Mark Thoma:The Unemployed Need Bold, Creative Moves from the Fed: "The Federal Reserve has increased the size of its balance sheet nearly four-fold since the onset of the financial crisis, from around $870 billion in 2007 to $3.35 trillion today. This has caused people like Peter Schiff to predict that we are headed for a severe outbreak of inflation. An inflation problem is just round the corner we’ve been told again and again since 2008, yet inflation remains below the Fed’s two percent target, long-run inflation expectations are well-anchored, and there is little evidence in recent data that inflation is or will be a problem. Why is inflation so low?… Stimulating demand and creating inflation has not been as easy as the Fed thought it would be even with the dramatic increase in the size of its balance sheet, and the Fed has been unwilling to take the additional bold and creative steps needed to bring inflation up to –– or in the short-run even above –– its target level…. We do not want to repeat the wage-price spiral problems of the 1970s and the recession of 79-82 that was needed to break the cycle. So in the long-run, we want to hit our inflation target. We also don’t want to repeat the financial meltdown we’ve just been through. But the risks of inflation and financial instability have been overblown relative to the large costs associated with high long-term unemployment and it’s time for the Fed to address the unemployment problem with the same creativity, boldness, and perseverance it displayed when banks were its main concern."
Paul Krugman:German Wages and Portuguese Competitiveness: "But what really puzzles me about Cowen’s exposition here is his misplaced focus on the extent to which Portugal and Germany are in direct competition with each other…. This is very nearly irrelevant…. Germany and Portugal, for better or (mainly) worse, now share a currency, and what happens in Germany very much affects the value of that currency relative to other currencies. Cowen writes that rising wages in Germany 'solves (at best) only one of the core problems of the eurozone, namely incorrect relative prices between Portugal and Germany. It helps less with the “Portuguese nominal wages are too high” problem…' OK, stop right there… too high relative to what? As Rudi Dornbusch always used to say, it takes two nominals to make a real. And the answer, clearly, is 'too high relative to German wages'. What else could it be? But, you say, Portugal doesn’t compete that much with Germany. Ahem. Suppose that I could wave a magic wand (or play a few notes on a a Magic Flute) and suddenly increase all German wages by 20 percent. What do you think would happen to the value of the euro?… Portuguese exports would become a lot more competitive everywhere, including non-German and indeed non-Euro destinations. I guess I thought this was obvious. Apparently not…. Germany and Portugal share a currency. This creates obligations for Germany, whether it likes them or not."
Paul Krugman:Jaime Caruana, general manager of the Bank for International Settlements, warning of the dangers of easy money and the need to raise rates now to avert … something or other. And his views matter, says the Wall Street Journal: "Mr. Caruana is no disgruntled outvoted hawk on a policy-setting council, trying desperately to set the record straight after being outvoted. Rather, he’s the mouthpiece for a global college of central bankers, almost all of whom find themselves under intense pressure from their national governments to keep things ticking over while they try to repair the economy...." What I do recall, however — which the Journal apparently doesn’t — is that the BIS has spent years warning about the dangers of low interest rates. Except that a couple of years back it was telling a completely different story about why we needed to raise rates; you see, the big danger was of imminent inflation: "'Global inflation pressures are rising rapidly as commodity prices soar and as the global recovery runs into capacity constraints', said the BIS, which acts as a central bank for the world’s central banks. 'These increased upside risks to inflation call for higher policy rates.'” In fact, inflation is running below target just about everywhere. You might therefore think that the BIS would step back a bit and reconsider both its policy recommendations and the framework it uses to derive those recommendations. But no. Higher interest rates are always the solution; it’s only the problem they’re supposed to solve that changes."
Zack Beauchamp:The Inside Story of The Harvard Dissertation That Became Too Racist For Heritage: "The idea that some racial groups are, on average, smarter than others is without a doubt among the most discussed (and debunked) 'taboos' in American intellectual history. It is an argument that has been advanced since the days of slavery, one that helped push through the draconian Immigration Act of 1924, and one that set off a scientific firestorm in the late 60s that’s hardly flagged since. Yet every time the race and IQ hypothesis reclaims the public spotlight, we are caught slackjaw, always returning to the same basic debates on the same basic concepts… Jason Richwine…. If the dissertation was bad enough to get him fired from the Heritage Foundation, how did it earn him a degree from Harvard? A popular answer among Richwine’s defenders is that, quite simply, it was exemplary work…. But dozens of interviews with subject matter experts, Harvard graduates in Richwine’s program who overlapped with him, and members of the committee itself paint a somewhat more textured picture. Richwine’s dissertation was sloppy scholarship, relying on statistical sophistication to hide some serious conceptual errors. Yet internal accounts of Richwine’s time at Harvard suggests the august university, for the most part, let serious problems in Richwine’s research fall through the cracks."
Henry S. Farber and Robert G. Valletta:Do Extended Unemployment Benefits Lengthen Unemployment Spells? Evidence from Recent Cycles in the U.S. Labor Market: "In response to the Great Recession, the availability of unemployment insurance (UI) benefits was extended to an unprecedented 99 weeks in many U.S. states in the 2009-2012 period. We use matched monthly data from the CPS to exploit variation in the timing and size of the UI benefit extensions across states to estimate the overall impact of these extensions on individual exit from unemployment, and we compare the estimated impact with that for the prior extension of benefits during the much milder downturn in the early 2000s. In both periods, we find a small but statistically significant reduction in the unemployment exit rate and a small increase in the expected duration of unemployment. The effects on exits and duration are primarily due to a reduction in exits from the labor force rather than to a decrease in exits to employment (the job finding rate). Although the overall effect of UI extensions on exit from unemployment is small, it implies a substantial effect of extended benefits on the steady-state share of unemployment in the cross-section that is long-term."
Jesse Rothstein and Albert H. Yoon say that Stuart Taylor, Jr., and Richard Sander simply do not know what they are talking about: Affirmative Action in Law School Admissions: What Do Racial Preferences Do?: "As a policy matter, reasonable people may disagree about whether the costs of “taking a chance” on marginal black applicants outweigh the benefits, and we have little that is new to say about this. Our analysis suggests, however, that one cannot credibly invoke mis- match effects to argue that there are no benefits. Only a small fraction of students who are unsuccessful today would be successful under race- blind admissions. Without affirmative action, the legal education system would produce many fewer black lawyers. Although we do not provide a normative assessment of affirmative action policies, these facts must be part of any informed evaluation."
Jeff Weintraub:Peggy Noonan goes Krugman (Hendrik Hertzberg): "Rather than waste time wondering what is going through [Peggy Noonan's] mind when she does this or how she gets away with it—is she really that clueless, or is she being cleverly hypocritical?—we should begin with the fact that she generally does get away with it and consider what Noonan's inversions of reality might tell us, symptomatically, about current political discourse…. That seems to be a hypothesis that Hendrik Hertzberg is toying with, at least, in his recent evisceration of a column by Noonan that went on and on with her standard anti-Obama rant and then, in the process, slipped in this startling admission: 'It’s not a debt and deficit crisis, it’s a jobs crisis'."
Rick Hertzberg:"The column tries to disguise itself as yet another right-wing attack on the Journal’s default punching bag, President Obama… But her heresies… begin with her startling opening line: 'It’s not a debt and deficit crisis, it’s a jobs crisis.' Say what? The biggest argument in Washington is about which is more urgent, the unemployment problem or the deficit and debt problem. Democrats say it’s unemployment and therefore advocate stimulus, which causes an increase in the deficit (though not necessarily in the long-term debt). Republicans say it’s the deficit/debt and therefore advocate austerity, which causes an increase in unemployment…. Noonan… is clear about which side she’s on: 'But it’s a jobs crisis that’s the central thing. And you see it everywhere you look.' For Noonan, 'everywhere you look' is a hotel she stayed at in Pittsburgh, which was so understaffed there was no bellhop to walk her up to her room in case a criminal was lurking…. She’s also right about what Obama should have done about it: 'He should have seen unemployment entering a crisis stage four years ago, and he did not. At that time I was certain he’d go for public-works projects, which could give training to the young and jobs to the experienced underemployed, would create jobs in the private sector and, in the end, yield up something needed—a bridge, a strengthened power grid. He instead gave his first term to health care.' Here’s where I started getting dizzy. Noonan is describing exactly what Obama did do. He did see a jobs crisis four years ago. As a major part of his eight-hundred-billion-dollar stimulus package (which he pursued in addition to, not instead of, health care), he did go for public-works projects, specifically including bridges and a strengthened power grid. The only opposition to all that bridge-building and grid-strengthening came from Noonan’s party. In the House, zero Republicans voted yes. In the Senate, three did…. From Peggy’s peroration: 'Mr. Obama is making the same mistake he made four years ago. We are in a jobs crisis and he does not see it…. But the real question is whether the American people will be able to have jobs. Once they do, so much will follow—deficits go down a little as fewer need help, revenues go up as more pay taxes. Confidence and trust in the future will grow. People will be happier.' Noonan is with Obama, or Obama is with Noonan, on the substance of jobs vs. deficits. 'We don’t have an immediate crisis in terms of debt', the President said last week in an interview on ABC, adding: 'My goal is how do we grow the economy, put people back to work, and if we do that we’re going to be bringing in more revenue'. I guess she has to say it’s all Obama’s fault. It’s the Wall Street Journal. It’s Chinatown."
Matthew Yglesias:Michael Kinsley on austerity: Everyone is jumping on this Michael Kinsley…. Kinsley is mistaken about… the nature of our sins and the nature of the price that has to be paid. Think about Iceland… [which] pretend[ed] that they'd developed a super-innovative new model of hyper-profitable banking…. So the sector went bust and a huge blow was dealt to the economy. But rather than coping with the blow by implementing hard money and huge budget cuts, spurring mass unemployment and a years-long episode of penance, Iceland paid its penance through currency depreciation and repudiation of many foreign debts… [which] have made it much harder for Iceland's citizens to go on vacation in Spain or study abroad…. Icelanders need to smelt more aluminum and catch more fish… while consuming less…. Foreigners don't want to lend Iceland money…. Belts have to tighten. It's an all-around bad situation. But. Iceland's unemployment rate is below five percent. The country is paying for the sin of excess debt with the penance of hard work. Which makes sense. When you discover you're less wealthy than you thought you were, the appropriate response is to work longer hours… not to quit your job. Longer hours and joblessness are both forms of punishment, but longer hours is a punishment that fits the crime."
Matthew O'Brien:This Is the Biggest Mistake 60-Year Old Men Make About the Economy=: "Our present problem isn't too little inflation-fighting, but too much. Indeed, headline prices rose just 1.1 percent in April, while unemployment is still a depressing 7.5 percent. But it's not just the unemployment; it's the long-term unemployment. Millions have been out of work for six months or longer, at which point companies won't even look at your resume. The only bit of good news is this is an easy problem to solve: with interest rates as low as they'll ever be, the government can borrow money and put people back to work. It's really that simple. Except for people who don't want it to be that simple…. Michael Kinsley…. 'I don't think suffering is good, but I do believe that we have to pay a price for past sins, and the longer we put it off, the higher the price will be.' This gets things completely backwards. The longer we put off austerity, the lower the price will be, since fewer of the long-term unemployed will become unemployable. And besides, there's no reason we shouldn't produce as much as we can now just because we made mistakes before. As Keynes said, the resources of nature and men's devices are just as fertile and productive as they were -- or, as John McCain might put it, the fundamentals of the economy are strong. It's up to us to make those fundamentals work with the right ideas. But this doesn't make for an exciting narrative. A failure of ideas is much less dramatic than a failure of Leadership™. Where's the sacrifice? The hard-headed vision? That's what Kinsley pined for back in 2010…. That would all be fine if it were still 1979. It's not. The facts have changed. It's time for inflationistas to change their minds."
James Galbraithon Michael Kinsley: "Kinsley writes that all the ways of looking at the national debt 'lead to varying degrees of panic'. But obviously there is no panic where it matters, among those who lend money to Uncle Sam…. Nor is the present public debt close to being a record. In relation to our annual output it was much higher in 1946…. Did calamity follow? No. For a third of a century after the war, the debt-to-output ratio just gradually declined…. It's true that we have got big economic problems right now. But the budget deficit and the public debt aren't among them…. As for [Kinsley's] notion that a "typical" American surviving spouse leaves a cool half-million behind, only someone too lazy to distinguish a mean from a median could believe that. In 2004 according to the Federal Reserve mean family net worth for households with a head aged 65-74 was $690,900--I couldn't find where Kinsley got his $1 million--and the median value was only $190,100. This includes housing wealth, and those values would be lower today. Numbers are numbing, as Kinsley said. Is intellectual laziness a Boomer vice? I think not. It's a pundit vice, induced by easy access to choice venues for the publication of one's thoughts. The pity of Kinsley's essay is that we Boomers will, in fact, leave problems: for starters we burned the oil and we've warmed the planet. Those are grave matters and Kinsley might have written about them. But no: he chose to waste our time on a topic he hasn't troubled to learn the first thing about. Unemployment, on the other hand, is a real problem…"
Scott Lemieux:Great Moments in Self-Refutation: "Rarely does a (at least once-) respectable pundit face-plant as badly as Michael Kinsley re-proving Krugman’s points about austerity mongers while attempting to refute them. While it’s impossible to summarize an argument this incoherent, the key point seems to be that if you can’t tell the difference between Barack Obama and David Cameron (a problem that, admittedly, does afflict a handful of people on the American left) it’s hard to know what opponents of short-term austerity want…. Kinsley is one of those people who’s been haunted by the specter of inflation for years, and the fact that he’s been consistently wrong doesn’t seem to have taught him anything. And why should it — as he essentially concedes himself, the case for austerity is about overclass morality, not about economics."
Gene Grady writes: "I wouldn't rate [even early Gertrude] Himmelfarb too highly. Her essay on Buchan from ca. 1956, while having the merit of paying attention to a then neglected writer, is full of nonsense and bad reading trying to make him out to be an anti-Semite. One can find a little polite anti-Semitism early in his career, but Himmelfarb reads a character who is half-Irish and half-Spanish as a caricature of a Jew, and makes much of the anti-Semitic comments of some of the characters, at least one of whom (in The Dancing Floor) finds out on the last page of the book that the Jew he had been patronizing is braver, smarter, and an all-around better man than he was."
Gabriel: "Game theory is a famous example: it was founded by (mostly social democratic) public choice theorists who broke from George Mason University in Santa Monica in the 1950s, forming co-authorships of twenty to forty people with their rent-seeking models in each other’s military think tanks."
And, of course, there is the fact that the claims that Keynes's theories are the theories of an ant who lives for the day, rather than a grasshopper who builds for the ages, are simply false--Karl Smith, I believe had a very nice piece about this, and coming out of the gate soon will be Robert Skidelsky...
Indeed. Five years ago--nay, one year ago--if I had been on stage next to Ferguson I would have taken him head-on on his claim that Keynes did not care about the long-run as a shocking misconstrual of the passage from Keynes's "Tract on Monetary Reform", but I would have left Teh Gay to hang. Much kudos to Joe Biden for being very brave as a politician and so triggering our latter-day discovery that we collectively are who we wished we could publicly be…
I do not see the link to Ken and Carmen at all. Ken and Carmen made (I) a minor data analysis error which did not have a major effect on their results and is mostly a warning that you should never do anything important in Excel; (II) a major conceptual error in which they convinced themselves there was a cliff at a 90% debt-to-annual-GDP ratio when a less structured analysis would've shown them that there was no such thing; and (III) a theoretical guess that the key variable to look at is the debt to GDP ratio rather than interest payments to GDP which I think was another major error and which they do not. But they are serious people who know what they're doing and are trying their hardest to get it right...
Yes, Hayek is a total sleaze bag :: I am only now beginning to grasp the total depravity and intellectual and moral bankruptcy of Friedrich A. von Hayek (1/4) . "Are we not even told that, since 'in the long run we are all dead', policy should be guided entirely by short… (2/4) …run considerations? I fear that these believers in the principle of apres nous le déluge may get what they have… (3/4) …bargained for sooner than they wish." Hayek must have believed no one would go read the "Tract on Monetary Reform" (4/4)
It is not unusual for economic historians to be commenting right now. Indeed, there is a sense in which nobody should be commenting right now who is not an economic historian. A couple of years ago Martin Wolf taunted Larry Summers about the uselessness of the economics profession, and Larry responded that a lot that economists had written was very useful indeed--and Larry then named three dead economic historians or perhaps historical economists, Walter Bagehot, Hyman Minsky, and Charlie Kindleberger...
Is Niall Ferguson important? Well, you journalists are the people who decide who is important, aren't you? That is your gate-keeping function. I would say that six years ago something like 80% of economists and commentators, certainly including me, shared Niall Ferguson's belief that the debt capacity of the United States government was limited and that rising debt would produce rising interest rates and rising inflation rates, and that old-fashioned Keynesian expansionary fiscal policies were of very limited utility in achieving economic prosperity. Today the 20% minority six years ago are all saying "we told you so"; We 60% in the middle are trying to figure out whether we were always wrong or whether simply the world changed in 2008 in a major way; And there are 20% dead-enders--including Niall Ferguson--who from my perspective at least continue to fail to mark their beliefs to market, in part because they think that doing so would require them to declare some form of intellectual bankruptcy.
Duncan Black:Eschaton: The Beatings Will Continue: "I'd suggest that somebody should do something about this, but the people in charge are causing it. 'PARIS — The recession across the economy of the 17 European Union countries that use the euro extended into its sixth quarter — longer than the calamitous slump that hit the region in the financial crisis of 2008-9. Eurostat, the EU’s statistics office, said Wednesday that nine of the 17 eurozone countries are in recession, with France a notable addition to the list. Overall, the euro region’s economy contracted 0.2 percent in the January-March period from the previous three months.'"
Ryan Avent:Government borrowing: Fiscal consolidation, American style: "THE Congressional Budget Office released an updated budget outlook today. Here's the big news: 'If the current laws that govern federal taxes and spending do not change, the budget deficit will shrink this year to $642 billion, the Congressional Budget Office (CBO) estimates, the smallest shortfall since 2008. Relative to the size of the economy, the deficit this year—at 4.0 percent of gross domestic product (GDP)—will be less than half as large as the shortfall in 2009, which was 10.1 percent of GDP.' The 4% of GDP deficit forecast for 2013 is even more remarkable when one notes that the figure for 2012 was 7%. That's a breathtaking pace of fiscal consolidation. CBO reckons that the deficit will continue to fall and will drop to 2.1% of GDP in 2015. Public debt as a share of the economy is also forecast to begin falling from next year…. One has to conclude that pundits and politicians alike dramatically overstated the challenge of bringing down American borrowing and stabilising American public debt. One wonders how this news will be received in London. Since 2010 (when the coalition government took charge) Britain's growth performance has diverged sharply from America's. There was supposed to be a point to that pain; for its trouble, Britain was supposed to take the fast road back to fiscal rectitude. Instead Britain is badly lagging behind America on that score as well. There has been virtually no change in public borrowing as a share of GDP in Britain from 2011; it remains at about 7.5% of GDP. A very interesting contrast."
*Congressional Budget Office:Updated Budget Projections: Fiscal Years 2013 to 2023: "If the current laws… do not change, the budget deficit will shrink this year to $642 billion… 4.0 percent of gross domestic product (GDP)—will be less than half as large as the shortfall in 2009, which was 10.1 percent of GDP… deficits in CBO’s baseline projections continue to shrink, falling to 2.1 percent of GDP by 2015…. For the 2014–2023 period, deficits in CBO’s baseline projections total $6.3 trillion… the debt is projected to decline from about 76 percent of GDP in 2014 to slightly below 71 percent in 2018."
Mark Thoma sends us to Tim Duy:What Does Japan Mean For The Rest of the World?: "Is Abenomics about boosting exports or domestic demand? I tend to agree with Lars Christensen on this issue: 'There has been a lot of focus on the fact that USD/JPY has now broken above 100 and that the slide in the yen is going to have a positive impact on Japanese exports. In fact it seems like most commentators and economists think that the easing of monetary policy we have seen in Japan is about the exchange rate and the impact on Japanese “competitiveness”. I think this focus is completely wrong.'… In my view, Abenomics has been remarkably centered on the domestic economy. The impact on the Yen is almost an afterthought, whereas in the past policymakers would have turned to intervention to directly support the economy. This looks like policymakers finally realized that such a policy approach wasn't working and they need to change gears to a frontal-assault on domestic policy levers…. Investment Week has an interview with hedge fund manager Hugh Hendry…. So what's right and what's wrong with that quote [from Hendry]? What's right is that there will be a trade impact…. What's wrong, however, is that this [trade impact] is exactly what the global economy needs…. If Germany and by extension Europe experiences weaker growth, European policymakers will need to respond… successful domestically-orientated policy in Japan will have second-round effects that will induce further policy easing Europe. And a good kick in the pants in Europe is exactly what we need right now. Rather than thinking about Japan's policy as triggering 'competitive devaluations', think of it as triggering 'coordinated global easing'. What's also wrong is Hendry's usual hedge-fund bias again monetary policy. By altering expectations to lower real interest rates, Japan's monetary policy is in a sense creating economic growth out of nothing. We frequently heard that 'uncertainty' was holding back the recovery, but isn't this the same thing as creating a recession out of nothing? If you can create a recession out of nothing, then why not an expansion?"
Paul Krugman:Which Textbook Is That, Exactly?: "Ryan Avent, like me, was favorably impressed by the Nick Crafts piece on British policy in the 1930s. I was, however, slightly puzzled, in a tooting-my-own-horn fashion, by the reference — which I missed in Crafts, but was repeated and emphasized by Avent — to the 'textbook approach' of raising inflation expectations to escape a liquidity trap. Um, which textbook is that, exactly? As far as I know, among basic textbooks only Krugman/Wells even talks about the liquidity trap; certainly we were the only one talking about it before 2008. And the whole discussion of inflation expectations and monetary policy in a liquidity trap as a sort of inverted version of the usual credibility problem — in fact, the whole revival of the liquidity trap as a modern concern — dates from this paper (pdf). This isn’t purely self-promotion (although obviously that’s part of it). I do think that one reason I’ve done pretty well in tracking this ongoing slump is that I’ve been thinking about liquidity trap issues for a very long time, years before almost anyone else." <-- IMHO, an extraordinary demonstration of Paul Krugman's complete and total intellectual victory here
I really do understand why the TypePad spam filter has reached this conclusion--I really do, and I feel its pain. But it is not the behavior I want from it. Hopefully we will have this episode of the robot revolt crushed soon…
David Warsh:“Expansionary austerity,” in bad times and good: "Now the funny thing is that the most successful episode of “expansionary austerity” to be found anywhere in recent history occurred in the United States, in the early 1990s, in the years after Bill Clinton defeated George H.W. Bush…. But all kinds of differences existed between the US economy in the early ’90s and European and US economies in 2010…. The US succeeded in staving off the budget cutters and so seems to have entered the early stages of an expansion. But Europe took the bait, and is now stumbling along…. There’s a world of difference between warning that such vulnerabilities exist and counseling quick action in hopes they will diminish. 'Expansionary austerity' is real enough. As is so often the case, it’s a matter of timing and degree."
Christina Romer:It Takes a Regime Shift: "The regime shift we are seeing in Japan is just the kind of bold action that might actually succeed in changing both inflation and growth expectations a substantial amount. As a result, it may be an effective tool for encouraging robust recovery and an end to deflation…. In the last century, there have been three times when major countries have hit the zero lower bound on safe, short-term rates: the United States in the 1930s; Japan in the 1990s and 2000s; and many advanced countries since 2008. The only true success story is the United States in the 1930s…. The fundamental feature of Roosevelt’s policy was a regime shift. This is the conclusion of an old paper by Peter Temin and Barry Wigmore, which I certainly failed to appreciate when it was published back in 1990, but which I now think is not just right, but prescient. Roosevelt’s actions were bold enough and different enough from what had been done before that people had no choice but to notice."
Kieran Healy:You Had Me at “Swedish-American Economist Ronald Coase”: "As best I can tell from the article, I think Jim Buchanan and Ronald Coase starred in The Treasure of the Sierra Madre, which was financed from the profits made by The Communist Manifesto, a tract written by Gary Becker and funded by the U.S. Department of Defense in the 1940s." #GraeberErrors #LARBErrors
Ryan McCarthy:Counterparties: Well Fed critics: Bernanke’s speech comes on the heels of this year’s Ira Sohn conference in New York, where, as Joe Weisenthal and Reuters both noted, one of the major themes among hedge fund bigwigs was “Bernanke hate”…. Why all the anti-Bernanke comments and talk of Fed-induced bubbles?… Paul Krugman thinks the Fed bashing may be just be self-interest — hedge fund managers are paid as a percentage of their overall profits, and the industry certainly has been terrible in that regard of late. Weisenthal says “anti-inflation is kind of a nostalgia trip” for old American hedge fund managers stuck in the mentality of the 1980s. Pawel Morski looks at lending, the shadow banking sector and the bond market and sees little evidence that the Fed is pushing the financial sector into anything resembling pre-crisis behavior."
Ryan Avent:Bubbles: Stability through instability: "THIS spring, the economics commentariat is discussing the relationship between monetary policy and financial stability…. Jeremy Stein, a new addition to the Federal Reserve Board of Governors, has been making speeches that provide an intellectual skeleton to which the more gut-driven critics of excess can cling…. Easy monetary policy, and especially unconventional policy that lowers rates all along the yield curve, generates a sort of unnatural pressure for financial risk-taking. Regulatory tools may be able to rein in some of that excess, but the only way to make sure you've gotten all the bubbles that might be hiding in the cracks is to raise interest rates. Tighter monetary policy might have a cost, but if it prevents financial excess it may avoid even greater costs…. First, within the argument to tighten policy in order to prevent big economic losses there are several logical links that look pretty weak…. You would first wish to establish that there is a financial bubble…. Next, it should be established that anything needs to be done about the bubble. Third, and this is a big one, it should be established that regulatory policy is unable to bring credit indicators back to desired levels…. Ny second comment follows from the first. A bubble is a surge in prices that comes to an end. But we must, must remember that a good way to bring a bubble to an end is to disemploy people and cause their incomes to grow more slowly than they had anticipated…. I see… a central bank that worries about financial excess but is uncomfortable using regulatory tools to address it…. And I see, second, a central bank tendancy to: 1) reduce nominal output growth to rein in asset-price increases, 2) fail to return nominal output back to trend out, for reasons of inflation-aversion or something else, and 3) use the financial mess that results from tight policy as proof that there was a bubble that needed popping."
Jonathan Chait:The Facts Are In and Paul Ryan Is Wrong: "Two such developments have come together recently…. The first is the collapse of intellectual support for the notion that immediate austerity can boost economic growth. The second is a growing consensus that health-care-cost inflation is slowing for deep structural reasons, rather than having undergone a mere temporary dip from the recession…. They blow to smithereens the intellectual foundations of the Obama-era Republican policy agenda…. It is of course unfair to judge the merits of an analysis solely by the rhetoric of its politicians…. The deeper expression of the Ryan worldview comes from Yuval Levin…. This conflation of short- and medium-term problems — of annual deficits with retirement liabilities, of sluggish growth with the burden of debt, of the Obama agenda with the broader social-democratic project — is in one sense an error, of course…. [But] this became the basis for the Republican view that deficit reduction could not be delayed and must be undertaken immediately, and that radical new tactics, like threatening financial chaos through defaulting on the debt, were a justified response to an emergency that did not lay over the horizon but was already upon us…. At first, the sharp slowdown in health-care costs was assumed to have happened because the recession is making people cut back on their medical care. Levin has clung stubbornly to this interpretation. But as the trend has persisted, and undergone deeper study, a consensus is emerging that this is not the case at all."
Tim Duy:Rising Structural Unemployment?: "Circles don't get more vicious than this. The people who need work the most can't even get an interview, let alone a job. It's a cycle that could end with the long-term unemployed becoming unemployable. It's what economists call hysteresis, the idea being that a slump, left untreated, can make us permanently poorer by reducing our future ability to do and make things…. One would think that a low hires/openings ratio suggests that wage growth would be accelerating (as employers appear to face a relative shortage of workers), but that is not the case…. How does this fit with the long-term unemployed story above? Perhaps that although firms have a bias against the long-term unemployed, those potential workers still place downward pressure on wages. The newly employed don't require higher wages despite demand for their skills because they know there is a large pool of people available with similar skills…. This also explains the low quits rate. The consequences of becoming long-term unemployed are particularly severe, raising the expected cost of voluntarily leaving a job."
Matthew Zeitlin:Does the Sohn Conference Make Hedge-Fund Geniuses Stupid?: "Yesterday, big-name investors, their fans and journalists (the latter two categories are not mutually exclusive) gathered at the Ira Sohn Conference in New York to hear some of the best ideas of the hedge-fund illuminati…. Bass yesterday gave yet another version of his 'Japan is doomed' thesis. He said the 'the beginning of the end has begun' and that inflation and skyrocketing debt costs will drive Japan into something like insolvency sometime in the next three years, causing the value of Japanese government bonds to plummet. He’s been making this pitch since late 2011, and since then yields on Japanese bonds have gone down -- 25 basis points on 10-year debt in the last 12 months -- despite a debt-to-gross-domestic-product ratio around 230 percent. There’s a reason going short Japanese debt is called the 'widow-maker'."
Matthew Yglesias (2005): The Lies, The Lies, Andrew Sullivan's Lies: "As we know, and as this letter writer to his site reminds us, Andrew Sullivan has been a pretty consistent proponent of the view that Paul Krugman is some sort of liar. At issue, are Krugman's repeated insistences that George W. Bush's economic policy is founded on a tissue of lies. Krugman is, of course, entirely correct about this. The unnoted irony here is that in his May 14, 2001 column 'Downsize', Sullivan conceded Krugman's point."
Mark Thoma sends us to Fernando Duarte and Carlo Rosa:Are Stocks Cheap? A Review of the Evidence: "[M]odels predict that we will enjoy historically high excess returns for the S&P 500 for the next five years…. [W]e analyze twenty-nine of the most popular and widely used models to compute the equity risk premium over the last fifty years. They include surveys, dividend-discount models, cross-sectional regressions, and time-series regressions, which together use more than thirty different variables as predictors, ranging from price-dividend ratios to inflation. Our calculations rely on real-time information to avoid any look-ahead bias…. The value of 5.4 percent for December 2012 is about as high as it’s ever been. The previous two peaks correspond to November 1974 and January 2009. Those were dicey times. By the end of 1974, we had just experienced the collapse of the Bretton Woods system and had a terrible case of stagflation. January 2009 is fresher in our memory. Following the collapse of Lehman Brothers and the upheaval in financial markets, the economy had just shed almost 600,000 jobs in one month and was in its deepest recession since the 1930s. It is difficult to argue that we’re living in rosy times, but we are surely in better shape now than then."
I think what I would say is that if there were no safe-asset shortage the current low level of economic activity would not be self-sustaining--that if there were no safe-asset shortage, at current interest rates people would be dumping safe assets and funding risky investments and buying currently-produced goods and services and we would be heading for a boom. And I would point to the enormous spread between real Treasury yields on the one hand and equity earnings yields on the other. Perhaps you would be happier if I said that, once you are in a depressed economy like this one, depression will continue until and unless you have a surplus of safe assets to kick the economy out of its low-level equilibrium?
Alas! I do not know enough about the genealogy of Niall Ferguson's--repeatedly expressed over the past several decades--idea that Keynes's theories sprang not from an analysis of the economy but from the psychological imperatives of being a gay childless deviant pervert comes from. There was an oral tradition at Harvard that Schumpeter hated Keynes for many reasons, of which his bisexuality was one, and people did used to shake their heads at the low-class Schumpeter showed in the obituary… And there was a great deal of fuss about how it was unfair for neocons to be attacking Keynes while praising Allan Bloom to the skies as a low blow--that even if you bought the neocon "Victorian morals and religion are good things for gentlemen and hoi polloi to have", Keynes was certainly a philosopher…. But I don't know any more, other than that since the Schumpeter Keynes obit "Keynes was a perv and his theory is perverted and decadent and his followers are pervs too" coupled with a strikingly false misconstrual of the "in the long run we are all dead" quote has been a thing to say on the right for 67 years now: Hayek, Himmelfarb, . Ferguson and others have made it a thing to tiptoe up to this line for decades. He is now trying to cope with the fact that the world has changed--much in the same way that William F. Buckley had to cope with his discovery that apologizing for domestic terrorism--saying southern whites could defend segregation "by any means they found appropriate"--was not the wisest thing, given the circles in which he wished to move.
Mike Konczal:What Would the "Financial Instability" Argument Look Like For Any Other Industry?: "It’s becoming a surprisingly influential argument given that it hasn’t been well presented or argued, much less vetted and challenged. What is it? The argument that we should raise interest rates or otherwise contract monetary policy in order to preserve 'financial stability'…. Let’s be clear on the terms: should we risk another immediate recession ('lower employment and prices') to preserve a thing called 'financial stability'?… Now if I told you we should keep the economy in a permanent recession because senior managers at insurance companies aren’t good at their basic job of monitoring mid-level portfolio managers you’d probably think I was crazy. And I would be…. If we need to make the financial system less complex and prone to abusive practices, requiring parties of a derivatives contract to hold a stake in the underlying asset would do a lot. Are we worried about contagion? In that case, force banks to hold more capital as well as convertible instruments. About bad debts holding back the economy? Then reform the bankruptcy code, dropping the 2005 'reforms'. Some people are demanding more jail sentences, not only for the benefit of the public but for boards and shareholders who can’t keep their workers in line…. It’s hard not to read the financial stability arguments as saying 'look, we can’t trust the financial sector to accomplish its most basic goals'. If true, that’s a very significant problem that should cause everyone a lot of concern. It should make us ask why we even have a financial system if we can’t expect it to function, or function only by putting the entire economy at risk."
Matthew C. Klein:In the Long Run, Niall Ferguson, Keynes Was Right: "It's intellectually immature to critique an idea by going after the person who came up with it, rather than the logic of the idea itself. That didn't stop Niall Ferguson, a distinguished Harvard historian, from implying that Keynesian economics could be explained by Keynes's homosexuality and lack of children…. Regrettably, Ferguson isn't the only person to suggest that Keynes's analysis should be discounted because of his personal qualities. In 2008, N. Gregory Mankiw, the chairman of the Harvard economics department (and a senior adviser to President George W. Bush and Mitt Romney), wrote that 'passing a larger national debt to the next generation may look attractive to those without children' before going on to note that 'Keynes himself was childless'. First off, it's important to note that both Mankiw and Ferguson misrepresent what Keynes actually meant when he said that 'in the long run we are all dead'…"
Gertrude Himmelfarb (1960): On John Buchan: "The familiar racist sentiments of Buchan, Kipling, even Conrad, were a reflection of a common attitude. They were descriptive, not prescriptive; not an incitement to novel political action, but an attempt to express differences of culture and colour in terms that had been unquestioned for generations. To-day, when differences of race have attained the status of problems--and tragic problems--writers with the best of motives and finest of sensibilities must often take refuge in evasion and subterfuge. Neutral, scientific words replace the old charged ones, and then, because even the neutral ones--"Negro" in place of "nigger"--give offense, in testifying to differences that mn of goodwill would prefer forgotten, disingenuous euphemisms are invented--"non-white" in place of "Negro". It is at this stage that one may find a virtue of sorts in Buchan: the virtue of candor, which has both an aesthetic and an ethical appeal." <--What a loathsome troll! "To-day [i.e., 1960], when differences of race have attained the status of problems--and tragic problems" indeed!
Matthew O'Brien:This Is the Biggest Mistake Conservatives Make About Keynes: "Here's some completely irrelevant information. John Maynard Keynes was bisexual and never had any children. His wife Lydia suffered a miscarriage in 1927…. Speaking at an investing conference for individuals with at least $2 million in liquid assets, Harvard historian Niall Ferguson said Keynes was wrong because he was too short-termist, and he was short-termist because he was gay and childless. You read that right…. To his discredit, this is far from the first time he has imputed Keynes' policy views to Keynes' sexuality. For one, Cambridge professor Michael Kitson recalls hearing Ferguson make the same argument in a seminar 20 years ago. For another, Ferguson suggested in his book The Pity of War that Keynes may have opposed the Versailles Treaty, not because it was a short-sighted disaster, as Keynes argued, but rather because he had a crush on the German negotiator (a claim Ferguson made in even stronger terms before). But, of course, as Jonah Goldberg of National Review points out in a majestically thick-headed piece, this conservative obsession with Keynes' bedroom partners is hardly new: It's an attack that's been around since Joseph Schumpeter first made it in the 1940s. And it's as illiterate as it is bigoted."
Bloix: "Modern fertilizer is not guano. It's synthesized from natural gas, using the Haber-Bosch method of nitrogen fixation discovered by Fritz Haber in 1909 and developed into an industrial-scale process by Carl Bosch of BASF in 1913.The Haber-Bosch process and the internal combustion engine (the first commercially viable tractors were built in 1902) are the two developments that ended the iron grip of Malthus. IMHO, BTW, the Haber-Bosch process is the most important scientific development of the twentieth century - more important than flight, the splitting of the atom, radio/TV, or computing. Without Haber-Bosch, long wars like WWI and WWII would have been impossible - the same nitrogen fixation that makes fertilizer also makes TNT. And without it, the fate of most children in the world would still be, as it had been from time immemorial, death from disease brought on by malnutrition."
Owen Zidar:Labs of Democracy & Today’s Fiscal Policy Debates: "Economists have increasingly been using regions within the United States as labs of democracy.... UNCERTAINTY: In a study published this month, Atif Mian of Princeton and Amir Sufi of the University of Chicago pointed out that if uncertainty about prospective government regulation and taxes is the primary reason for the sluggish recovery, then states where policy uncertainty is high should tend to have lower job growth. Using state-level data from National Federation of Independent Businesses, however, they found almost no relationship between job growth and the share of small businesses that cite regulation and taxes as their top concern.... FISCAL RELIEF: Gabe Chodorow-Reich of the University of California, Berkeley, and three colleagues used similar methods to investigate whether fiscal relief during the Great Recession increased employment... focused fiscal relief during hard times can effectively stimulate employment.... SPENDING CUTS VS. TAX INCREASES: Many Republicans say that spending cuts from the sequester would have a less damaging effect on the economy than increasing taxes on upper-income earners. But some of my own recent research uses regional variation to show that this belief is at odds with the evidence. I find that modestly sized tax increases on upper-income taxpayers have a negligible to small impact on job creation. These magnitudes are much smaller than those of cutting government spending in hard times, which suggests that using modest upper-income tax increases to offset some required spending cuts would help cushion the impact of the sequester on the labor market."
I see you submitted a comment… It contains three things that are wrong.
You mischaracterize the liquidity trap argument by claiming "Krugman's 'lliquidity trap' means the Fed is completely useless. It can't stimulate demand and it can't raise inflation either." A liquidity trap means that if monetary policy works, it works not through the safe-and-sure channel of reducing short-term safe nominal interest rates but by changing borrowers' assessments of the future by either raising expected inflation or reducing risk spreads by taking risk off of the private sector. That's strike one.
Kevin O’Rourke:The Irish Economy: Three things all serious people know are true: "A holy trinity — or perhaps a troika? — of beliefs has guided policy since 2010. These are that austerity is expansionary; that the sky will fall in if ever the debt to GDP ratio exceeds 90%; and that the way to do austerity is to cut expenditure rather than raise taxes. All of which is very convenient if what you really want to do is shrink the state. We know how well the first two nostrums have performed when confronted with empirical evidence, so you might think that people would be just a wee bit cautious about stating the third as gospel truth. But no, here is Mario Draghi: 'First, fiscal consolidation should be based on reductions in current expenditure rather than increases in taxes. Unfortunately, many of the fiscal consolidation measures were implemented in an emergency situation, with most governments choosing the simplest route, which was to raise taxes. And here we are talking about raising taxes in an area of the world where taxes are already very high, so it is no wonder that this had a contractionary effect'…. The ECB is constantly telling us that it has a narrowly restricted mandate, with its primary concern being inflation. In that case, then surely the least that we are entitled to expect is that it keeps its views about the composition of fiscal adjustments to itself?"
Jeffrey Frankel:Nominal GDP Targeting is Left, Right?: "The recent surge in interest in Nominal GDP Targeting, as an alternative to money targeting or inflation targeting if the central bank is to commit to a nominal target of some sort, has prompted some pushback. This is not surprising. But one of the responses is most peculiar. This is the allegation (1) that the surge comes from liberals opportunistically adopting an idea that was originally proposed by conservatives, and (2) that they will not stick with this 'fad' in the longer run because it is only designed to fit current circumstances of high unemployment and low output. Remarkably, every component of this argument is wrong. I have in mind, especially, the views of Benn Steil and Dinah Walker of the Council on Foreign Relations…. Let’s consider the analytics first, and hold off awhile on the less edifying political labels. The nominal GDP proposal was originally studied and supported by many prominent economists in the 1980s…. Originally, the leading competitor for the role of monetary anchor was money supply targeting (monetarism). This was the regime that was adopted in the early 1980s by the central banks of the largest economies. But they were forced to abandon it…. Later on, the leading competitor became Inflation Targeting; but it too ran into difficulties in the 2000s. The general argument for nominal GDP throughout has been that it is robust to a variety of shocks, positive and negative. It dominates money targeting in that it is robust with respect to velocity shocks. It dominates inflation targeting in that it is robust to supply shocks."
Josh Bivens and Andrew Fieldhouse:Winning the intellectual debate on austerity while losing the policy debate: "The intellectual foundations for austerity have always been fragile…. The most useful political correction that could follow this wider recognition of the extraordinary dangers of premature austerity would be a cessation of the ten-year deficit targets that have polluted the policy debate in recent years…. Stabilizing the debt ratio when the economy is at or near full-employment is a perfectly sensible rule, but one that is irrelevant to today’s economic debate: the economy remains deeply depressed more than five years after the onset of the Great Recession…. When austerity reduces economic output, two channels actually exert upward pressure on the debt ratio: a shrinking denominator (GDP) and increasing cyclical pressure on budget deficits (lower tax receipts and increased automatic stabilizer spending, e.g. unemployment insurance). When the economy is as extraordinarily weak as it is today, these effects can offset or even swamp the reduction in deficits driven directly by policy savings, leading to a rise in the debt ratio following austerity measures. Holland and Portes (2012) have concluded that European austerity has indeed raised debt ratios over 2011-2013…. After avoiding aggressive European-style austerity while its policy merits were being debated among academics in 2010-2011, U.S. fiscal policy is now on auto-pilot to follow Europe down the austerity rabbit hole. Perversely, this course has been set after the intellectual case for austerity, always weak (pdf), has reached its nadir."
In the inbox: What's really upsetting me right now is the New York Times Friedman Forum. $1000 so you can listen to Tom Friedman blather about what his taxi drivers tell him? And they are holding it in San Francisco? "Thomas L. Friedman argues that while we were focused on post-9/11 and the subprime crisis/recession, something very big happened: we have built a whole new infrastructure for the world—an electronic, digital, mobile plumbing system that is the real lasting story of the moment. In this one-day conference, Mr. Friedman and his speakers and panelists will spend the morning session describing and analyzing “What World Are You Living In?” In the afternoon session, Mr. Friedman and David Carr will interview a number of leading tech C.E.O.s who are doing business in this new world. Throughout the day, the 400 invited guests—themselves drawn from the C-suite, from banking and V.C., from government and think tanks—will come to understand the particular dynamics (social, technological, political, psychological) of a world that we are all being forced to respond to but which few of us fully grasp." It takes a very special person to write the phrase "real lasting story of the moment" and not instantly realize he has descended into self-parody...
Matthew Yglesias:Can Social Democracy Explain Its Own Success?: "With The Primacy of Politics Sherri Berman has given us a magnificent intellectual history of the debates within the left in the first half of the twentieth century that led to the rise of ideologies—social democracy and fascism—that rejected the economic determinism of Marx and Engels in favor of political activism aimed at curtailing, rather than eliminating, free markets. What she hasn’t given us, I’m afraid, is an especially convincing causal story that the unfolding of these debates really was the key to the establishment of the distinctive post-war social, political, and economic settlement in Europe. Most broadly speaking, it seems fairly clear that post-war developments in Europe were, fairly literally, responses to the fact of the war and the war’s apparent origins in the economic crises of the interwar period…. Socialist gradualism actually seems to have triumphed rather suddenly. The reformers whose story Berman tells had, for reasons she outlines, very little influence on pre-war policies. With the war over, however, the policy environment shifted extremely rapidly; advancing far enough in a short enough time, in fact, that all of Europe still bears distinctive signs of the social democratic movement even though the tide, as Berman argues, has been in reverse for some time now. How could things change so quickly? And why would they change so rapidly specifically during the postwar period?… Berman seems to badly neglect the existence of divisions within the liberal camp that proved crucial as well…. To complain that Berman wrote a book about right-wing socialists when she should have written one about left-wing liberals would be churlish. Rather than do that, let me simply suggest that the timing of the post-war settlement (after the war, obviously) suggests that movement within the liberal camp may have been more causally decisive than arguments inside the socialist movement…. What the Depression, the war, and the dawning of the Cold War did bolster was the left-hand side of the argument within liberalism. Unmitigated capitalism seemed to risk not only a large dose of human suffering, but the total collapse of the liberal political order and, potentially, the triumph of Soviet Communism. Under the circumstances, a rapprochement with moderate elements within socialism starts to look rather more appealing than it would have previously. In turn, a growing sense among capitalists that capitalism needed to be compromised in order to be saved is precisely the sort of thing that could lay the groundwork for rapid movement toward social reform."
Evan Soltas:After Austerity: "The high tide for Keynesian fiscal stimulus came in 2008 and 2009. Panicked governments spent, spent and spent to stem the financial crisis and avoid a depression. But as economies stabilized in 2010 and 2011, governments began to worry about public debt. Enter the austerians…. Now, though, the intellectual case for austerity is on its way out -- at least in its vulgar form of immediate cuts to public spending and sharp increases in taxes. Part of the change comes from the implosion of a central claim in an academic paper by Harvard economists Carmen Reinhart and Kenneth Rogoff…. Other high-profile arguments for austerity -- such as recent papers by Alberto Alesina and Silvia Ardagna, and by David Greenlaw and three others -- have also been criticized. The case for austerity is coming apart for another and more important reason: The results are in, and they're terrible, especially where central banks have failed to offset the fiscal cuts with monetary easing…. What comes next, however, isn’t clear. Don't expect a clean break. Some austerity is already locked in… fiscal policy could move in any of several directions…. Here's another possibility: Attention might turn back to monetary policy. That would make sense, because the evidence suggests that central banks have mattered much more than treasuries in influencing the depth of the recession and the pace of recovery. If aggregate demand is the problem -- and in the U.S., Europe and Japan, there's every sign of it -- then one solution is to adopt a monetary-policy rule that returns nominal income to its pre-recession growth path. That's something Congress could tell the Federal Reserve to do -- revising the mandate it laid down in 1978. Japan is already talking monetary policy. Europe will be forced to soon."
At last night's Kansas State's debate, I said that Alan Reynolds had been warning of an outbreak of inflation from Bernanke's monetary policies for 3.5 years now, and it had not happened. "Not me", he said. "You must be thinking of some other guy."
Gerald Silverberg:Meltdown Economics & Other Complex Catastrophes: Reinhart-Rogoff vs. New Zealand 1951 Topsy-Turvy (historical-statistical nitty-gritty and postmodernist nightmare): I've calculated New Zealand real GDP growth rates for the period 1946-1951 based on three data series available from Statistics New Zealand…. None of these series corresponds to the data employed by Reinhart and Rogoff, although the Maddison data comes closest. Moreover, the three series are wildly inconsistent…. If RR had used the Statistics NZ value of +15,60% for 1951 instead of the -7.6% one they did use, they would have obtained the exact opposite conclusion - that countries with debt ratios over 90% had significantly higher growth rates than lower indebted countries! That is the danger one runs by basing such a far-reaching conclusion on just one observation of the most minor country in the database. In any event, the gyrations in NZ's postwar growth experience had nothing whatsoever to do with its indebtedness but were rather driven by unprecedented industrial disputes and the Korean War wool export boom. Now some nitty-gritty on the 1951 NZ waterfront lockout/strike: (1) The waterfront dispute did not entirely close the ports. (2) After locking out the waterside union workers, the government declared a state of emergency and used military troops to reestablish some measure of port activity (as well as in the coal mines). (3) While it was the longest NZ industrial dispute, it was not the most violent one. That was the Great Strike of 1913. (4) Support strikes were staged by coal miners, railroad and hydroelectric workers, frozen meat processors and in other sectors amounting to some 22,000 workers during much of the 151 day dispute. The government ultimately achieved its primary goal in provoking the dispute - the destruction of the waterside union, which had separated from the main labor federation, by branding them communists and blacklisting their leadership and activists."
Aaron Carroll:The best ad for health services research in some time: "Ezra Klein has a longform piece out on a care model in Pennsylvania, not too far from where I grew up, that is using nurses to manage Medicare patients better. There’s no new science. There’s no new medicine. It’s health services work – reorganizing the way we care for patients – and it’s making a huge difference in terms of quality and costs. Medicare is about to shut it down. Here’s why: 'Brenner puts it more vividly. “There is a bias in medicine against talking to people and for cutting, scanning and chopping into them. If this was a pill or or a machine with these results it would be front-page news in the Wall Street Journal. If we could get these results for your grandmother, you’d say, ‘Of course I want that.’ But then you’d say, what are the risks? Does she need to have chemotherapy? Does she need to be put in a scanner? Is it a surgery? And you’d say, no, you just have to have a nurse come visit her every week.”' That’s the problem with health services research in a nutshell. When I tell people that we get results from talking to people, from getting the pieces of the system better coordinated, by advising physicians better, just by improving communication – then their eyes glaze over. They don’t see it as 'real' research, or 'real' care. It’s soft. But it works."
Mervyn King (June 16, 2010): Monetary Policy Developments: "Monetary policy must be set in the light of the fiscal tightening over the coming years, the continuing fragility in financial markets and the state of the banking system. I know there are those who worry that too rapid a fiscal consolidation will endanger recovery. But the steady reduction in the very large structural deficit over a period of a parliament cannot credibly be postponed indefinitely. If prospects for growth were to weaken, the outlook for inflation would probably be lower and monetary policy could then respond. I do, therefore, Chancellor [Osborne], welcome your commitment to put the UK’s public finances on a sound footing. It is important that, in the medium term, national debt as a proportion of GDP returns to a declining path."
Mike Konczal:The great economic experiment of 2013: Ben Bernanke vs. austerity: "We rarely get to see a major, nationwide economic experiment at work, but so far 2013 has been one of those experiments — specifically, an experiment to try and do exactly what Beckworth and Ponnuru proposed. If you look at macroeconomic policy since last fall, there have been two big moves. The Federal Reserve has committed to much bolder action in adopting the Evans Rule and QE3. At the same time, the country has entered a period of fiscal austerity. Was the Fed action enough to offset the contraction? It’s still very early, and economists will probably debate this for a generation, but, especially after the stagnating GDP report yesterday, it looks as though fiscal policy is the winner…. [T]here is still more the Federal Reserve could do to try and balance out austerity in 2013, but those moves would require a big change from current policy. Minor tweaking is unlikely to help. Joseph Gagnon of the Peterson Institute for International Economics suggests that, instead of committing to mortgage purchases, the Fed could target the mortgage rate for a time. Other economists, such as Brad DeLong, suggest that an explicit higher inflation target would be important. Still others, ranging from Christina Romer to market monetarists, think the Fed should explicitly target a nominal GDP. Given that the Fed appears to be having trouble getting these new policies to move inflation expectations or interest rates, a dramatic change may be harder than originally thought."
Paul Krugman:The Medium Term Is Not The Message: Ezra Klein tries to broker peace: 'The more modest differences between the various participants in the broader austerity debate are covering up a real area of consensus: We could, and should, do more now, and we could, and should, couple that with policies that reduce deficits in the medium and, more to the point, long term…. There’s no serious economic model in which $400 billion in stimulus spending — plus some principal reduction — over the next two years would destabilize the bond markets if it was coupled with $4 trillion in deficit reduction over the next 12 years. Reinhart and Rogoff could have been doing much more to call out the inanity of this position, which has blocked both more short-term support for the economy and more long-term deficit reduction. That, for them, should be a lesson of this debacle: They got in bed with politicians whose policy agenda had little to do with their actual research, and so now they’re being blamed for that policy agenda.'… Look, we are not going to have a deal that trades short-term stimulus for medium-term deficit reduction. Na ga ha pen…. [S]aying that you would oppose austerity if politicians simultaneously did something they aren’t going to do is, de facto, support for austerity. The reality is that as an economist, you’re either trying to calm deficit hysteria or you’re helping to ratchet it up. And R-R were clearly helping to ratchet up the fear…. This is, I’d say, part of a broader point: the responsibility of public intellectuals in general goes beyond talking about the ideal… you need to make it clear where you stand on the actual decisions being made, as opposed to merely stating what we should do but won’t."
Simon Wren Lewis (2012): Real and Fake Microfoundations: "Is intertemporal optimisation at the heart of modern macro, as I wrote here, or is it a gadget like the Dixit-Stiglitz model of monopolistic competition, as Paul Krugman suggests here? Well, I think I was right to characterise modern macro this way, but I also agree with what I believe Professor Krugman was saying in his post…. Professor Krugman did not get a Nobel for clever use of the Dixit-Stiglitz model of monopolistic competition, but for investigating the role of increasing returns and imperfect competition on trade and economic geography. So why characterise, as I did, modern macro by a tool it uses (i.e. intertemporal optimisation), rather than by what it is trying to achieve with that tool?… [T]rying to understand… did not start with the New Classical economists. What did begin in a major way around then was the microfoundation of macroeconomics…. But I think Professor Krugman is pointing to a danger that results from this. He writes 'a gadget is only a gadget, and you should not let it define your field'. If we define something by the tool or methods we use, we may start taking those tools too seriously…. Going back to macro, I’ve sometimes heard it said by someone that they are not sure how important price rigidity is, because they do not find any of the models of price rigidity convincing. This is letting theory define reality. If that is Professor Krugman’s point, then I agree with it. It is very similar to the argument I have been making about the need to be pragmatic about microfoundations…. [Y]ou should (a) look for a better microfounded model that does allow price rigidity, but also (b) discount the microfounded models you currently have because they are clearly incomplete/wrong…. [J]ust when microeconomics is getting rather more relaxed about its axioms as a result of behavioural economics in particular, the hegemony of microfoundations in macro is at its height."
Jared Benstein: The US Gov’t as Venture Capitalist: Why Go There?: "Why should the USG provide venture capital? And if there’s a rationale, how much should they do, and on what terms? What is an acceptable failure rate? Is it zero, as Kudlow et al would argue? The question of should the government backstop investments in new areas of research is actually an odd one, because it’s been doing so since before we were even a nation (the provisional government subsidized machine tools for weaponry to fight the British—in fact, much of what followed grew out of defense spending). As I stressed on the Kudlow show, you simply cannot find an economically transformative innovation, from railroads to transistors to lasers to fracking to the internet, GPS, nanotech, and so on, that doesn’t have a government fingerprint on it somewhere."
Carmen M. Reinhart and Kenneth S. Rogoff (2011): Too Much Debt Means the Economy Can’t Grow: "As public debt in advanced countries reaches levels not seen since the end of World War II, there is considerable debate about the urgency of taming deficits with the aim of stabilizing and ultimately reducing debt as a percentage of gross domestic product…. [C]urrent debt trajectories are a risk to long-term growth and stability, with many advanced economies already reaching or exceeding the important marker of 90 percent of GDP. Nevertheless, many prominent public intellectuals continue to argue that debt phobia is wildly overblown. Countries such as the U.S., Japan and the U.K. aren’t like Greece, nor does the market treat them as such…. Those who would point to low servicing costs should remember that market interest rates can change like the weather. Debt levels, by contrast, can’t be brought down quickly…. The biggest risk is that debt will accumulate until the overhang weighs on growth…. [B]urdens above 90 percent are associated with 1 percent lower median growth…. [H]istorical experience and early examination of new data suggest the need to be cautious about surrendering to “this-time-is-different” syndrome and decreeing that surging government debt isn’t as significant a problem in the present as it was in the past."
Why start with IS-LM? Because IS-LM is the simplest possible monetary model of the economy. The quantity theory is not a complete model--you need to know the interest rate i to calculate velocity V. And whatever you add to the quantity theory to determine i becomes your IS curve...
Consider Abba Lerner's (1943) "Functional Finance": It requires a healthy constant-monetary-and-financial-conditions multiplier (so that activist fiscal policy can move the IS curve left or right) that is relatively steeply sloped (so that what the interest rate is is not of first-order importance in determining the spending on currently-produced goods and services). It requires that debt issue and money-printing do little to shift the IS curve back via raising expected future taxes and little to raise spreads by increasing perceived financial risks. It requires that the mix of money and debt have little effect on inflation expectations. If all of these are true, then Abba Lerner's (1943) conclusions that fiscal policy should be used to close any deflationary or inflationary gap to maintain full employment and monetary policy should be used to ensure that interest rates are low enough that the debt is not a burden are cogent and correct. If not, not.
"Jeet Heer: The thing with [Michael] Kelly was not just that he was 'wrong about Iraq', but he was belligerently, willfully, wrathfully and stupidly wrong. The blinkered rage Kelly brought to the debate makes it harder to forgive him than someone who just made a simple & honest miscalculation."
I was watching @TheStalwart sitting next to and watching @ezraklein at the conference. Joe's jaw dropped--like Toshiro Mifune watching Takashi Shimura in "Shichinin no Samurai"
Game of Thrones: "@attackerman: Barristan Selmy: Return of the Jedi." 12 min of Dragons, 0 min of Ice Zombies, 48 min of Veal Calves not a good balance
"Top Conservative Cat: Ron Portman announces he opposes gay marriage again: 'Turns out my son was only pretending to be gay to break up with girlfriend.'"
"Christopher Mims: How robots are eating the last of the routine cognitive jobs http://qz.com/67323/how-the-internet-made-us-poor/ …" Including the job of internet troll!
Obama takes $700 billion that was going to be wasted on inefficient and ineffective parts of Medicare--waste and abuse, in short--and spends it on (i) pharmaceuticals for seniors and (ii) better coverage for everyone. Ryan took the same $700 billion and spent it on tax cuts for the rich. Now Ryan says--once again--he wants to give it back to the insurance companies.
@TheStalwart. Perhaps most characteristic of @davidgraeber is http://www.webcitation.org/65KpxkaVf, where he says those who want Occupy to be peaceful are actually the ones who are violent. War Is Peace! Freedom Is Slavery! Ignorance Is Strength! #GraeberErrors
"marcsobel @marcsobel: @delong claims he invented Sub-Turing Evocation, not knowing Free Republic's a news aggregator and 2^20 twitter bots http://bit.ly/1791KdU"
@PykeA @jbouie Are you saying that the Cilizza piece wreaks wrongness, or that it reeks of wrongness?
"Kevin T. Keith @KTKeith: @billmon1 @delong More importantly, we didn't openly endorse torture till Bush. Now we've made it our signature, not aberration."
Barbara Bush:On Jeb Bush in 2016: ‘We’ve had enough Bushes’: "He's by far the best qualified man, but no. I really don't [think Jeb Bush will make a White House bid.] I think it's a great country. There are a lot of great families, and it's not just four families or whatever. There are other people out there that are very qualified and we've had enough Bushes…. He’s the most qualified but I don't think he'll run. There are other families. He'll get all our enemies, half of our friends."
Henry Blodget:It's Official: Paul Krugman Is Right: "The Economic Argument Is Over — Paul Krugman Has Won: For the past five years, a fierce war of words and policies has been fought in America and other economically challenged countries around the world. On one side were economists and politicians who wanted to increase government spending to offset weakness in the private sector…. On the other side were economists and politicians who wanted to cut spending to reduce deficits and 'restore confidence'…. This debate has not just been academic. Those in favor of economic stimulus won a brief victory in the depths of the financial crisis, with countries like the U.S…. Over the course of this debate, evidence has gradually piled up that, however well-intentioned they might be, the 'Austerians' were wrong…. The argument is over. Paul Krugman has won. The only question now is whether the folks who have been arguing that we have no choice but to cut government spending while the economy is still weak will be big enough to admit that."
Greg Sargent:On guns, Dems hold the sensible middle ground: "Fox News poll: During a manhunt, 69 percent of voters want a gun
This is generating a bit of excitement on Twitter. But here’s what this Fox News poll also finds: Would you be more likely or less likely to support a political candidate who voted IN FAVOR OF expanding background checks on gun buyers? More likely: 68. Less likely: 20. And: Would you be more likely or less likely to support a political candidate who voted AGAINST expanding background checks on gun buyers? More likely: 23. Less likely: 61…. Clearly, the liberal media conspiracy to manufacture false impressions of overwhelming public support for Obama’s gun-grabbing policies has spread to Fox News."
Panel discussion – Economic and Financial Weblogging and Standard Ivy-Covered Academia (Speaker: Mark Thoma; Discussant Stephanie Kelton; Moderator: Bob Strom)
Juan Cole:Report: Highest US Officials Responsible for Use of Torture: "The political reality of the United States in the world is that of blowback…. The US spent the 1980s encouraging Muslim radicals to engage in ‘freedom fighting’ against the leftist government of Afghanistan, and that policy certainly is implicated in the creation of al-Qaeda. We have been suffering with lack of security ever since. And what would have happened if Washington had just left the Communist government in place? Wouldn’t it have gone the same way as the former Communist regime of Tajikistan or Kyrgyzstan? Which of you feels threatened by those former Soviet Socialist Republics?The policy of deliberate deployment of torture by US officials, in Guantanamo, Abu Ghraib (Iraq) and Bagram (Afghanistan), as well as black sites in Poland and elsewhere, during the past decade, has spawned a whole new wave of blowback. The US is not responsible for terrorism against it, and the terrorists are horrible human beings. But let’s just say that a more responsible US foreign policy would make less trouble for the rest of us."
Cosma Shalizi:Ken MacLeod, The Cassini Division: "Damn that's good. Ahem. That's not how I meant to begin this. I wanted to say that The Cassini Division is a marvelously intelligent, gripping and lightning-fast book, a witty wide-screen blitzkrieg of an anarcho-communist hard-science space opera with brains to spare. Which it is. And that there are some Deep Issues in politics and ethics here, like the Singularity ("the Rapture for nerds"), post-humanity, conflicts between intelligent species, and how to run a socialist utopia of thirty billion people…. And that I have no idea whether the protagonist is the savior of the human race, the biggest mass-murderer in history, or both. As Constant Readers know, I'm usually good for a few thousand words of agonizing (to read) reflections about that sort of thing. But to hell with that. The Cassini Division made me want to laugh, cheer, sing The Internationale, read everything else by MacLeod, and join the Cassini Division when I grow up. I haven't had this much fun with a book in ages."
Jane Mayer:Senator Ted Cruz, Communists, Harvard Law School, and Joe McCarthy: "Ted Cruz gave a stem-winder of a speech at a Fourth of July weekend political rally in Austin, Texas…. His spokeswoman didn’t respond to a request to discuss the speech…. Cruz greeted the audience jovially, but soon launched an impassioned attack on President Obama, whom he described as 'the most radical' President 'ever to occupy the Oval Office…. There were fewer declared Republicans in the [Harvard Law School] faculty when we were there than Communists! There was one Republican. But there were twelve who would say they were Marxists who believed in the Communists overthrowing the United States government.'… Harvard Law School Professor Charles Fried, a Republican who served as Ronald Reagan’s Solicitor General from 1985 to 1989, and who subsequently taught Cruz at the law school, suggests that his former student has his facts wrong. 'I can right offhand count four “out” Republicans (including myself) and I don’t know how many closeted Republicans when Ted, who was my student and the editor on the Harvard Law Review who helped me with my Supreme Court foreword, was a student here.' Fried went on to say that… 'I would be surprised if there were any members of the faculty who "believed in the Communists overthrowing the U.S. government"'."
Felix Salmon:The tragedy of long term unemployment: "The lesson of the past few years is that this is not a normal recovery: corporate profits are doing great, while total employment remains anemic. We can’t trust the invisible hand to generate the millions of jobs that are needed, especially with regards to the long-term unemployed. With gridlock in Washington, the result is a huge amount of unnecessary human misery."
Michael Specter:Marco Rubio Needs Evolution: "Suddenly, all we could hear about were the next generation of [Republican] leaders. And nobody has been talked about with more excitement than Florida Senator Marco Rubio…. In the December issue of GQ, which was published online today, Rubio tells Michael Hainey that he loves the music of Afrika Bambaataa. And Tupac. He feels empowered by Eminem. Rubio is cool…. So it was with genuine amazement that I read his response when Hainey asked him about the age of the earth. I think, in fairness to Rubio, it’s best to reprint the entire exchange: 'GQ: How old do you think the Earth is?' 'Marco Rubio: I’m not a scientist, man. I can tell you what recorded history says, I can tell you what the Bible says, but I think that’s a dispute amongst theologians and I think it has nothing to do with the gross domestic product or economic growth of the United States. I think the age of the universe has zero to do with how our economy is going to grow. I’m not a scientist. I don’t think I’m qualified to answer a question like that. At the end of the day, I think there are multiple theories out there on how the universe was created and I think this is a country where people should have the opportunity to teach them all. I think parents should be able to teach their kids what their faith says, what science says. Whether the Earth was created in 7 days, or 7 actual eras, I’m not sure we’ll ever be able to answer that. It’s one of the great mysteries.' Actually, there are two basic theories about how the universe was created. There is a scientific explanation: that the universe began to expand about 13.7 billion years ago and continues today to do so. And there’s an explanation offered by people who believe that angels are real. There is a great deal of evidence to support the first…. Physics, astronomy, and molecular genetics have all made it possible to trace our genetic, viral, and biological heritage back millions of years. The earth, give or take a few hundred thousand years, is 4.54 billion years old. That is considerably more than seven days. I guess it could be divided into Rubio’s 'seven actual eras', each of which would have lasted roughly 650 million years."
I find myself both in substantial agreement and in substantial disagreement with Paul Horwitz's thoughtful and very interesting notes on "The Blogger as Public Intellectual". Let me try to set out seven tentative and provisional markers of disagreement:
"That the blog is 'just' a medium does not make the particular conduit used wholly irrelevant…. [T]he age of the blog is an age of immediacy, of present-mindedness, of thinking by linking instead of thinking by reflection…. [But] the choice of the blogging medium is not in itself all that consequential with respect to the public intellectual question…"
I think that it is quite consequential. It seems to me that it is like the difference between the Tanakh and the Talmud: a culture that tries to present a monument--a book--that is in its and its author's self-presentation supposed to be an authoritative word, and a culture where everything is provisional, must be read in context, and is supposed to be subject to correction and development and revision and commentary. It seems to me that, in general, history tells us that the more Talmud-like intellectual communities have progressed faster and produced more insights than the Tanakh-like ones. But I may be wrong: this is just a provisional guess, subject to correction and development and revision and commentary.
Patrick Smith:European Austerity Does a 180 as Lagarde Weighs In: "The IMF and the World Bank, notably by way of IMF Managing Director Christine Lagarde, have put in sharp focus the core components of a recovery strategy. It focuses on two questions: 1) What is the optimal degree of austerity, meaning contraction as opposed to stimulus? Up to what point is it necessary, and at what point does it become counter-productive—that is, when does it start inhibiting growth instead of fostering it? How does demand management fit in? 2) How much public debt—debt as a proportion of GDP—can a nation carry when it is in or near recession? What is the relationship, if any, between debt and growth? Is cutting debt so simple as cutting spending? Lagarde and Olivier Blanchard, the IMF’s chief economist, seem satisfied that the fund and the bank and their member nations understand the centrality of these two questions. Now, do we have consensus on them? Not by a very long way. But this is just the point.Lagarde’s work for much of the past year—trace her steps—has been to destroy what has amounted to an artificial consensus on a set of policies that have yielded paltry results, not only for Europeans but for Europeans more than anyone else."
Paul Krugman: Basic macroeconomics — IS-LM type macro"the stuff that’s in Econ 101 textbooks — has performed spectacularly well in the crisis. The true test of an analytical framework is how it performs in unusual or extreme circumstances, how well it predicts 'out of sample'. What we have experienced since 2007 is a series of huge policy shocks — and basic macroeconomics made some very counterintuitive predictions about the effects of those shocks. Unprecedented budget deficits, the model said, would not drive up interest rates. A tripling of the monetary base would not cause runaway inflation. Sharp government spending cuts wouldn’t free up resources for the private sector, they would depress the economy more than one-for-one, so that private spending as well as public would fall. Quite a few people considered these predictions not just wrong but absurd; they braced for soaring rates and inflation, they waited for the good news from austerity. But the model passed the test with flying colors…. So how is it that economists look so bad? The answer is that too many prominent economists chose, for one reason or another, to reject the existing model. Maybe they were just trying to score points by being different; maybe they were sucked in by the approbation of the VSPs, the rewards that came from telling important people what they wanted to hear… Alesina/Ardagna saying that austerity is actually expansionary thanks to confidence effects; Reinhart/Rogoff saying that debt has terrible effects on growth via unexplained channels. This stuff was creative, different, deeply appealing to powerful people — and dead wrong. If you stayed with Econ 101, you got it right, if you went with the trendy stuff you made a fool of yourself. The lesson we should have taken from this crisis was that plain ordinary macro is actually a very powerful, very useful tool, one that you ignore at your peril."
Paul Krugman:The Jobless Trap: "[W]hen future historians look back at our monstrously failed response to economic depression, they probably won’t blame fear, per se. Instead, they’ll castigate our leaders for fearing the wrong things. For the overriding fear driving economic policy has been debt hysteria, fear that unless we slash spending we’ll turn into Greece any day now. After all, haven’t economists proved that economic growth collapses once public debt exceeds 90 percent of G.D.P.?… America isn’t and can’t be Greece, because countries that borrow in their own currencies operate under very different rules from those that rely on someone else’s money. After years of repeated warnings that fiscal crisis is just around the corner, the U.S. government can still borrow at incredibly low interest rates. But while debt fears were and are misguided, there’s a real danger we’ve ignored: the corrosive effect, social and economic, of persistent high unemployment. And even as the case for debt hysteria is collapsing, our worst fears about the damage from long-term unemployment are being confirmed…. The key question is whether workers who have been unemployed for a long time eventually come to be seen as unemployable, tainted goods that nobody will buy. This could happen because their work skills atrophy, but a more likely reason is that potential employers assume that something must be wrong with people who can’t find a job, even if the real reason is simply the terrible economy. And there is, unfortunately, growing evidence that the tainting of the long-term unemployed is happening as we speak…. [W]e are indeed creating a permanent class of jobless Americans. And let’s be clear: this is a policy decision. The main reason our economic recovery has been so weak is that, spooked by fear-mongering over debt, we’ve been doing exactly what basic macroeconomics says you shouldn’t do — cutting government spending in the face of a depressed economy It’s hard to overstate how self-destructive this policy is. Indeed, the shadow of long-term unemployment means that austerity policies are counterproductive even in purely fiscal terms. Workers, after all, are taxpayers too; if our debt obsession exiles millions of Americans from productive employment, it will cut into future revenues and raise future deficits. Our exaggerated fear of debt is, in short, creating a slow-motion catastrophe."
And he said unto me: "Son of man, stand upon thy feet, and I will speak unto thee." And the spirit entered into me when he spake unto me, and set me upon my feet, that I heard him that spake unto me.
And he said unto me: "Son of man, I send thee to the children of Israel, to a rebellious nation that hath rebelled against me: they and their fathers have transgressed against me, even unto this very day. For they are impudent children and stiffhearted.
"I do send thee unto them; and thou shalt say unto them: 'Thus saith the Lord GOD.' And they, whether they will hear, or whether they will forbear, (for they are a rebellious house,) yet shall know that there hath been a prophet among them."
Kevin Drum:Why Global Recovery Has Been So Slow: In previous recessions, government expenditures in advanced economies continued to rise during the recovery period, helping to bootstrap a return to growth. This time, spending spiked up during the recession itself, but since then it's fallen…. Why? Probably because advanced countries entered the Great Recession with higher debt ratios than in the past…. Rightly or wrongly, most central governments have a limited tolerance for debt…. But which is it, rightly or wrongly? Mostly it's wrong, especially in the short term during and after a serious recession, but it's not entirely wrong. There's certainly some point at which debt service can overwhelm a government, and if investors feel that a country is headed toward that point with nothing to stop it, they'll start demanding higher interest rates on government bonds. Needless to say, this just makes debt service problems even worse, leading to a death spiral of sorts. So the trajectory of debt probably matters, even if there's no special debt level at which things fall apart. This, along with the plain fact that governments are spooked by debt, whether we like it or not, is one of the reasons that long-term deficit reduction really is pretty important."
Sascha O Becker and Hans K. Hvide:Do entrepreneurs matter?: "[W]hat matters more, the horse (i.e. the products) or the jockey (i.e. the owner-manager) in the life of young firms? Do entrepreneurs matter and should they be encouraged by economic policy?… [W]e analyse data on 341 privately owned companies where the majority owner dies during the first ten years of operations. The data is from Norway…. We compare these 341 companies with an identical number of ‘twin’ organisations that shared similar characteristics but where the founder had remained alive… companies have a 20% lower survival rate two years after the fatality compared with companies whose founders have not died. On average, 60% of a company’s sales are lost and 17% of jobs cut in the four years after a majority-owning entrepreneur dies…. Even four years after the death, most firms show no sign of recovering and the negative effect on performance appears to continue even further beyond that…"
Tim Duy:Accepting Failure - Tim Duy's Fed Watch: "It is starting to look like European policymakers have given up trying. Bundesbank President Jens Weidmann, via the Wall Street Journal: '"Overcoming the crisis and the crisis effects will remain a challenge over the next decade", he said in an interview from his conference room at Bundesbank's headquarters overlooking Frankfurt's financial district, contrasting recent comments from European Commission President José Manuel Barroso that the worst of Europe's crisis is over.' Also from the Wall Street Journal: 'An aging society and the time needed to work through its debt crisis will keep growth in Europe subdued for years to come, German Finance Minister Wolfgang Schaeuble said Friday. “No one should expect that Europe will deliver high growth rates for years,” he said.' Apparently the new strategy is to keep expectations low. One has to imagine that given the current path of activity and the lack of fiscal support from European nations, the European Central Bank will find itself not only cutting rates but implementing its own version of quantitative easing by year end. The only other option would be to sit back and watch Europe slide from recession to depression. And that does not seem like a credible policy path."
De Grypis (2008): Cicero Epistulae ad Atticum 2.1: "Nam Catonem nostrum non tu amas plus quam ego; sed tamen ille optimo animo utens et summa fide nocet interdum rei publicae; dicit enim tamquam in Platonis πολιτείᾳ, non tamquam in Romuli faece, sententiam."
Paul Krugman:Correlation, Causality, and Casuistry: "One last thing: even if you take Dube’s forward-looking regression as a causal relationship, which you shouldn’t, notice how weak that relationship is in the relevant range. It looks as if raising debt from 50 to 150 percent of GDP, other things equal, reduces growth by around 0.1 percentage point over the next three years. This is the dreadful consequences that prevents us from doing anything about mass unemployment?"
Paul Krugman:Lack Of Nuance Is Not The Problem: "I see that both Tyler Cowen and Austin Frakt are offering explanations/excuses for the Reinhart-Rogoff affair in terms of the dynamics of wonk celebrity…. As an explanation, I think this has some merit; as an excuse, none…. What happened with R-R was that they came out with a sloppy paper that played to the spirit of the times. The sloppiness was immediately obvious from the way they highlighted slow US growth in the late 1940s as an illustration of the price of debt overhang, somehow missing the point about postwar demobilization. It took only a few days for critics to point out the correlation versus causation issue too…. But the paper was also a huge immediate hit with the austerians, and they got sucked in. Notice, however, that the problem with the original wasn’t that it failed to convey the nuances. The problem was that it was just plain wrong — wrong about America after the war, wrong about what a debt-growth correlation means. (It turns out that there was other wrongness too, but that was enough)."
The way I put it: Hoover wanted liquidation accomplished, but accomplished with the least amount of human misery. Mellon thought that liquidation that was not accompanied by human misery would fail of its object. Hoover believed in "liquidation" like Schumpeter and Mellon. I bounce back and forth between thinking that Robert Murphy knows full and damned well that he is lying when he mischaracterizes me or just can't think straight. Which do you think it is?
I don't think that's right. I'm a huge fan of Tony Judt… and of George Orwell. But not of the plaster saint versions…
.@GagnonMacro .@nytimeskrugman How about startin' some talk about doubling the pace of QE3? "Joseph Gagnon @GagnonMacro 5 Apr @NYTimeskrugman I hope this ends all the foolish talk about a premature reduction in QE3. QE3 is going to last all year and into next."
Economics: The ivory fortress: ONE of the more interesting responses to this week's Reinhart-Rogoff debate was this, from the economics blog Cheap Talk. "I Move That The AEA Stop Publishing Papers and Proceedings", the post title reads. Then:
Non-peer reviewed, inaccessible data, and punditry that can’t tell the difference between P&P and a regular AER article can’t be good for the reputation of the journal, the AEA, or the profession.
Hans Hermann-Hoppe thinks Paul Krugman is the Comp Lit major - a serious, sober, do-gooding nerd type - and all he has to do to score a win is make Krugman mad. Actually, it's probably more than that; he probably thinks that because the audience for these debates is (in his mind) mostly ignorant simpletons, that if he acts like an ignorant simpleton, he will resonate with the audience - he will seem to them to be one of their tribe - and Krugman will seem like an alien outsider, with his equations and his thought experiments and his other nerdy nerd stuff. "Go home and play with your slide rule, nerd! We Cool Guys know that printing little pieces of paper can never make a country richer! High five!"
Jonathan Portes:We're nowhere near knowing what quantitative easing does: "There’s certainly no consensus in academia, policymaking circles or among commentators over how the financial crisis arose, what the responses should be and what the consequences are for economics. I’m not a historian of economic thought but I would assume that if you went back to 1929 the situation was very similar…. The Great Moderation was effectively a period – from a policymaking point of view – where people thought macroeconomics was dead. The received wisdom was that macroeconomics was over as a policymaking problem and hence academic macroeconomics wandered off into areas that had almost nothing to do with policy…. Now, however, there are quite fundamental debates going on for example about what do we think the consequences of deleveraging will be on demand, what channels that could work through and what policies can be undertaken to counter it. Within these you have big differences of opinion with some people arguing that QE is completely ineffective and that monetary policy is impotent, while other people believe that monetary policy just hasn’t been tried hard enough…. I tend to regard fiscal policy as the conservative side of macroeconomic policy management because we do sort of know how to calibrate it. This is why I find the Financial Times editorial line completely bizarre as for a some time now they have argued that we should take the “helicopter money” idea seriously while supporting the government’s fiscal plans on the grounds of credibility. It seems to me the idea that you risk the government’s credibility by borrowing an extra couple of percent of GDP for investment but there would be no risk to credibility by doing something which nobody in modern times in an advanced developed country has ever tried and that is generally considered to be last ditch strategy is an odd conclusion."
Paul Krugman:Density: }America is a vast, thinly populated country… fewer than 90 people per square mile, [but] the average American lives in a… neighborhood with more than 5000 people per square mile. The next time someone talks about small towns as the “real America”, bear in mind that the real real America — the America in which most Americans live — looks more or less like metropolitan Baltimore…. US population and hence the population density rose about 10 percent over the course of the naughties, the average American was living in a somewhat less dense neighborhood in 2010 than in 2000, as population spread out within metropolitan areas. If you like, we’re becoming a bit less a nation of Bostons and a bit more a nation of Houstons. This is, I think, a picture of urban geography in which the link between overall rising population and land prices is likely to be diffuse at best. So I think I call this one for Smith — although McBride’s point that actual real housing prices do seem to have an upward trend remains important, and needs explaining."
Digitopoly | Blogging Citation Norms: One thing I learned at the Kauffman Economic Bloggers Forum last week is that there is angst among the professional (i.e., non-academic) bloggers about citation and re-stating the arguments of other bloggers. It was noted that, a few years back, it was common to cite other bloggers but that these days this seems to have fallen by the way-side. Indeed, now, if another blogger has blogged about an issue there is reluctance to tackle that issue.
Part of this seems consistent with my ‘dual hypothesis’ story of blogging that I articulated in my presentation to the forum. That story went as follows. Readers look to high frequency, written, commentary by bloggers in order to get their take on a particular issue. Blog writers offer a take because, at the time, no one else has offered that specific take. Once they have done so, there is no direct social value to others from re-stating that take. Hence, it is only efficient for them to blog on that issue if they have a different take.
