Mark Thoma: Some reactions to the fiscal deal
Paul Krugman: Is Our Austerians Learning?: "Paul Solman has a post on Greg Mankiw’s attempt at a gotcha over my views circa 2003 on the consequences of deficits. As Solman notes, not only are the situations very different, I’ve also long since acknowledged that I was wrong, and have explained how and why I modified my views as a result. Extra bonus: notice how Mankiw, faced with the failure of his gotcha, immediately tries to claim that he wasn’t actually saying what he was, in fact, saying. Anyway, as I told Joe Weisenthal, you’re supposed to change your views when events don’t pan out as you expected. The real gotchas should come on people who stick with their ideology no matter how badly it performs in practice…. But we don’t have to go to hard-liners and marginal figures to find people who refuse to learn. Basically the whole austerian movement has been wrong about everything for two and a half years — wrong about interest rates, wrong about the effects of austerity on GDP in Europe. Yet where is the reconsideration? And utter wrongness seems to be no disqualification for being considered a source of wisdom. It’s hard to top Alan Greenspan’s record these past seven or eight years: he went from denying that there was a housing bubble (or even that such a bubble was possible), to declaring the housing bust over in the fall of 2006, to declaring that US deficits would produce high inflation and interest rates (along with expressing his regret that it hadn’t happened yet). Yet there he was at the founding of Fix the Debt, apparently still considered the Maestro."
Gavyn Davies: Another year in thrall to the central bankers
Duncan Black: Eschaton: You're Doing It Wrong: "I know, or at least hope, that reading online newspaper comments is not the best window into the soul of humanity, but it certainly is a bit depressing sometimes. The lack of sympathy or empathy for basically anyone is quite stunning. Everything is always the fault of victims, basically. My 'favorite' genre these days are the people who are trashing the youngs, discussing how when they were 18 they worked their way through college without any help or debt so why aren't kids today doing that? First, I imagine most of these people got a lot more help than they care to remember. Second, college is a lot more expensive now. You cannot pay for it by working summers and having a part time job during the year. You can't do it my friends."
Duncan Black: What Club Did You Think You Joined: "It's a bit amusing watching Peter King and Christie freak out because the assholes in their asshole club are acting like assholes. And it's too much to ask for them to generalize their current situation - sometimes people are down and need help, even without a hurricane."
Kevin Kelly: The Technium: The Post-Productive Economy: "Gordon then goes on to say: 'I have posed this imaginary choice to several audiences in speeches, and the usual reaction is a guffaw, a chuckle, because the preference for Option A is so obvious.' But as I just recounted, Option A is not obvious at all. The farmers in rural China have chosen cell phones and twitter over toilets and running water. To them, this is not a hypothetical choice at all, but a real one. and they have made their decision in massive numbers. Tens of millions, maybe hundreds of millions, if not billions of people in the rest of Asia, Africa and South America have chosen Option B. You can go to almost any African village to see this. And it is not because they are too poor to afford a toilet. As you can see from these farmers' homes in Yunnan, they definitely could have at least built an outhouse if they found it valuable. (I know they don't have a toilet because I've stayed in many of their homes.) But instead they found the intangible benefits of connection to be greater than the physical comforts of running water. Most of the poor of the world don't have such access to resources as these Yunnan farmers, but even in their poorer environment they still choose to use their meager cash to purchase the benefits of the 3rd revolution over the benefits of the 2nd revolution. Connection before plumbing. It is an almost universal choice."
Nico Voigtländer and Hans-Joachim Voth: How the West 'Invented' Fertility Restriction
Paul Krugman: On Not Learning, Continued: "The prediction that huge increases in the monetary base will cause large increases in the price level, and that big government deficits will cause big increases in interest rates, are more or less inescapable if your model of the economy is one in which recessions are supply-side problems, not the result of inadequate demand. Conversely, the prediction that neither of these things will happen if the economy is in a liquidity trap is a fundamental prediction of Keynesian models. On the other hand, the unfortunate Romer-Bernstein prediction of a fairly rapid bounceback from recession reflected judgements about future private spending that had nothing much to do with Keynesian fundamentals…. Beyond that is the question of how you react if your prediction goes badly wrong…. [T]he failure of that fast recovery has nonetheless prompted quite a lot of soul-searching and rethinking. It is now standard, in a way that it wasn’t before, to argue that recessions that follow financial crises have a very different time path of recovery from other recessions…. So Keynesian thinking has evolved in important ways; we’ve learned from our mistakes (where by “our”, as it happens, I don’t exactly mean “my” — I expected a slow recovery all along; but the actual event has nonetheless led me to substantial rethinking). The fundamental concepts of demand-side slumps and the importance of the zero lower bound remain, but there’s a lot of further refinement that changes the way we think. Has there been anything comparable on the Austrian/Austerian side? Not that I can see. All I see are excuses — hey, we would have had inflation except for the Europeans, or something."
Philip Pilkington: The New York Times’ Bizarre and Misleading Praise of Austerity Poster Child Latvia: "Most pieces written and published on economic topics in our newspapers are morality tales rather than economic analysis. Economic analysis is boring and thus only a few people are going to read it. By contrast, morality tales pull at the heartstrings like a Hollywood script. They contain words and phrases that most readers can identify with – sentiments that they too have felt, either in the past or in the present. Without understanding this it is simply impossible to grasp articles such as the one published on the New York Times website on New Year’s Day which depicts the extreme austerity experiment undertaken in Latvia over the past few years as a success."
Paul Krugman: That Bad Ceiling Feeling: "One good thing is that the deficit scolds are furious: they had their hearts set on exploiting this crisis to push through benefit cuts, and it didn’t happen…. And as I pointed out yesterday, the numbers are disappointing, but the disappointment isn’t that big a deal…. Before the deal, it was widely expected that Obama could get $800 billion in revenue…. So the disappointment, to simplify, is that he got $600 billion instead of $800 billion…. [N]ominal GDP over the next decade should be around $200 trillion. An $800 billion revenue take would be 0.4 percent of GDP; the $600 billion Obama got is 0.3 percent. Not big stuff, and either way the big fight over taxes versus benefit cuts is still to come."