Who Worked With Pawlenty ‘Baffled’ By His ‘Reckless’ Flip-Flop On Climate Threat: Former Minnesota Gov. Tim Pawlenty (R) was once a champion of policies like cap-and-trade to combat global warming pollution, but he now calls his past climate leadership “stupid” and a “disaster.” The polar explorer who worked with Pawlenty to “convince the skeptics” and find solutions to greenhouse pollution from oil and coal, Will Steger, is now “baffled” by Pawlenty’s reversal. In an interview with Mother Jones, Steger says that he believed “morally we were on the same level” when they met in 2006, and praised the governor’s acts of leadership in 2007 to build “unity in this community” around a clean energy economy. Now, however, Steger — who has conquered both the North Pole and Antarctica — feels defeated by Pawlenty’s “reckless” abandonment of our children’s future: “I’m baffled by that—did he actually say that?” says Steger, when asked about Pawlenty’s recent statements. “I’m baffled by that. But I think he’s getting information from the wrong source and it’s really too bad for our children. It’s reckless.”

“A lot of environmentalists think I want to dump on the governor because he changed around,” Steger told Mother Jones. “No, I respect the governor and I’m thankful that he did what he did do. It’s too bad that he couldn’t carry the flag, but in that party, you don’t carry that flag.”

Mountains Beyond Mountains

Apropos of Paul Krugman: Arcade Fire: Haiti - NYTimes.com: