Over at Equitable Growth: Ah. The debate continues:
Did The Fed Fail To Save Lehman Brothers Because It Legally Couldn't?: "The Fed's lawyers said, after the fact, that no, they didn't have the legal power to bail out Lehman... READ MOAR:
Over at Equitable Growth: Ah. The debate continues:
David Zaring: Did The Fed Fail To Save Lehman Brothers Because It Legally Couldn't?: "The Fed's lawyers said, after the fact, that no, they didn't have the legal power to bail out Lehman... READ MOAR
Over at Equitable Growth: On about four of the seven days in a week, my view is that the problems lumped under the heading of "secular stagnation" are primarily monetary-financial problems. Now comes Barry Eichengreen to review the case that these problems are at their root instead of also technological-fundamental. And I must say he has raised the frequency of my view that the problems are primarily monetary-financial from four days a week to five. READ MOAR
Over at Equitable Growth: Last month the sharp and hard-working Jeff Spross wrote:
Jeff Spross: Why Americans Are so nostalgic About the Manufacturing Industry: "The U.S. still manufactures a lot of stuff, but most of it isn't stuff average American consumers buy...
...These days, we mostly make heavy industrial equipment, circuitry, aircraft, and other big and expensive goods and high-end products.... A lot of manufacturing went overseas... so we get imports for a lower cost, which improves our standard of living. People in other, less developed nations get new jobs, which... improves theirs. A win-win, theoretically speaking. Same goes for rising automation.... But the 1950s economy was also a delicately balanced ecosystem... where wages were good, health and pension benefits... plentiful... job security was high....
Globalization gave certain interests and centers of power in our society the wedge and hammer.... Unions became far weaker, business owners and management got much freer hands, and worker bargaining power collapsed. The economic benefits... weren't broadly shared.... Other Western countries also endured globalization, but managed to keep their levels of inequality lower.... If we'd found some sort of alternative economic strategy for producing those same results, it's unlikely voters or politicians would be nostalgically lamenting any [manufacturing] decline. READ MOAR
[Over at Equitable Growth]: The current and the greater onrushing disaster that is macroeconomic policy in the eurozone is, in my opinion, the result of two things:
Setting up a Single currency in the region much broader than any optimum currency area.
Abysmal macroeconomic management by would-be economic hegemons that do not understand that system management needs to keep him employment high and thus make adjustment easy.
Even if dismantling the eurozone is not possible, transferring authority for North Atlantic macroeconomic management as a whole out of Europe is possible.
Ben Bernanke: Greece and Europe: Is Europe holding up its end of the bargain? No: "Is the euro zone’s leadership delivering the broad-based economic recovery that is needed to give stressed countries like Greece…
…a reasonable chance to meet their growth, employment, and fiscal objectives?…. Unfortunately, the answers… are… obvious… (1) the weak performance of the euro zone as a whole; and (2) the highly asymmetric outcomes among countries within the euro zone…. In late 2009 and early 2010 unemployment rates in Europe and the United States were roughly equal, at about 10 percent of the labor force. Today... the unemployment rate in the euro zone is more than 11 percent... a very large share of... younger workers; the inability of these workers to gain skills and work experience will adversely affect Europe’s longer-term growth potential…. [READ MOAR]
Mark Thoma (2011): Where are My Liberal-Neo-Liberal Technocrats?: "Brad DeLong's recent post on 'Left Neoliberals Like Me' brings a response from Arin Dube:
Arin Dube: Dude, Where are my Liberal-Neo-Liberal technocrats? …or… Where Paul R. Krugman from 1996 argues against J. Bradford DeLong in 2011 regarding the political economy of policy-making:
Over at Project Syndicate: Depression’s Advocates: Back in the darker days of late 2008 and 2009, I had one line in my talks that sometimes got applause, usually got a laugh, and always made people more optimistic. Because the North Atlantic had lived through the 1930s, I would say, this time we will not make the same mistakes policymakers made in the 1930s. This time we will make our own, different--and hopefully lesser--mistakes.
Over at Equitable Growth: It is a commonplace among Anglo-Saxon economists that Saxon-Saxon "ordoliberalism" was a post-World War II success only because somebody else--the United States--was both looking after the level of demand in the system as a whole, and also willing to act as an importer of last resort to allow other countries that had insufficient domestic demand to use the United States consumer to rebalance their individual economies at full employment even when domestic demand was grossly insufficient. READ MOAR
Over at Equitable Growth: The very sharp Nick Rowe has a useful piece today giving the baby-step intuition behind Schmidt and Woodford's argument that, no, expected and actual inflation do not as a rule decline one-for-one when a central bank lowers nominal interest rates:
Nick Rowe: Understanding Schmidt and Woodford on Neo-Fisherianism: "Suppose you are really bad at algebra... can't solve...
...X = 0.5X. So you make a tentative first guess at the answer, say X=1, plug your guess into the right hand side, get X=0.5, which is your second guess, which you plug into the right hand side again, to get X=0.25, which is your third guess, and so on. Eventually your guesses converge to X=0... tatonnement (groping) towards the answer, just like the Walrasian auctioneer who solves the supply and demand equations in micro by raising prices if there's excess demand, and cutting prices if there's excess supply. But... if the equation is X = 2X... your guesses will diverge further and further away from the right answer.... READ MOAR
###Some Talking Points from Fall 2014:###
Over at Equitable Growth: I never turned this into a proper piece...
At some deep level, the overwhelming problem is that Eurocrat elites--and, to a remarkably and unhealthy degree, American elites and not just republican legislators--believe that:
We are indeed trapped in the sewer of Romulus... READ MOAR
Over at Equitable Growth: The big cost to the Eurozone of Greece's exit is that then the Eurozone becomes transformed from a currency union into a fixed exchange rate system, and fixed exchange rate systems are unstable. Therefore the economic integration an increased prosperity that was anticipated from the currency union will vanish. READ MOAR
J Bradford DeLong and Barry J. Eichengreen: New preface to Charles Kindleberger,* The World in Depression 1929-1939*:
The parallels between Europe in the 1930s and Europe today are stark, striking, and increasingly frightening. We see unemployment, youth unemployment especially, soaring to unprecedented heights. Financial instability and distress are widespread. There is growing political support for extremist parties of the far left and right.
Both the existence of these parallels and their tragic nature would not have escaped Charles Kindleberger, whose World in Depression, 1929-1939 was published exactly 40 years ago, in 1973. Where Kindleberger’s canvas was the world, his focus was Europe. While much of the earlier literature, often authored by Americans, focused on the Great Depression in the US, Kindleberger emphasised that the Depression had a prominent international and, in particular, European dimension. It was in Europe where many of the Depression’s worst effects, political as well as economic, played out. And it was in Europe where the absence of a public policy authority at the level of the continent and the inability of any individual national government or central bank to exercise adequate leadership had the most calamitous economic and financial effects.
I have an itch I need to scratch, ever since I found Ken Rogoff writing:
Robert Barro... has shown that in canonical equilibrium macroeconomic models... small changes in the market perception of tail risks can lead both to significantly lower real risk-free interest rates and a higher equity premium.... Martin Weitzman, has espoused a different variant of the same idea based on how people form Bayesian assessments of the risk of extreme events...
Rogoff, Barro, and Weitzman are all sharper than I am by substantial margins. But this seems to me to be wrong. I don't think that what their papers mean is that the equity return premium is driven by fears of the rare event of a complete macroeconomic catastrophe. And it definitely does not mean what the math of Barro (2005) says: that high equity prices in 1929 and 2000 were driven by a much higher than normal expectation of such a complete macroeconomic catastrophe.
Barro and Weitzman both work in a model in which safe assets are in zero aggregate supply. What they both found seem to me to be consequences of an observation by John Geweke (2001) https://ideas.repec.org/a/eee/ecolet/v71y2001i3p341-345.html: Because constant relative risk aversion does not play well with zeroes, in any model with (a) a representative agent with constant relative risk aversion, and (b) no safe assets at all, adding a very small amount of kurtosis (could be downward skewness as well, but doesn't have to be skewness) to a geometric-normal stochastic process for the evolution of wealth introduces negative-infinities into the asset pricing formulas.
I wrote the first draft of this in late 2005, and then taught it in 2007-2009:
Over at Equitable Growth: Introduction
Olivier Blanchard, when he parachuted me into this panel, asked me to “be provocative”.
So let me provoke:
My assigned focus on “fiscal policy in the medium term” has implications. It requires me to assume that things are or will be true that are not now or may not be true in the future, at least not for the rest of this and into the next decade. It makes sense to distinguish the medium from the short term only if the North Atlantic economies will relatively soon enter a régime in which the economy is not at the zero lower bound on safe nominal interest rates. The medium term is at a horizon at which monetary policy can adequately handle all of the demand-stabilization role. READ MOAR
Well, this morning gives me--me, who was a profound Hillary Rodham Clinton skeptic after 1993-1994--yet one more very powerful reason to think that Hillary Rodham Clinton would make a much better president than J.E.B. Bush:
Back when I read Jeb Bush's Detroit "Economic Policy" speech, the thing that most astonished me was how thin it was. 3088 words. And yet the things that could count as federal economic policy proposals were few. It read not as a federal economic policy speech, but rather as a simulacrum of a federal economic policy speech spoken by somebody who really didn't know what a federal economic policy speech was--a cargo-cult airfield rather than a real World War II-era Pacific military aviation base.
Instead of policy proposals and directions, there were a lot pieces of what could even politely only be called fluff.
ABSTRACT: I have a problem here: This talk was supposed to take place after the spring 2015 revision of the Greek program. It was supposed to use that revision as a springboard to launch into (a) the extent to which the current macroeconomic difficulties of Europe are caused by the euro, (b) the difficulties of burden-sharing within the eurozone, and (c) what the political-economic options were for turning the euro zone into enough of an optimum currency area for the euro to make economic sense for the continent. Clearly, this is all now down the drain: On August 7, we will have to talk about... whatever we think we should talk about. It may be what I originally planned. It may by options for and consequences of Greek exit from the eurozone. It may be the road from 2010 to 2015...
This strongly suggests to me that of the 7%-points by which Greek growth fell below IMF estimates in 2010-2011, 5%-points of that were due to the fiscal consolidation that the IMF had forecast would be imposed on Greece. Consider that the IMF had already expected the Greek economy under baseline to shrink by 4%-points, and for fiscal consolidation to shrink the Greek economy by 3%-points, and we have 4/5 of the damage to the Greek economy--relative to a counterfactual forecast under some zero-spending-austerity baseline was due to austerity.
I find this hard to square with the very-sharp Olivier Blanchard's contribution of today: READ MOAR
Over at Equitable Growth: I truly do not understand this argument by the very sharp Daniel Davies:
Daniel Davies: Comment on Greece, Decision Theory, and the Sure-Thing Principle: "If Greece stays in the Euro it is likely to need constant transfers forever...
...If it leaves, but stays in the EU, then these can be reduced from a level in the tens of billions to something like what Romania or Bulgaria get....
The reason, of course, the transfers can then be reduced is that a Greece out of the euro re-denominates its debt in Greekeuros--drachmas--which go to a substantial discount vis-a-vis the euro, thus devalues, begins to have an export boom, and sees a strong economic recovery. What's the problem? READ MOAR
Over at Equitable Growth: Paul Krugman succumbs once again to shrill unholy madness: Ph'nglui mglw'nafh Friedman R'lyeh wgah'nagl fhtagn!! This time it is over the observation that, as I put it:
J. Bradford DeLong :: U.C. Berkeley and NBER :: April 16, 2013 http://eurofuture2013.wordpress.com/
My problem this morning is that I have four starting points. Or maybe my problem is that I have five starting points:
Over at Equitable Growth: Dean Baker once again marvels at the Washington Post's inability to figure out that the calculus of debts and deficits is fundamentally different today than back in the early 1980s. When long-term interest rates on government debt are 2%/year below the growth rate of the economy, things are very different from what they are when they are 3%/year above the growth rate of the economy. READ MOAR
Over at Equitable Growth: Angel Ubide writes:
"Pre-Syriza growth" would return Greek GDP to its 1975-1999 trend... never.
"Pre-Syriza growth" was at a pace that would not return Greek real GDP to the 2007 level of the 1975-1999 trend (if you think that was Greece's "real" potential output in 2007) until... 2023. READ MOAR
Comment of the Day/Early Monday DeLong Smackdown: Robert Waldmann: Comment on "More Musings on "Monetary Economics": "Also:
it is not the case that curing the excess demand for safe and liquid assets always requires painful 'liquidation' and austerity...
is true but doesn't go very far.
Over at Equitable Growth: There is, I think, a profound reason why those who have been able to understand the business cycle over the past two centuries have been those who have defined themselves as doing "monetary economics", and those who have not been able to understand the business cycle have not...
Let us remember the days when the Old New Republic, under the ownership of Marty Peretz and the editorship of Franklin Foer put forward people who are, shall we say, not very quantitative to make "the case against Keynes... [and] Krugman", and for austerity.
William Galston (June 2010): The Case Against Keynes (With Some Questions for Krugman, Too): "As President Obama’s bipartisan fiscal commission gets set to convene...
J. Bradford DeLong on July 01, 2015 at 05:52 AM in Economics: Macro, Information: Better Press Corps/Journamalism, Moral Responsibility, Streams: (Monthly) Old New Republic, Streams: (Tuesday) Hoisted from Archives, Streams: Economics, Streams: Equitable Growth, Streams: Highlighted | Permalink | Comments (3)
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Samuel Brittan--who I believe is extremely perceptive and penetrating (although not at all unsympathetic)--on Friedrich Hayek. From 'Hayek, Freedom, and Interest Groups,' in The Role and Limits of Government (London: Maurice Temple Smith, 1983):
The first page of the first chapter of Hayek's own Constitution of Liberty starts with the sentence:
We are concerned in this book with that condition of men in which coercion of some by others is reduced as much as possible.
J. Bradford DeLong on June 30, 2015 at 10:45 AM in Economics: History, Economics: Information, Economics: Macro, History, Moral Responsibility, Political Economy, Politics, Streams: (Tuesday) Hoisted from Archives, Streams: (Wednesday) Economic History, Streams: Economics, Streams: Equitable Growth, Streams: Highlighted | Permalink | Comments (0)
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Over at Equitable Growth: By coincidence, two people this past weekend have soberly informed me of what they call a "hard truth": that nationwide employment simply had to go down in 2008 and 2009.
You see, they said, we had to move people out of me industry of building houses and the occupations connected to that industry, and it was impossible to do that without lowering employment. READ MOAR
How long does it take to go from the short run to the long run? As I say repeatedly, I used to teach my students that the "short run" was the next couple of years, that the long run was from seven years from now on out, and that in between were interesting and confused medium-run transition dynamics--plus there is always the possibility that forward-looking expectations can lead the long run to come like a thief in the night, suddenly, immediately, long before you expect it to.
The thoughtful Matthew Klein, over at FT Alphaville:
Matthew Klein: The changing nature of Americans’ income: "Consider what this has meant for consumption...
This morning, Republican-appointed Supreme Court Chief Justice John Roberts wrote and five of his colleagues -- Democrat-appointed Breyer, Ginsburg, Sotomayor, and Kagan, and Republican-appointed Kennedy -- agreed that:
Section 18031 [of the Affordable Care Act--i.e., the ObamaCare Law--] provides that “[e]ach State shall . . . establish an American Health Benefit Exchange..." [But] if [a] State chooses not to do so, Section 18041 provides that the Secretary [of Health and Human Services] “shall . . . establish and operate such Exchange..." (emphasis added [by Roberts]).... The phrase “such Exchange”... instructs the Secretary to establish and operate the same Exchange that the State was directed to establish.... Black’s Law Dictionary 1661... (defining “such” as “That or those; having just been mentioned”).... State Exchanges and Federal Exchanges are equivalent—they must meet the same requirements, perform the same functions, and serve the same purposes...A simple matter of black-letter law, no? The plain meaning of the phrase "such Exchange" means that anything legal that is true of a health-insurance exchange established by, say, the state of New York is also true of a health-insurance exchange established by the federal government for, say, the state of Florida if the state of Florida fails to establish its exchange, no?
Over at Project Syndicate: As bubbles go, it was not a very big one.
From 2002 to 2006, the share of the American economy devoted to residential construction rose by 1.2 percentage points of GDP above its previous trend value, before plunging as the United States entered the greatest economic crisis in nearly a century. According to my rough calculations, the excess investment in the housing sector during this period totaled some $500 billion – by any measure a tiny fraction of the world economy at the time of the crash.
Over at Equitable Growth: Ezra Klein has a very nice explainer on the likely consequences of the possible announcement next week of a 5-4 partisan Supreme Court vote to disrupt ObamaCare via the case King v. Burwell:
Ezra Klein: King v. Burwell Won’t Destroy Obamacare: "A ruling for the plaintiffs in King won't change anything about Obamacare...
...in California, or New York, or Massachusetts, or even Kentucky. And it won't be a long-term problem for the states using a federal exchange out of convenience rather than ideology; they'll just set up their own exchanges.... Pennsylvania, Arkansas, Delaware, and Maine are already working on backup plans. So King can't destroy Obamacare. What it can do is let Republican elected officials destroy Obamacare in states where they have a majority. That's a very different thing, and it will lead to very different political dynamics.... Resistant red states will be left with a wrecked insurance market — and a hefty tax bill.... READ MOAR
Òscar Jorda, Moritz Schularick, and Alan M. Taylor: Leveraged Bubbles: "The critical assumption was that central banks would be in a position to manage the macroeconomic fall-out...
They could clean-up after the mess. While the aftermath of the dotcom bubble seemed to offer support for this rosy view of central bank capabilities, the 2008 global financial crisis dealt a severe blow to the assumption that the fall-out of asset price bubbles was always and everywhere a manageable phenomenon. This observation meshes well with the key finding of this paper: not all bubbles are created equal.... When credit growth fuels asset price bubbles, the dangers for the financial sector and the real economy are much more substantial. The damage done to the economy by the bursting of credit-boom bubbles is significant and long-lasting. These findings can inform ongoing efforts to devise better guides to macro-financial policies at a time when policymakers are searching for new approaches in the aftermath of the Great Recession.
bottlerocketscience: Startup Geometry Podcast EP 004: Brad DeLong:
J. Bradford DeLong on June 17, 2015 at 12:49 PM in Economics: Finance, Economics: Growth, Economics: History, Economics: Inequality, Economics: Information, Economics: Macro, Long Form, Philosophy: Moral, Political Economy, Politics, Science Fiction, Streams: (BiWeekly) Honest Broker, Streams: Cycle, Streams: DeLong FAQ, Streams: Economics, Streams: Equitable Growth, Streams: Highlighted | Permalink | Comments (1)
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Live from the Garonne Estuary: Château Mouton Rothschild
Suppose you were heading from Bordeaux to London in the twelfth century by sea.
Suppose wanted to stop someplace to pick up something to use as ballast.
Where would you stop?
Yep. You would stop at what is now Château Mouton Rothschild on the left bank of the Garonne. That is the ideal place to stop, pick up whatever blast you need for ship stability, and rebalance your cargo before you head out beyond Isle de Cordouan into the waves of the North Atlantic.
What do you think the chances are that the best place in the world to grow grapes for making claret--the place with the absolute-best, ahem, terroir--just happens to also be the ideal place to pick up ballast for the Bordeaux-London voyage?
And, in fact, what are the odds that the sea-run ballast pick-up point would just happen to be for Bordeaux-London? That the sea run would be that between the capital of the lands that Eleanor d'Acquitaine brought to the Angevin Empire and the London capital and court of Henri II de Plantagenet?
"But what about the Burgundies?" you ask. Had not the Dukes of Burgundy managed to acquire overlordship of the seventeen provinces at the mouths of the Meuse and the Rhine, Burgundy would be nowhere. And the great days of the Burgundian court came to an end with the death of Charles the Rash...
Over at Equitable Growth: The Past Two Decades: The Coming of the Information Economy Looks to Have Doubled Our True Rate of Economic Growth
Over at Bloomberg View, smart young whippersnapper Noah Smith weighs in on the relationship between measured GDP at factor cost and societal well-being--including consumer surplus--in the information age:
Over at Equitable Growth: The sharp Tyler Cowen writes:
Tyler Cowen: Has fiscal conservatism met an impasse at the state level?: "The latest from Louisiana is that taxes are going up...
...but in a strange way that won’t be called a tax increase.... It is even weirder than that sounds. Combine that with the recent fiasco in Kansas.... Fiscal conservatism has been stymied at the state level... for many other states, especially those governed by Republicans.... Trying to cut taxes at the state level doesn’t seem like a useful or productive way forward. If you have a better revisionist take on Louisiana and Kansas, please do put it in the comments, I would gladly read it, and if you have something really good I will pass it along. But I see myself as stating what has to be the default hypothesis for the time being--should we not all come out and admit this? READ MOAR
Scott Gosnell: Brad Delong on the TPP: "In this short preview of my interview with economist Brad Delong...
...we discuss the economic and social impact of the trade deals currently being negotiated by the US Trade Representative, including the Trans Pacific Partnership (TPP), Trade Promotion Authority and related bills under consideration in Congress this month. The full interview will be available next week...
Scott Gosnell: Let me ask about the Trans-Pacific Partnership and other trade deal that are going on right now. What do you think of them?
Over at Equitable Growth: Can somebody please tell me what is going on? What happened with the Obama administration and its making the case for the TPP?
I am what Paul Krugman calls "Davos Man" to a substantial degree--a card-carrying neoliberal, a believer in globalization and free trade, someone who has seen more than enough of the stupidities of places like Berkeley and so doesn't mind hippy-punching now and then. As a believer in free-trade, in the importance of harmonizing global economic regulation, and in getting intellectual and general property rights right, I ought to be a very strong technocratic advocate for the TPP. Yet I found myself having major questions about it: READ MOAR
J. Bradford DeLong :: University of California at Berkeley
Let me begin by thanking Matt Rognlie for doing some very serious and thoughtful digging into this set of factor-payments data. That digging leaves me in an ideal position for a discussant: There are interesting and important numbers. These numbers have not been put together in this way before. The author is wise enough not to believe he has nailed what the numbers mean to the floor. Thus I am in an excellent position to, if not add intellectual value, at least to claim a lavish intellectual-rent share of Matt Rognlie's product.
J. Bradford DeLong on June 12, 2015 at 11:06 AM in Economics: Growth, Economics: History, Economics: Inequality, Economics: Macro, Long Form, Political Economy, Politics, Streams: (BiWeekly) Honest Broker, Streams: (Wednesday) Economic History, Streams: Economics, Streams: Equitable Growth, Streams: Highlighted | Permalink | Comments (10)
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Over at Equitable Growth: The very sharp Jared Bernstein wrote:
Jared Bernstein: Going Bold in Los Angeles: "The city council of Los Angeles has voted near-unanimously...
...in support of a gradual increase in the city minimum wage, from $9 today to $15 in 2020... thereafter, indexed to inflation.... What its impact might be is a harder question.... READ MOAR
...In August 2011 he denounced the ‘delusions’ of the chancellor whose ‘experiment in austerity’ was ‘going really, really badly’.... Mr Osborne was worrying needlessly about business confidence. ‘The confidence fairy’ was the term Mr Krugman coined to ridicule anyone who argued for fiscal restraint. Unfortunately for Mr Krugman, the more he talked about the confidence fairy, the more business confidence recovered in the UK. In fact, at no point after May 2010 did business confidence sink back to where it had been throughout the past two years of Gordon Brown’s premiership.... UK unemployment is now 5.6%, roughly half the rates in Italy and France.... Weekly earnings are up by more than 8%; in the private sector, the figure is above 10%. Inflation is below 2% and falling...
The graph that Ferguson is looking at: READ MOAR
Over at Equitable Growth: I found myself debating Tom Davis--a very smart and well-trained professional--on Bloomberg TV last Friday, on the occasion of the monthly employment report. I did better than I had expected, probably because we are both on the same side of the technocratic "we badly need to do more for infrastructure" issue: READ MOAR
What about the 2009 stimulus package, anyway?
Ah. The 2009 Recovery Act. Christie Romer's original calculations suggested we needed a fiscal stimulus program of $1.8 trillion over three years, even with all of the banking-support and monetary policy moves the Treasury and the Federal Reserve were making. Her forecasts--like almost every forecast in December and January 2009--were optimistic. We needed not $1.8 trillion over three years, but rather more like $4 trillion over 5 years (which could be pruned back or offset by tighter monetary policy if recovery came rapidly.
Live from La Farine: Matthew Yglesias nails it with the great wrongness that is at the core of George R.R. Martin's Game of Thrones:
Matthew Yglesias: Game of Thrones: "The overall [Game of Throne's] story's great weakness...
...is that... it... [is] just a giant series of MacGuffins until Jon, Dany, and a bunch of dragons face off against the undead horde...
David Glasner enters the lists in the Omega Point discussion, making two big and important points:
There is an equilibrium in which the long-run comes quickly, and an equilibrium in which it comes so slowly that other things inevitably intervene. We do not know very much about what determines which the economy settles in, but we do strongly suspect from the Great Depression that sufficiently aggressive monetary régime change can eliminate the permanent-depression equilibrium
1931 was the once-in-a-century time for a monetary régime change in the twentieth century (and, if we are allowed one every half-century, 1978 was the time for the second). And it looks to him very much like 2009 was the time for a monetary régime change in the first half of the twenty-first century. That the Federal Reserve did not realize this in late 2009--that it expected a rapid recovery from the economy's self-equilibrating forces even without additional fiscal and monetary stimulus--is our sorrow today.
I agree with (2). I am less certain about (1).
I would say probably, and note that sufficiently aggressive in this case is a weasel phrase, and admit that I am surprised that Abenomics in Japan has not been more successful. But more on that anon. READ MOAR
U.S. Employers Add 280,000 Workers in May: "Is Jobs Data Truly Good News About U.S. Economy?
39:21 - UC Berkeley Professor of Economics Brad Delong and former republican Congressman Tom Davis examine the state of the U.S. economy following the May jobs report and discuss what the U.S. government needs to do to spark growth. They speak on ‘Bloomberg Markets.’ (Source: Bloomberg)
The past three months' job market reports do not lead us to change our minds about anything. What did you think three months ago? You should think the same thing now.
What should you have thought three months ago? Four things:
First, for the past 50 years the unemployment rate and other indicators of the health of the labor market--ease of getting a job, business willingness to build more to fill vacancies, employment the population adjusted for demographics and sociology--have all pointed in the same direction.
Thus, second, it looks to me like we are still far short of anything that might be called a normal or neutral business-cycle level of employment.
Third, it will not be time to start cooling off the economy until either we get different signals:
Fourth we never recovered to the pre-2007 trend.
Fifth, it is still not too late to turn the macroeconomic policy ship around:
Sixth, there are also important structural issues:
Seventh, Obama... Taking a broad view, under Obama the American economy has done worse than it has done under any Democratic president since the Civil War
Eighth, things could have been much better:
Matt Miller: Tom, let me start with you. Weren't you impressed with this month's job report? We added 280,000 jobs. That is much higher than the average of the past twelve months. We boosted hourly pay.
Tom Davis: Yes. It was a good report.
Matt Miller: And, Brad, do you find it to be a good report as well?
Brad DeLong: Yes. It was a good report. But combine it with the past two reports. We are about where we were three months ago. Whatever you thought about the state of the economy three months ago, you should think it now. The last quarter has not been one in which there has been a great deal of news to lead anyone to change their mind.
Matt Miller: Tom, are you more positive about this report than Brad? He's got a lot more "buts" and "ifs" in there.
Tom Davis: Well, there are a lot of "buts" and "ifs". I think lower gas prices have given a tax cut to everybody. I think they have created a lot of optimism. But there is still a lot of uncertainty. And there are still a number of international factors that come into this that nobody can control. I think some times we give the government too much credit for what goes well and too much blame for what goes badly.
Matt Miller: So what should we do, Tom, to make things better here? What is your prescription? Or what is the Republican prescription, I should say?
Tom Davis: Look: Our prescription has always been that higher taxes and needless regulations--and there are a lot hanging around. You need to be looking at them so that businesses can operate more efficiently. One of the biggest problems right now is that we have a political system that is not operating very efficiently on issues from the Export-Import Bank; to getting a long-term transportation bill which has been on life-support for six months--for six years; to just getting the Appropriations bills out on time. We just have a political system that is not functioning very efficiently. And that has, I think, a drag on the economy. We're not getting out of the government what we ought to be.
Matt Miller: Brad, Democrats and even President Obama would agree with that. They would like to see lower taxes and fewer regulations, but also more spending. Right?
Brad DeLong: Well, I don't think it is just Democrats who would like to see more spending. Back in the 1970s Milton Friedman looked back at the Great Depression. He talked about what his teachers had recommended as policies and what he would have advocated in the Great Depression. He called for, in situations like that, and, I think, in situations like this, for coordinated monetary and fiscal expansion. With interest rates at their extraordinarily low levels, now, as in the 1930s, is a once-in-a-century opportunity to pull all the infrastructure spending we will be doing over the next generation forward in time and do it over the next five years, when the government can finance it at such extraordinarily good terms.
Matt Miller: We have a national infrastructure crisis, right? Roads and bridges, ports and airports are at levels that are critical and certainly not worthy of a first-world country. Tom, don't you agree we need to fix that up quickly?
Tom Davis: I agree with that. Look, I think that with the stimulus package that was passed in 2009 they blew an opportunity to do more for infrastructure. We should have had something to show at the end of that. With the money, maybe we got a short-term stimulus, but we should have gotten something long-term.
Brad DeLong: They had to get it through with only Democratic votes. Why weren't there any Republicans willing to deal? We could have gotten a larger and much better-crafted program.
Matt Miller: There was a lot of money there. There was a lot of money there, Brad.
Tom Davis: Let me interject. I know something about politics. I think the President's inclination was to deal with Republicans, but Democrat leaders said: "No: We are in charge. You have to go through us." And I think that hampered his ability. It wasn't just Republicans. You offer us a bad deal, don't expect us to take it.
Matt Miller: That doesn't change the fact that we still have crumbling infrastructure in this country.
Tom Davis: No, I agree.
Matt Miller: It needs to be, somehow, brought up to snuff. How would you do that?
Tom Davis: You need a massive transportation bill at this point. And you need continuity. Right now this thing is on life support. So long-term projects are not moving through. States are taking some initiative in some cases. But this is the time to do it.
Matt Miller: Brad, it sounds like...
Brad DeLong: When Larry Summers was in the White House, he spent two years trying to assemble a centrist bipartisan coalition for a large-scale long-lasting infrastructure bank, and got no Republican bites at all.
Tom Davis: Well, the Democrats controlled both houses. They could have done it. That is all I am saying. We have to look ahead at this point. But I think they blew the opportunity with that bill when they controlled everything. I think bipartisan government right now has just crumbled. We have turned almost into a parliamentary system in our behavior, and unfortunately with our system of government that just does not work very well.
Matt Miller: It sounds like we are all in agreement that something needs to be done. Hopefully that can happen. Maybe the two of you can get together after this program.
Live from La Farine: if I did not already know that we have 17 months during which the flow and intensity of the bullshit from the Washington Village media political press corps will only increase, I would have thought we were at peak bullshit now.
Do people really pay $1000 a year to read things like this beat-sweetener from Tim Alberta in the National Journal about how:
South Carolina is Marco Rubio's State to Lose.... Rubio is putting a stranglehold on South Carolina.... Rubio has become an adopted prince of South Carolina's political royalty... snatching up the state's top talent... achieved... an organizational lock... 'put together a first-class team'... courtship... goes beyond his roster of official allies... that's only a fraction of the South Carolina talent Rubio has on payroll... Whit Ayres, Rubio's highly respected pollster, launched his career in South Carolina... crucial hire... Katie Baham Gainey, a veteran of First Tuesday Strategies and Romney's 2008 campaign... "He has an all-star team"... courtship of South Carolina goes beyond his roster of official allies... been at the task of building alliances here for six years...
This beat-sweetener that in paragraph 26--twenty-six--TWENTY-SIX--XXVI--finally says:
The most recent poll was conducted by Winthrop before Rubio's April 13 launch and showed him taking only 4 percent, lagging behind Walker, Bush, and five other candidates...
That's eighth place.
The one piece of real information in the article, delayed until paragraph 26.
Over at Equitable Growth: Watching a Discussion: The Omega Point: