Back in the fall of 1979 in his last lecture for Econ 2010c Martin Feldstein said that one of the Keynesian arguments was that economies could get wedged in a situation of high unemployment and slack demand because of "badly behaved functions". Normally, he said, market adjustment processes should work so that slack demand was an excess of ex ante savings over investment, which would lower real interest rates, which would lower the value of the currency, and these would boost the interest rate- and exchange-rate sensitive components of investment like exports and construction and that would push the economy back into full-employment balance. But, he said, badly-behaved functions could make it so that real interest rates did not fall far enough in any reasonable time, or interest- and currency value-sensitive components of spending did not rise far enough fast enough.
I did not understand what he was saying then. I certainly do understand it now.
Let me start by saying that I have enormous respect for Ezra Klein, whose work in creating and maintaining WonkBlog has, I would argue, made him the brightest spot and the greatest hero twenty-first century American journalism has seen.
And let me start by saying that I also have enormous respect for Jim Tankersley: a smart, honorable, and hard-working reporter who knows immense amounts about the American economy and about public policy, and who tries his best to inform his readers on both print and screen within the limits of the institutional role allotted him.
And let me say that his 1700 word piece on the economy and politics of Tea-Party hub Rome, Georgia can be and has been read with enormous profit by me and people like me.
John Podesta and Neera Tanden: Proponents of austerity are out of ideas. We have the alternative:
We can have strong economic growth without shredding the social safety net... by investing in the true engine of economic growth: the middle class. These are the policies real people believe in.... Conservative politicians are out of ideas. We've tried their solutions. Their trickle-down ideology of austerity for the poor and tax cuts for the rich has dominated policymaking for the better part of three decades. And what has it gotten us? Increasing inequality. Stagnating wages. One in four American children living in poverty.... The worst economic crisis since the Great Depression. And yet today's conservatives call for more of the same....
J. Bradford DeLong: Project Syndicate: Greenspan Has Left the Building:
When I first went to Washington as a grownup in 1993 to work for the Clinton Treasury Department, we saw America as having three problems that urgently needed action that year: (1) rebalancing the federal budget so that the debt-to-GDP ratio was no longer on an upward, explosive trajectory; (2) beginning to deal with global warming via the slow ramp-up of a carbon tax; and (3) beginning the reform of our extraordinarily inefficient and extraordinary expensive national health financing system. Behind those three were three more important long-run policy challenges for America: (4) updating our pension system to deal with the aging of America and the decline of defined-benefit pensions; (5) improving our education system so that more of the people who should be going to college would feel that they could risk doing so; and (6) reversing the erosion of America as a middle-class society.
None of these--well, except maybe for (6)--were partisan Democratic issues.
Four things create value:
And let me know that, as far back as we can tell, your status and standard of living depends on (a) the value you directly add and (b) what you are able to grab (and persuade others that you are right to grab) from our joint-product common store.
It is this:
Take the expectational Phillips Curve:
π = E(π) + β(u* - u)
where π is the inflation rate, E(π) is the market's expectation of inflation, u* is the natural rate of unemployment, and u is the unemployment rate.
This equation tells us that if expected inflation rises and the central bank does not want actual inflation to rise, it must take steps to drive the unemployment rate to:
u = u* + (E(π) - π)/β
The true size of the American subprime problem was hidden for years by the defective bookkeeping of the GSEs…. Not until the summer of 2007 did the full magnitude of the subprime problem begin to become apparent…. Had Fannie and Freddie not existed, a housing bubble could still have taken hold. But had such a bubble developed, it is likely that in and of itself, it would not have wreaked such devastation in late 2008…. Even given the excess[ive MBS holdings] of the GSEs, had the share of financial assets funded by equity been significantly higher in September 2008, arguably the deflation of asset prices would not have fostered a default contagion, if at all, much beyond that of the dot-com boom…"
I find myself disappointed that this has not yet jelled into something coherent--especially because there are now only 99 hours until I have to take the stage on Friday…
Let us start out with the view from 30,000 feet: What do we people do to add value? Eight things:
Six years ago, I wrote a highly complimentary review of Alan Greenspan's The Age of Turbulence:
Brad DeLong (September 2007): Review of Alan Greenspan's "The Age of Turbulence": For nearly 20 years Alan Greenspan… was the most powerful economic central planner the world has ever seen…. Why should a central planner be setting interest rates? The only reason is that this system appears to work less badly than the alternatives we have tried…. Greenspan is world famous because he was very good and very lucky…. He made roughly 36 substantive decisions about the direction interest rates should go. Six times I disagreed with him. Five of those six times, he was right…. That is an amazing record….
I still think most of the review still holds up well. But the very end is now very questionable:
Alan Greenspan's publisher did not send me a copy of his new The Map and the Territory. So at the moment I am running on the two different books read by Larry Summers and Steve Pearlstein:
Larry Summers: The Map and the Territory:
It was my privilege to work closely with Alan Greenspan for the eight years I served at the Treasury during the Clinton administration. His new book, The Map and the Territory, brings me back to fond memories of our conversations over the years. I haven’t always agreed with my friend but he has always left me wiser and with something to ponder. I have been struck… by the way… his approach… draws both on commitments to an individualist, libertarian philosophy and on extensive and deep immersion in economic statistics…. The range of topics and arguments makes this book a very important statement, whether one ultimately agrees or disagrees with the author. I found myself doing plenty of both. Greenspan’s range, vision and boldness is especially important at a time like the present, when Washington is preoccupied with the political and petty….
That is one of Kansas Governor Sam Brownback's constant applause lines--that he wants Kansas to be a lot less like California and a lot more like Texas.
And so I was reading Bryan Burrough on Erica Grieder: ‘Big, Hot, Cheap and Right’: What America Can Learn from the Strange Genius of Texas, and ran across Burrough's claim:
AS a Texas-raised journalist, I can tell you two things with confidence about my native state. One, its economy has been humming nicely for years…
And I think: which years are those? The Texas unemployment rate jumped 4.5% points to above 8% in the depths of the Lesser Depression, and is still 6.5%. That's not "humming"--at least not unless you view the experience of the unemployed and of those who fear they might lose their jobs as of no account.
Has he forgotten that the last successful bipartisan budget negotiation was in… 1990? That calling on President Obama to use his Green Lantern-like powers to create a large budget-balance deal is a strategy that has not produced any results in 23 years?
And, given that Alice Rivlin is saying that she thinks that discretionary spending at current levels is too low for the government to function effectively, isn't it time for Leon Panetta to shut up and sit down and stop talking about the need for "tough choices" to further reduce spending?
There are times when I wonder if I lived through the same history as the Green Lanternists…
The sixth thing economists have to say is about “macro”: about how sometimes the entire market system appears to go awry in some puzzling way. Sometimes when you go the market, you find the money prices that you have to pay higher than you expected—perhaps 10% higher than you expected last year when you made your plans. It seems that, somehow, there is too much spending money chasing too few goods. How is this that this happens? And what should the government do to make sure that it does not happen?
It is in some part Robert Shiller's fault that I am an economist.
The most powerful and informative health-affairs think tank is: The Incidental Economist:
Austin Frakt, Aaron Carroll, Kevin Outterson, Harold Pollack, Bill Gardner, Adrianna McIntyre, with occasional additional contributions by Don Taylor, Ian Crosby, and Steve Pizer. They punch so much above their weight that it is not funny. In fact, it is not clear to me that they have any weight at all--that any academic, research, or philanthropic institution has given them a dime for anything, rather than they having scrounged themselves into existence in their copious spare time and funding web hosting off of the spare-change jar…
Niall Ferguson: Krugtron the Invincible:
For too long, Paul Krugman has exploited his authority as an award-winning economist and his power as a New York Times columnist to heap opprobrium on anyone who ventures to disagree with him. Along the way, he has acquired a claque of like-minded bloggers who play a sinister game of tag with him, endorsing his attacks and adding vitriol of their own. I would like to name and shame in this context Dean Baker, Josh Barro, Brad DeLong, Matthew O'Brien, Noah Smith, Matthew Yglesias and Justin Wolfers. Krugman and his acolytes evidently relish the viciousness of their attacks, priding themselves on the crassness of their language. But I should like to know what qualifies a figure like Matt O'Brien to call anyone a "disingenuous idiot"? What exactly are his credentials? 35,550 tweets? How does he essentially differ from the cranks who, before the Internet, had to vent their spleen by writing letters in green ink?
I acknowledge it.
I suppose I might answer the question too, for I think Matt O'Brien is completely 100% qualified to call Niall Ferguson a "disingenuous idiot" whenever he chooses.
On the horizon, I see the eurozone breakup vigilantes approaching in the form of Ken Rogoff's latest: Three Wrongs Do Not Make a Right. But first, focus on his conclusion:
High return infrastructure projects pay for themselves in the long run, and are a reasonable risk for the short run… [as are] effective expenditures aimed at making education more effective…. Monetary policy should have been even more aggressive after the crisis…. Debt overhang is a huge problem…. I have long clearly favoured sharply writing down debts… at the ultimate expense of taxpayers in the core of Europe…
Hold tight to that: Ken Rogoff believes, along with the rest of us, that since 2010 European governments (including Britain's) should have spent more, that central banks should have eased more, and that banking policy should have written-off more.
Somehow, when John McCain's staff decided to pick Joe Würzelbacher and company out of the mix and promote them to the media elite of American politics, they didn't give them the memo. They didn't tell them: "We know that you think that America is a straight white man's country--that other people don't really deserve to have a voice here. But we cannot say that anymore and still win elections. We have to dog-whistle it".
Not very professional of the McCain media/strategy team, I must say…
So what do economists have to say when they speak as public intellectuals in the public square? As I see it, economists have five things to teach at the "micro" level--of how individuals act, and of their well-being as they try to make their way in the world. These are: the deep roots of markets in human psychology and society, the extroardinary power of markets as decentralized mechanisms for getting large groups of humans to work broadly together rather than at cross-purposes, the ways in which markets can powerfully reinforce and amplify the harm done by domination and oppression, the manifold other ways in which the market can go wrong because it is somewhat paradoxically so effective, and how the market needs the state to underpin and manage it on the “micro” level.
"Is morale low today?" my wife asks.
Morale is low.
Morale has been low since September 15, 2008, as I have watched the governors of the North Atlantic economy throw away 10% of our potential wealth--and do so apparently permanently. No--morale has been low since November 7, 2000. No--morale has been low since June 11, 1993, when this bizarre combination of Oil-Patch Democratic Senators seeking future campaign contributions from the American Petroleum Institute and Northeast and Midwest Republican Senators seeking to make Clinton look weak left us with no option but to strip the BTU tax out of the Reconciliation Bill and thus start us down the road that it looks like will lead us to a 5F global warming 21st century rather than the 2F century we had hoped to obtain…
Ever since then, my dominant image of myself has been as an involuntary sanitation engineer--one of those people in orange jumpsuits picking up garbage by the side of the road, only intellectual garbage, in the hope not so much of advancing knowledge but reducing misinformation.
If any… bid you to a feast… whatsoever is set before you, eat, asking no question for conscience' sake…
Yes, it is time: Niall Ferguson's last-week's Wall Street Journal op-ed, once again, at greater length:
A last word on why it would be a mistake for America--and Kansas--to listen to the Siren Song of anti-immigration emanating from the Island of Faiakes where Kansas Secretary of State Kris Kobach and his compatriots have immured themselves…
Take a look at:
"Income Inequality in the United States, 1913-1998" with Tomas Piketty, Quarterly Journal of Economics, 118(1), 2003, 1-39 (Longer updated version published in A.B. Atkinson and T. Piketty eds., Oxford University Press, 2007) (Tables and Figures Updated to 2012 in Excel format, September 2013)--the paper that got Emmanuel and his coauthor Tomas Piketty denounced by the Wall Street Journal as "French economists… rock stars of the intellectual left… special[izing in]… 'earnings inequality' and 'wealth concentration'"
UPDATED Summary for the broader public "Striking it Richer: The Evolution of Top Incomes in the United States", updated September 2013
The most important single chart prepared in economics in the past decade, I think, is this one from Piketty and Saez:
Memory is always shaky. And my undergraduate transcript is in a box somewhere in the basement. But I believe that the semester I audited Tom Sargent's evening Monetary Economics class was also the semester I took (P/F, with lots of help from high-powered physics major roommates) Edward Purcell's Introduction to Quantum Mechanics class.
For historical reasons, the U.S. political system focuses on (i) budget accounts for the federal government trust funds individually, (ii) accounts for the entire federal government budget--including the trust funds--but does not focus on (iii) the accounts for the non-trust-fund part of the federal budget considered as a whole. It may well be a mistake to do it this way: Daniel Patrick Moynihan thought it was. He tried to change it, and failed. And I think it is. But it is the way the U.S. political system conducts its technocratic budget conversation. And people who want to participate in that conversation recognize this.
My view is that of commenter Monty: as at the Battle of Kynokephelae, it all depends on the terrain--in the flat, grassroots areas where they can maintain their order, the squadrons of venom-unleashing command-lambs drive all before them; in rocky terrain where fiscal cliffs are found, it is the lemming choirs' siren songs that are decisive…
If a devoted choir of lemmings were to go head-to-head against a squadron of rabid, venom-unleashing command-lambs, which would win?
The command-lambs might look at first like the obvious choice, but I can’t help feeling that the mysteriously compelling harmonies of the lemming-choir’s deadly siren song would give the crafty rodents a decisive strategic advantage.
"Kansas needs to be less like California"--that is one of Kansas Governor Sam Brownback's favorite applause lines.
Yet last August when we drove the Reverse Overland Trail it struck me that it would be a much better world for Kansas for Kansas's Prairie if it were to look like California's Central Valley.
Let me continue explaining why:
Andrew Watt is an unhappy camper:
What is surprising and worrying in this case is that Brad Delong… has missed out the thirty important years of economic history, and very much downplays Keynesian economics in that period…
The Hamilton Project--now led by Melissa Kearney--doesn't get nearly as much love as it should. I am not sure why not. There is a lot of very good stuff there. like:
As we hear more and more that the Federal Open Market Committee has man on it who have no enthusiasm for additional Quantitative Easing, it is time to reiterate my conclusion that the Federal Reserve's announcement last December that it was switching from a time- to a state-based policy rule has not REPEAT NOT shifted expectations of the distribution of possible levels of prices and inflation over the next five, ten, or thirty years.
Perhaps this is because Federal Reserve communicators have spent a lot of time telling people that the shift to state-based policy does not mean that the Federal Reserve will tolerate higher inflation. Perhaps it is because people do not believe that the Federal Reserve's policy rule is truly state-based--or state-based in the way the Evans Rule is supposed to be state-based. Perhaps it is for other reasons. In any event, this is a powerful piece of evidence that it is much harder to summon the Inflation Expectations Imp than economists like Greg Mankiw had thought. It is a point for the expansionary fiscalists in their debate with the expansionary monetarists.
I mean, Diane Ravitch has always seemed to be a smart, sensible person who looks at the evidence and marks her beliefs to market. But Sol Stern?
Sol Stern: The Closing of Diane Ravitch's Mind:
It’s… imperative that the standards get implemented in the states with fidelity to the Common Core document’s call for a curriculum “intentionally and coherently structured to develop rich content knowledge within and across grades.” Ravitch once knew why content knowledge is so important to improving literacy…. Many valid criticisms can and have been made of the manner in which the standards were adopted in many states, including the undue influence of the Obama administration…
Seems to me that Nino Scalia has fallen into the Manichean heresy in attributing the Disenchantment of the World to the agency of Satan:
Doug Milhouse J: Made damn sure that Pilate washed his hands » Balloon Juice:
This interview with Scalia was truly awesome, both in terms of how crazy he is and how candid he is…. "Well, you’re saying the Devil is persuading people to not believe in God. Couldn’t there be other reasons to not believe?" "Well, there certainly can be other reasons. But it certainly favors the Devil’s desires. I mean, c’mon, that’s the explanation for why there’s not demonic possession all over the place. That always puzzled me. What happened to the Devil, you know? He used to be all over the place. He used to be all over the New Testament!"
Ignore the trolls. Stick to those Austerians whose public personas understand and acknowledge the numbers.
Conversations still have a very Alice-in-Wonderland quality:
Tortoise: The deficit and debt are out of control! We must cut spending now and in the future! Cameron-Osborne-Clegg were right to slash spending in Britain in 2010 and so raise unemployment! The Republicans are right to be slashing spending in the US now!
Akhilleus: But right now the debt-to-GDP ratio is falling, not rising. Right now more spending to reduce unemployment is a much higher priority than steepening the downward trajectory of the debt-to-GDP ratio. And with the shadow cast on the long run by a depressed economy, at current interest rates and at the interest rates priced into financial markets for the next thirty years spending cuts worsen the debt-to-GDP ratio as long as the economy remains depressed.
Why oh why can't we have a better press corps?
Niall Ferguson: The Shutdown Is a Sideshow. Debt Is the Threat:
Only a fantasist can seriously believe "this is not a crisis." The fiscal arithmetic of excessive federal borrowing is nasty even when relatively optimistic assumptions are made about growth and interest rates. Currently, net interest payments on the federal debt are around 8% of GDP... that share could rise to 20% by 2026, 30% by 2049, and 40% by 2072...
Um…. No. Not 8%. 1.3%. Only 1/6 of 8%.
…and thus that Barack Obama would have an easier time working constructively with moderate Republicans as individuals and with Republican leaders.
I have been thinking for some time that that was a bad call. But this makes me realize that it might not have been:
Every once in a while someone is impelled to try to claim that one or the other of the more notorious bubbles in history was in fact not a bubble--that the market was in fact functioning efficiently, that asset prices were equal to fundamentals, that traders were behaving rationally given the information they had, and behaving rationally in their decisions to spend resources acquiring information, so that buyers and sellers were making investments that were good and appropriate from a rational ex ante perspective.
There is a problem with this enterprise.
Max Sawicky shows up writing for the extremely useful Economic POlicy Institute: Obamacare Isn’t Causing an Increase in Part-Time Employment, in One Chart:
One of the more baffling messages in the current debate over the economy and “Obamacare” is the hue and cry over the trend in part-time employment. The fact is that since the end of the Great Recession, the trend in part-time employment has been down, not up…. The navy blue region show the level of workers who are part time due to “non-economic” reasons (health, child care responsibilities, etc.). The vertical bars denote recessions, from peak to trough.
Just what is Ken Rogoff's argument that the Cameron-Osborne-Clegg government in Great Britain was correct to hit the British economy over the head with the austerity hammer in the spring of 2010, anyway?
Simon Wren-Lewis opens: Ken Rogoff on UK austerity:
Ken Rogoff’s article… is a welcome return to sanity…. Rogoff focuses on what was always the critical debate: was austerity necessary because financial markets might have stopped buying government debt…. As critical pieces go, you couldn’t have a friendlier one than this…. Rogoff agrees that it was a mistake to cut back on public sector investment…. He says that austerity critics “have some very solid points”…. His comment after putting the austerity critics’ case is “perhaps” or “maybe”…
But… But… But…
Why oh why can't we have a better press corps?
Adam Liptak finds and quotes a Republican hack from Stanford being hackish, without even the "balance" of a single non-hack quote beside it:
However one interprets the Constitution, there remains the practical question of whether the nation’s creditors would continue to lend to the United States if the president did take unilateral action. “I don’t think anyone in their right minds would buy those bonds,” Michael W. McConnell, a law professor at Stanford, said of debt issued without Congressional authorization.
But people will always buy bonds--the question is always at what price. 25 basis points above Treasuries? 100 basis points?
McConnell is simply in the business of burning a piece of his academic reputation in order to play for Team Republican right now. And Liptak is playing along...
Coffee als Beruf: The View from the Roasterie Part IV: Kansas City Culture Weblogging
"Politik ale Beruf" and "Wissenschaft ale Beruf"--"Science as a Vocation" and "Politics as a Vocation"--are Max Weber's two lectures given in 1918-1919 to the Free Students' Union of Munich University. Weber is explaining to the students just what obligations they are subjecting themselves to if they choose either of those careers not as a job but as a vocation--as a sought burden and a sacred task.
Obama turns neo-Austrian:
Towards the end of those three decades, a housing bubble, credit cards, and a churning financial sector kept the economy artificially juiced up. But by the time I took office in 2009, the bubble had burst, costing millions of Americans their jobs, their homes, and their savings. The decades-long erosion of middle-class security was laid bare for all to see and feel.
This analysis is, you will not be surprised to see, in my view simply wrong.
We have had three things go wrong:
Of these, the first is by far the biggest, the second is also huge, and the third is relatively minor.
But there is no sense in which the level of employment or of GDP that we had in the mid-2000s was unsustainable, or the result of any artificial juicing of an economy. We know what an economy that is artificially juiced beyond its sustainable productive potential looks like: it has rising inflation. That is not what the economy of the mid-2000s looked like:
In recent weeks, ProPublica has published a major—and scathing—investigative series on the dangers of Tylenol's main active ingredient, acetaminophen. Two years in the making, this series shows yet again the essential role of investigative journalism in providing public information that can literally save lives…
But… But… But… When I read the (very good) article, it felt like a "1 person-month" article, not like a "10 person-years" article. 10 person-years should buy you not one article but four full books on medical safety.
I mean, if I had set out to write a Tylenol safety story, I would have started by googling "site:cdc.gov tylenol overdoses", immediately gotten to http://download.journals.elsevierhealth.com/pdfs/journals/0749-3797/PIIS0749379711001826.pdf and http://www.ncbi.nlm.nih.gov/pubmed/21294217, started making calls to the authors, and then--armed with data--gone to visit my local hospital. I would, I think, expect to be done in a month.
Why did it take ProPublica 10 person-years? And what more did they get in their story that wouldn't have been in the 1 person-month story?
I do not understand modern American journalism. I do not understand it at many levels…
…and I could not convince it that I am me:
So I guess that if I want health insurance through http://healthcare.gov/, I am going to have to go back through my VISA card records before the death of our dog Misty in April 2012 searching for whatever veterinary bill from the previous eight months healthcare.gov thinks is "a purchase of insurance"…
Paul Krugman: What They Say Versus What They Mean:
Over at Wonkblog, Lydia DePillis asks, "Remember when Republicans were worried about 'economic uncertainty'?" Actually… I don’t…. They claimed to be worried… but it was… an attempt to put a new, quasi-academic gloss on the same old same old… that the economy will boom only once we get rid of the Islamic atheist Kenyan socialist, and install someone who will be nice to rich people…. There was never any question that they would drop the uncertainty thing the moment it became inconvenient…. And so they did. It’s a lot like the austerity debate, where… the carping on debt was really a way to go after the welfare state…. There are a lot fewer good-faith economic arguments out there than a naive observer might think--and that’s precisely because powerful forces are doing their best to hoodwink said naive observers. So, goodbye “economic uncertainty”. The truth is that nobody ever took it seriously.
J. Bradford DeLong
U.C. Berkeley and NBER
September 2013 :: University of Missouri--Columbia
Why oh why can't we have a better press corps?
Those of us who came to Washington in 1993 to work for the Clinton administration, and who thought that we were going to be part of a centrist bipartisan governing coalition, were astonished to find not so--that we could not get a single Republican vote in the House or the Senate for policies--short-term fiscal stimulus in a recession, long-term deficit reduction, market-friendly health-care reform, non-punitive welfare reform, public safety--that were certainly less to the left of the technocratic good-government center than George H.W. Bush's policies that had picked up oodles of Democratic votes were to the right.
The gossip in the Treasury Department then was that Republican Senate Leader Bob Dole (R-KS) had explained what was going on to our boss Treasury Secretary Lloyd Bentsen more-or-less like this:
Look: Clinton is not a legitimate president. 57% of the voters voted for a more conservative Texan. Only the fact that Perot really does not like Bush and did not drop out once he had made his policy point got your guy in. Minority presidents don't get to impose their policy priorities on the country. Our task now is not to help govern, but to demonstrate that a minority president like Clinton cannot legitimately govern--and when we demonstrate that Clinton cannot govern, we will get our majorities in 1994 and our majorities and the presidency in 1996 and things will be back to normal.
There appear, from this vantage point eight blocks over the Missouri border, to be three Kansases, politically: