Previous month:
September 2011
Next month:
November 2011

October 2011

Twitterstorm delong: October 21, 2011

  • RT @ThePlumLineGS: GOP filibuster of jobs bill shows yet again that Repubs may benefit from blocking proposals w/public support:

  • Ezra Klein: Cain vs. Clinton: a flashback http://t.co/gLICtEFa

  • James Kwak: The Bush Tax Cuts and the 99 Percent http://t.co/8tLpOHVO

  • @afrakt Yeah, well it's really a procrastination machine... about 14 hours ago from web in reply to afrakt

  • RT @mattyglesias: @daveweigel "Cuban born parents who came to America following Fidel Castro's takeover" is pretty unambiguously false.

  • RT @foxjust: Brilliant video on info design. @HansRosling and family explain the origins of @Gapminder http://t.co/WD82dQ9o

  • William D. Nordhaus: Energy: Friend or Enemy? http://t.co/jQoNgrSJ

  • RT @RyanLizza: This could be fun: #rubiofamilyhistory My Irish grandfather arrived in America in 1920s. Fled from the great potato famine.

  • RT @xenijardin: "Life's a bitch and then you get moderated by one."—BoingBoing moderator Antinous, who is righteous.

  • RT @abuaardvark: The only thing I've managed to cross off my To Do list today is "1 - create to do list."

  • RT @MarkThoma: Bob Hall on Narayana: "His unfortunate remarks about mismatches" ... seems to be the general consensus here.

  • RT @ThePlumLineGS: This comment from a voter perfectly illustrates why GOP benefits from blocking policies public supports: http://t.co/

  • RT @crampell: Laura D'Andrea Tyson: The Infrastructure Two-Fer: Jobs Now and Future Growth: http://t.co/YGdmHRwo

  • RT @JustinWolfers: And they'll earn $570k more. RT @crampell: 2/3 of college students now graduate with debt, owing an average of $24,00 ...

  • RT @EricBoehlert: kinda says it all; RT @davewiner Cantor Cancels Income Inequality Speech After Learning It Will Be Open To The Public.

  • RT @afrakt: Why Employers Will Continue to Provide Health Insurance. http://t.co/TshVh4qQ

  • RT @andrew_leach: Shell Chairman: "We think the best policy mechanism is to cap CO2 emissions and allow for trading of allowances." Dam ...

  • RT @davidmwessel: Highlights of recent NBER forum on research on the global financial crisis http://t.co/KclGM33K


Econ 24-1: First Written Assignment

Econ 24-1: First Written Assignment:

Due via email to delong@econ.berkeley.edu by 5 pm on Thursday November 17:

The coming of our current Lesser Depression required four things:

  • A wave of increased savings hitting the United States and looking for safe assets in which to invest itself.

  • A collapse of lending standards in housing finance so that investments in mortgages that were in fact highly risky were sold as--and were believed to be--safe investments.

  • A failure of risk controls in high finance so that the highly-leveraged banks and shadow banks that were supposed to manage their own risks and distribute and diversify risks throughout the economy instead concentrated them--and were threatened with bankruptcy when the housing bubble collapsed.

  • An inability or unwillingness by the Federal Reserve to cut off the crisis in its early stages and fix it.

  • A mechanism that turned financial distress on Wall Street into a large-scale collapse in employment.

That's: "required five things…"

Suppose that you have to tell this story to somebody who is unfamiliar with any economics and with the history of the past five years. Write 400 words (i.e., between 300 and 500) explaining as best you can to this unfamiliar audience just how this all happened.


Matthew Yglesias: Mercatus Study Confirms ARRA’s Success

MY:

Mercatus Study Confirms ARRA’s Success | ThinkProgress: First off, what Kevin Drum said here. If the Center for American Progress had done a study of hiring at firms that obtained ARRA funds and discovered that the ratio of previously unemployed workers to previously employed workers was basically 1:1 we would trumpet that as evidence that ARRA was highly successful. After all, the ratio of employed to unemployed workers in the general population was 10:1—big win. That’s even before we consider Jon Chait’s point about the hiring of previously employed workers creating new job openings or general considerations about aggregate demand. The main reason these numbers are being trumpeted as evidence of ARRA failure is that they were produced by the Mercatus Center

But to try to add value, let me say that I think it’s very difficult to evaluate any critique of ARRA that doesn’t include some kind of notion of “compared to what?” At least one read of the Mercatus report is that they implicitly think it would have been better for the Obama administration to propose a targeted make-work program for unemployed people. But knowing libertarian economists as I do, I seriously doubt that if this had been proposed they would have been applauding it. Instead we’d be hearing about how monstrously wasteful it was, how we were promised all these useful projects but just got guys digging ditches instead.

Last, it is worth recalling that the alternative to ARRA that was on the table legislatively was Jim DeMint’s plan for non-offset regressive permanent tax cuts or else simply not doing anything. I didn’t write ARRA, I’m comfortable with the conclusion that it wasn’t an optimally designed program, but I’m also very comfortable with the conclusion that members of congress asked to choose between these options did the right thing by choosing ARRA. Once the thing is passed, everyone kind of gets their back up about “pro” or “con” but that was the debate that was happening at the time—a mixed approach of temporary spending and temporary tax cuts, or a much costlier package of permanent tax cuts.


Liveblogging World War II: October 21, 1941

The Kragujevac massacre:

Kragujevac massacre - Wikipedia, the free encyclopedia: The Kragujevac massacre was the murder of men and boys in Kragujevac, Serbia, by Nazi German soldiers between 20–21 October 1941. All males from the town between the ages of sixteen and sixty were assembled, including high school students, and the victims were selected from amongst them. On 29 October 1941, Felix Benzler, the plenipotentiary of the German foreign ministry in Serbia, reported that 2,300 people were executed. Later investigations by the post-war Yugoslavian government came up with between 5,000 and 7,000 people executed, although these figures were never proven reliable.

German notification on 21 October 1941:

ANNOUNCEMENT

The cowardly and treacherous surprise attacks on German soldiers during the previous week, on which occasion 10 German soldiers were killed and 26 wounded, had to be punished. For that reason 100 people were shot for each killed German soldier, and for each wounded 50, mainly communists, bandits and their siders, 2300 altogether. Every similar case, even if it were only sabotage, will be dealt with the same severity.

Chief of local command

After the massacre Field Marshal Wilhelm Keitel issued an order reapplying to all Europe to kill 50 communists for every wounded German soldier and 100 for each killed on 16 September 1941. German soldiers were attacked in early October by the Communist Partisans near Gornji Milanovac, and the massacre was a direct reprisal for the German losses in that battle. In addition, the German High Command was furious because the bodies of the German soldiers were mutilated by the guerrillas, so it was decided that the punishment must be particularly harsh.

A German report stated that: "The executions in Kragujevac occurred although there had been no attacks on members of the Wehrmacht in this city, for the reason that not enough hostages could be found elsewhere."

On the morning of 19 October, the entire city was raided. Around 10,000 civilians, aged 16–60, were arrested. A whole generation of high school students was taken directly from their classes. The executions started at 6pm on the following day. People were shot in groups of 400. The shootings continued into the next day, at a lesser pace. The remaining prisoners were not released, but were held as hostages for further reprisals. On 31 October 1941, Franz Böhme, the Commanding General in Serbia, sent a report to Walter Kuntze of the shootings that took place in Serbia: "Shooting: 405 hostages in Belgrade (total up to now in Belgrade, 4,750). 90 Communists in Camp Sebac. 2,300 hostages in Kragujevac. 1,700 hostages in Kraljevo."

Kuntze issued a directive on 19 March 1942: "The more unequivocal and the harder reprisal measures are applied from the beginning the less it will become necessary to apply them at a later date. No false sentimentalities! It is preferable that 50 suspects are liquidated than one German soldier lose his life...If it is not possible to produce the people who have participated in any way in the insurrection or to seize them, reprisal measures of a general kind may be deemed advisable, for instance, the shooting to death of all male inhabitants from the nearest villages, according to a definite ratio (for instance, one German dead 100 Serbs, one German wounded 50 Serbs)." Böhme went on trial for the Kragujevac massacre among other war crimes.


Twitterstorm delong; October 20, 2011

  • RT @mattyglesias: Radical tax reform at twitter length: Land value tax + payroll tax w/ progressive rates + C02 tax + small wealth tax.

  • RT @DafnaLinzer: .@attackerman you only had to wait five minutes RT @aarondmiller2 will qadhafi's demise help obama? don't bet on it htt ...

  • RT @RyanLizza: Full version of that Romney ad is here: http://t.co/QOXwQUpI

  • The Post-Gadhafi Journalism You Will Read In The Next 72 Hours - Attackerman http://t.co/OrNVO8BA

  • Ari Berman: How The Austerity Class Rules Washington http://t.co/vEq3NYGD

  • RT @RyanLizza: Fascinating. Cain personally opposes abortion but thinks it should be legal. In other words he's pro-choice. http://t.co/

  • RT @sarahkliff: Why yes, I did want to read more ACO regs. #acoverload RT @philgalewitz FTC releases revised #ACO anti trust rules

  • RT @TheStalwart: 50% of Americans are in the bottom 33%

  • Oregon Economic Forum http://bit.ly/qwEb2f

  • RT @daveweigel: That was worth holding up for months @InhofePress: Obama nominee for Sec of Commerce, John Bryson, confirmed by vote of ...

  • RT @JamilSmith: Climate-change skeptic takes $150K from the Koch brothers to fund his study that ends up proving climate change. Oops.

  • RT @LOLGOP: "I Occupied Wall Street and all I got was the top 1% to shut up about the deficit."

  • @afrakt The AMA, AHA, and AMGA all like the ACO rule. Is CMS making eventual losers feel ...

  • RT @AndyHarless: I wonder if harping on the critical role of toughness in the implementation of NGDP targeting would help garner conserv ...


Toward the Patronage Intellectual Society?

Sam Harris:

The Blog : The Future of the Book : Sam Harris: Writers, artists, and public intellectuals are nearing some sort of precipice: Their audiences increasingly expect digital content to be free. Jaron Lanier has written and spoken about this issue with great sagacity. You can purchase his book here, which most of you will not do, or you can watch him discuss these matters for free. The problem is thus revealed even in the act of stating it.  How can a person like Lanier get paid for being brilliant? This has become an increasingly difficult question to answer.

Where publishing is concerned, the Internet is both midwife and executioner. It has never been easier to reach large numbers of readers, but these readers have never felt more entitled to be informed and entertained for free…. One fact now seems undeniable: The future of the written word is (mostly or entirely) digital.

Journalism was the first casualty of this transformation. How can newspapers and magazines continue to make a profit? Online ads don’t generate enough revenue and paywalls are intolerable; thus, the business of journalism is in shambles. Even though I sympathize with the plight of publishers—and share it by association as a writer—as a reader, I am without pity. If your content is behind a paywall, I will get my news elsewhere. I subscribe to the print edition of The New Yorker, but when I want to read one of its articles online, I find it galling to have to login and wrestle with its proprietary e-reader. The result is that I read and reference New Yorker articles far less frequently than I otherwise would. I’ve been a subscriber for 25 years, but The New Yorker is about to lose me. What can they do? I don’t know. The truth is, I now expect their content to be free….

Not just free: easy to access: the New Yorker's proprietary reader is a monstrous offense to usability.

Harris goes on:


My friend Christopher Hitchens is a writer of truly incandescent prose whose career has been forged almost entirely in the context of print journalism. Among his many outlets, the most prominent has probably been Vanity Fair…. I visited the site a moment ago and read Hitch’s latest: a very tender essay of praise for the work of Joan Didion…. Hitch did his job and got paid. Didion will soon publish her book in hardcover and has already benefited from his review. All appears to be well in the Kingdom of Print.

However, with the gimlet eyes of a new blogger, I detect ominous portents of change. First, I see that Hitch’s article has been featured on the Vanity Fair website for the better part of a week and has garnered only 813 Facebook likes and 75 Tweets. Many of my blog articles receive more engagement than this, some by nearly a factor of 10. No doubt this has something to do with the ratio of signal to noise: When readers come to a personal blog, they are more or less guaranteed to read what the author has written. How many people will find Hitch’s article on the Vanity Fair website?… A glance at the online page rank of the magazine raises even greater concerns. I know bloggers—Tim Ferriss and Seth Godin, for instance—whose personal blogs get more traffic than the entire Vanity Fair website….

[I]t doesn’t seem entirely crazy to wonder whether a significant percentage of the people who have read Hitch’s essay in the last week read it in the last hour because I broadcast it on social media. I used to view this as a wonderful synergy—digital enables print; print points back to digital; and both thrive. I now consider it the death knell for traditional publishing….

Where is all this heading?  I can count on one finger the number of places where it is still obviously better for me to publish than on my own blog—the opinion page of The New York Times. But it’s not so much better that I’ve been tempted to send them an article in the last few months. Is this just the hubris of the blogosphere? Maybe—but not for everyone and not for long.

Related difficulties are now looming for books…. Publishers can’t charge enough money for 60-page books to survive; thus, writers can’t make a living by writing them. But readers are beginning to feel that this shouldn’t be their problem. Worse, many readers believe that they can just jump on YouTube and watch the author speak at a conference, or skim his blog, and they will have absorbed most of what he has to say on a given subject. In some cases this is true and suggests an enduring problem for the business of publishing. In other cases it clearly isn’t true and suggests an enduring problem for our intellectual life….

One thing is certain: writers and public intellectuals must find a way to get paid for what they do—and the opportunities to do this are changing quickly. My current solution is to write longer books for a traditional press and publish short ebooks myself on Amazon. If anyone has any better ideas, please publish them somewhere—perhaps on a blog—and then send me a link. And I hope you get paid.


Who Should I Be Linking to (ior Linking to More Often) That I Am Not?

Freddie de Boer:

L'Hôte: blogging is a system of control: [M]ainstream blogging is… made up of a numerically tiny and considerably homogeneous group of connected insiders. Criticisms of the prominent blogosphere are often blunted by online mythology, and that is nowhere more clear than in the idea that there is this vast swath of disparate people from different backgrounds, all of whom contribute to this open and accessible online forum where ideas are judged on merit.

The truth of the matter is that the blogosphere is largely a closed loop. The ability of individuals, particularly those dedicated to amateur blogging (out of principle or out of practicality), to penetrate the larger conversation is quite small. As Yglesias laments, the capture of the blogosphere by the media and think tank apparatus means that there are now a whole host of gatekeepers who rigorously police the online discussion and determine which voices are heard. It's hard to think of anyone who has come up in prominence the last few years who was not quickly co-opted into the service of a large media or political entity. This ensures that those who participate in the prominent blogosphere (the "official" conversation) are from a very limited set of backgrounds, both personal and ideological. Because mainstream media publications and major political organizations draw from only those blessed by the shambling apparatus of American achievement, those who make it in now are almost all coming from the world of status games, big name colleges, and perennial overachievement-- a subset of our young people that has far more in common, demographically and ideologically, than it has in difference. And because mainstream media and our political policy edifice are dedicated to the protection of a particular economic system and strata, getting in also means kowtowing to a narrow range of political argument. As is usual in our politics the appearance of internal disagreement gives cover for a broad conformity of ideas….

Then there is the system of social control that I have long identified. The world of elite media and politics is dominated by social relationships. The environment in which most of these people work and live is a small fishbowl in which the connected and influential rub shoulders all the time…. [I]n aggregate you get a tremendous amount of social capture, and it has real relevance. Those who have social commitments to their ideological enemies have great incentive to moderate their political messages and express disagreement in particular and anodyne terms that lead towards certain outcomes in discussion. My standard example is the case of health care reform, a straightforwardly moral issue where the moral argument was often ignored in favor of a bloodless policy argument…. I have no doubt that this failure was caused in part by the discomfort many connected liberal bloggers felt in expressing moral condemnation of the selfsame conservatives and libertarians they were drinking buddies with….

There are exceptions. Greenwald has remained independent, and his geographical distance from DC is both symbolically and practically important. Atrios is truly independent, buttressed by his longevity and grandfathered in from a time when you could be prominent without being attached to any particular legitimizing institution. And there are of course plenty of voices that are smart and principled and worthwhile operating within the bounds of the conventional, approved ideological range. Being within the enforced political boundaries doesn't render someone unprincipled, unworthy of being listened to, or illegitimate. It's just that there are tons of those voices in the establishment blogosphere, almost none from outside the approved alternatives, and the common assumption that there is great disagreement and ideological diversity is the kind of distortion that has negative consequences….

You should note that the personal doesn't have to operate in the actual social sphere for social conditioning to happen. Razib Khan mentioned me in a post earlier this year that I think is indicative of a certain kind of subtle control. Khan is right that I have a certain reputation, to the degree that anyone thinks about me online at all. (Which isn't much.) But note that he is both describing reality and reinforcing that reality. When someone like Khan speaks obliquely about bad reputations, he is reinforcing the idea of "blogosphere as high school," and further separating the officially condoned from the officially excluded….

Finally, one of the most important mechanisms of control is the cone of silence. I've been making some version or another of this argument for the four years or so that I've been blogging. And while I've gotten some limited attention to some of the issues that I've written about in that time, I've gotten no purchase whatsoever for the ideas presented in this post…. The point isn't that people should be paying attention to me and my ideas…. The point is that… there's tremendous opportunity for unapproved ideas to disappear into the ether of an intentional lack of attention…. The conformity and homogeneity of bloggers of influence means that most will find the same ideas impolite and impolitic…

One problem is that there is so much good mainstream stuff and it is unfair to the people producing it for me to ignore it--and there are a number of people, most of them left over from the past, whose reputations need some help in withering away faster. But I should devote more space to others: Doug Henwood and Michael Perelman clearly. But who else?


Quote of the Day: October 20, 2011

"Per capita energy capture rose in the East from an average of roughly 4,000 kilocalories per person per day (for all purposes) around 14,000 BCE (4.29 points on the index of social development) to 27,000 kilocalories in 1 bce/ce (29.35 points). In the West it rose from roughly the same level around 14,000 BCE to around 31,000 kilocalories (33.70 points) in 1 bce/ce."

--Ian Morris: Why the West Rules--for Now


J. Bradford DeLong Responds to T. M. Scanlon at Boston Review

We are live: Boston Review — J. Bradford DeLong responds to T. M. Scanlon: Closeted Utilitarians

This article is part of Libertarianism and Liberty, a forum on arguments for libertarian policy conclusions.

Scanlon says that there are three roads to libertarian conclusions. The first employs the empirical assertion that libertarian policies lead to the greatest good of the greatest number. But, he says—correctly—this argument gives us no reason to accept libertarian philosophy because it is not based on the value of liberty. A utilitarian could accept libertarian policies for the same reason. The second road uses the claim that human autonomy is the greatest good. The third rests on the Lockean right of non-interference. But, Scanlon argues, neither of these latter paths gets you to libertarian policies.

What I want to argue here is that there is a sense in which much of Scanlon’s argument is not necessary, for the the second and third roads are largely, if not completely, superfluous. When the chips are down and libertarians are faced with the potentially monstrous consequences of overvaluing individual autonomy or rights to non-interference, they almost invariably resort to the first road: they retreat to claiming not fiat libertaria ruat caelum but rather that such situations would never arise in practice, because libertarian policies do produce the greatest good for the greatest number. Consider Robert Nozick’s Anarchy, State, and Utopia. Interwoven in passages about how only the minimal state can be justified because any state larger than the minimal state must violate people's inviolable rights are passages like:

[S]omething should be said about the actual operation of redistributive programs. It has often been noticed, both by proponents of laissez-faire capitalism and by radicals, that the poor in the United States are not net beneficiaries of the total of government programs and interventions in the economy. Much of government regulation of industry was originated and is geared to protect the position of established firms against competition, and many programs most greatly benefit the middle class . . .

This statement is empirically false. First, we are all—or almost all—net beneficiaries of the total of government programs and interventions. Take away our police and our courts and our other government programs and we would have a country that would look much more like modern Somalia than like the United States, and all (or nearly all) benefit from the fact that that is not the case. The rich benefit, true, but the poor benefit as well. Second, the major government programs—Social Security, Medicare, Medicaid, Unemployment Insurance, the Earned Income Tax Credit, and Temporary Assistance for Needy Families, in order of importance—do, with the exception of TANF, benefit the middle class and the poor, largely by raising those who would otherwise be poor into the middle class, and protecting the middle class from the danger of falling into poverty.

Given the passage’s empirical falsity, the interesting question is why Nozick felt that he had to make it. Weren't his arguments strong enough without it? Wasn't he happy saying that a libertarian society is a just society—even if (or rather though) it grinds the faces of the poor in the dirt and makes their lives nasty, brutish, and short? He was not. Nozick felt that his argument for libertarianism was incomplete without the empirical claim that libertarian society is good for the poor.

In a similar but much stronger fashion, Milton Friedman and Rose Director Friedman's Free to Choose asserts the absolute identity of (political and economic) liberty and prosperity, and of tyranny and misery:

The experience of recent years—slowing growth and declining productivity—raises a doubt whether private ingenuity can continue to overcome the deadening effects of government control if we continue to grant ever more power to government, to authorize a “new class” of civil servants to spend ever larger fractions of our income supposedly on our behalf. Sooner or later—and perhaps sooner than many of us expect—an ever bigger government would destroy both the prosperity that we owe to the free market and the human freedom proclaimed so eloquently in the Declaration of Independence.

We have not yet reached the point of no return. We are still free as a people to choose whether we shall continue speeding down the “road to serfdom,” as Friedrich Hayek entitled his profound and influential book, or whether we shall set tighter limits on government and rely more heavily on voluntary cooperation among free individuals to achieve our several objectives. Will our golden age come to an end in a relapse into the tyranny and misery that has always been, and remains today, the state of most of mankind? Or shall we have the wisdom, the foresight, and the courage to change our course, to learn from experience, and to benefit from a “rebirth of freedom”?

Economic freedom is, Milton Friedman and Rose Director Friedman believed to their very marrow, a necessary precondition for political freedom in the long-run, and economic freedom and political freedom are each necessary preconditions for prosperity.

They were so convinced of this that they concluded every country with a larger and more interventionist government than the United States—that is further advanced on Hayek's “road to serfdom”—must be, or be on the point of becoming, a socialist hellhole. Consider their view of Sweden, suffering by 1980 from:

increasing difficulties. . . . Dissatisfaction has mounted. . . . [Although] Sweden has done far better than Britain . . . it too has recently been experiencing the same difficulties . . . high inflation and high unemployment; opposition to high taxes, leading to the emigration of one of its most talented people; dissatisfaction with social programs. . . . [V]oters have expressed their views at the ballot box . . .

The last thirty years have offered a conclusive empirical test. Sweden has not markedly pruned its social democracy back—and it is doing fine. Indeed, much of the edge that many observers in the 1980s and 1990s saw in the entrepreneurial United States over the more statist economies of Western Europe has turned out to be transitory, if it was not imaginary to begin with. And the costs of 1990s libertarian deregulation of the financial industry have turned out to be extraordinarily high.

Looking around the world and back at history, non-libertarianism—whether you want to call it the New Deal, social democracy, the post-World War II North Atlantic settlement, or the mixed economy—still seems to be our best guess at the institutional arrangements that will lead to the greatest good of the greatest number.


An Unsatisfactory Platonic Dialogue on the Impacts of Quantitative Easing...

Thrasymakhos: So Jan Hatzius and company at Goldman Sachs think that the Federal Reserve should take the Federal Reserve's balance sheet up from $3T to $5T, and announce that it will take the balance sheet higher if necessary unless and until nominal GDP growth rises to 7% per year--and maintain that higher nominal GDP growth rate until total nominal spending gets back to its pre-2007 trend.

Adeimantos: But why should the nominal GDP growth rate rise? The Federal Reserve buys $2T of bonds and creates $2T of cash, but--as Robert Barro says--this is simply swapping one zero-yield government asset for another, and will have no effect on anything.

Glaukon: But Jan wants the Federal Reserve to buy not short-term debt but long-term debt--agency debt and long-term Treasuries and related securities with an average interest rate not of 0% but of 3%/year.

Kephalos: It seems to me that that is relatively little. Say half of that interest rate is an expectational effect--a belief that short-term interest rates will rise in the future and thus that long-term bonds should incorporate that expected rise in their interest rates. That leaves 1.5%/year as compensation for bearing risk. That means that $2T of quantitative easing means that the Federal Reserve takes onto its books and bears risk that the private market currently values as worth $30B a year to bear. That does not seem to me to be very much. Total GDP originating in Finance and Insurance is, after all, $1.2T. $30 B is only 2.5% of that "GDP originating" total...

Thrasymakhos: Is that small? The $1.2T of GDP originating in Finance and Insurance is a slippery beast. Real insurance, for one, should not be in there--that's $400B a year that insures indiviuals against fire and flood and accident and has nothing to do with providing the risk capital to finance economic activity. And of the remaining $800B, my guess is that 1/4 is the casino: Wall Street as Las Vegas charging people for buying and selling as they watch their stocks go up and down. 1/2 is the scarcity of capital: the fact that access to finance so that you can buy and build capital is valuable whether it is really risky or not. That leaves only $200B a year that is compensation for bearing risks. $30B is 15% of that.

Glaukon: So if $200B a year of risk-bearing capacity drives $1.2T a year of investment spending, then adding $30B/year to that risk-bearing capacity has the potential to drive an extra $180B a year of investment?

Adeimantos: Add a multiplier of 2 to that and you have an extra $360B a year of GDP--enough to push the unemployment rate down by maybe 1.5 percentage points. That gets us down from 9.1% to 7.6%.

Kephalos I don't think that this argument is well-grounded in either theory or the data. I know that I have never seen anybody seriously think about the relationship between economy-wide risk tolerance and aggregate investment spending, and that is what we would need to make these kinds of arguments...


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

David Dayen of FireDogLake:

Doug Schoen Misrepresented Own Data to Marginalize OWS: Here’s one of the key questions in Schoen’s poll:

What frustrates you the most about the political process in the United States? {Open Ended}

30% Influence of corporate/moneyed/special interests
3% Our democratic/capitalist system
3% Stagnant middle class wages
21% Partisanship
15% Joblessness
6% Income inequality
7% Corruption
2% Entrenched bureaucracy
2% Bush tax cuts
2% Obama abandoned left
2% Military spending
2% Federal Reserve
5% Everything.

Clive Crook of the Atlantic:

The Atlantic: "The protesters' grievances, as far as one can understand them, have a radical edge. (I assume the White House is aware that the occupiers are bitter critics of the administration.) Militancy, civil disobedience, and outright anti-capitalism are unlikely to appeal to mainstream voters. Such confrontations always have the potential to turn nasty: they often involve a minority that wants them to turn nasty. Democrats probably shouldn't condemn the protests, but they certainly ought to keep a safe distance.

Pollster Doug Schoen has been asking the Wall Street protesters about their views. His findings are roughly what you would expect:

What binds a large majority of the protesters together--regardless of age, socioeconomic status or education--is a deep commitment to left-wing policies: opposition to free-market capitalism and support for radical redistribution of wealth, intense regulation of the private sector, and protectionist policies to keep American jobs from going overseas...

Thus Occupy Wall Street is a group of engaged progressives who are disillusioned with the capitalist system and have a distinct activist orientation. Among the general public, by contrast, 41% of Americans self-identify as conservative, 36% as moderate, and only 21% as liberal. That's why the Obama-Pelosi embrace of the movement could prove catastrophic for their party.

The number of high=paid journalists who have no bullshit filter, don't use the Google to check people's reputations, and don't dig down one level to check whether what they are being told is true is amazing...


Niklas Blanchard's Head Explodes as He Watches...

Stephen Williamson

: New Monetarist Economics: Nominal GDP Targeting: [T]he ability of a central bank to bringing about improvements in economic welfare, working through real activity, is extremely limited. However, a central bank is also capable of inflicting significant damage if it behaves badly.

Yes, this does make absolutely no sense at all. Viewers do not need to adjust their sets. The problem is with the source.


David W4ssel: Our National Jobs Crisis

DW:

Untangling Long-Term Unemployment: Herman Cain, the Republican presidential candidate, avoids carefully calibrated talking points. "If you don't have a job and you're not rich, blame yourself," he said in a Wall Street Journal interview.

Beneath Mr. Cain's blunt words lurks an economic hypothesis: that there's nothing much government policy can do to bring unemployment down from today's 9.1% rate…. [I]f the unemployed aren't willing or able to fill jobs that muscular stimulus might produce then there's little wisdom in borrowing more money or chancing inflation. We just have to suck it up.

But according to Fed governor Daniel Tarullo, a veteran of the Clinton White House and Obama presidential campaign who has spent the past few months consulting with Fed and other labor economists for a speech on the job market he is to deliver Thursday at Columbia University, there is little evidence that the bulk of today's unemployed would still be unemployed if the economy were growing faster or that the bulk of today's unemployment is, in the jargon of economists, "structural."…

The Labor Department counts 14 million unemployed and 3.1 million job openings, or 4.6 jobless workers per job opening. Before the recession, the ratio was 1.5. If every opening were filled instantly, there would still be many unemployed.

Wages aren't rising. "We don't see rapid wage growth almost anywhere, which is what you would expect if firms were bidding up the wages of qualified workers and were unable to find qualified workers among the unemployed," said Harvard University's Lawrence Katz.

Unemployment is up across ages, occupations, industries and years of schooling. "We had a fast-advancing economic decline with layoffs and hiring freezes in a broad range of sectors of the economy. That is not consistent with an increase in structural unemployment being the big explanation," Mr. Tarullo said…


Twitterstorm delong: October 19, 2011

  • Wadhwani: We need to rethink QE and how to bail out eurozone http://t.co/TRGeBRra

  • Macroadvisers: Can Refinancing Reinvigorate the Recovery? http://t.co/VKXhZ2yW

  • Mike Konczal: 'Shorter Richard Fisher, using the phrase [of] Chernyshevsky... “the worse the better.”' http://t.co/5meQgghJ

  • Scott Sumner: What would Narayana Kocherlakota have done in 1933? http://themoneyillusion.com/?p=11403

  • RT @elidourado: What do we want? NGDP level targeting! When do we want it? Four years ago!

  • RT @davidmwessel: RT @steveliesman: Boston Fed's Rosengren tells #Cnbc Fed should target 7% unemployment, 2.5-3% inflation.

  • RT @pwire: 50% of Americans don't think Obama deserves re-election, yet none of the leading GOPers tops him in new poll...

  • RT @DanaGoldstein: Remind me again how birth control is one of the greatest threats facing america? http://t.co/rhcuc89t

  • What Needs to Happen for the Fed to Successfully Target the Level of Nominal GDP? http://bit.ly/nFajiD

  • RT @INETeconomics: "A currency union with structural mercantilists in the core now threatens a permanent slump in the periphery" - M. Wolf

  • RT @tanehisi: Wife is reading Fred Doug for class. Just texts me "Douglass makes me proud to be black, I'm bout to cry in the library." ...

  • RT @gruber: Slate's "redirect all mobile users requesting a specific article to the home page" is absolutely maddening. Why do that?

  • RT @davidmwessel: What's chronic and what's acute about today's painfully high jobless rate? My column. http://twitter.com/wsj.com/capital

  • Boston Review — New Democracy Forum: Libertarianism and Liberty http://t.co/9YBRV50s

  • Alp Simsek: "Speculation and Risk Sharing with New Financial Assets" http://t.co/WzwtAOfD

  • RT @TheStalwart: RT @jamespoulos: InTrade is pathetic. NOTHING on the possibility that baby Bruni-Sarkozy will eventually be crowned King of Rome

  • RT @dsquareddigest: "Europe Must Recapitalise Its Banks" is pretty much the king kong of confidence-fairy reasoning.

  • RT @dsquareddigest: Have I done "A Fiscal Fund Cannot Pretend To Be A Monetary Authority" as concept of the day, yet?


No, the Repeal of Glass-Steagall Was Not a Major Cause of Our Lesser Depression--But That Is the Wrong Question to Ask

Mark Thoma:

What Can We Learn From the Emerging Details of the Volcker Rule Proposal? - CBS MoneyWatch.com: What is the Volcker Rule?: The Volcker rule prevents firms from engaging in… proprietary trading… when a financial firm uses… its own money, to try and profit by trading…. The problem is that if these trades get the firm into trouble, and if the firm is… backed by an implicit or explicit government guarantee, then the firm is likely to take on too much risk… since losses are likely to be covered [by the government] to a significant extent[. Such firms] are more likely to get into trouble that requires a government bailout and taxpayer losses. The Volcker rule attempts to prevent firms from engaging in this type of behavior….

[W]hether the elimination of the Glass-Steagall act caused the present crisis is the wrong question to ask. To determine the value of reinstating a similar rule, the question is whether the elimination of the Glass-Steagall act made the system more vulnerable to crashes. When the question is phrased in this way, it’s clear that it has made the system more vulnerable…

A decade ago we (1) did not worry about the vulnerability because we believed the Federal Reserve had the power and the will to build a firewall between finance and the real economy to keep a financial collapse from leading to high unemployment, and (2) thought that the existing investment banking oligarchy--Morgan Stanley, Goldman Sachs, and company--could use some healthy competition from players with deep pockets like Citigroup, Chase, and Bank of America. Now we have rethought all these issues, and come to different conclusions.


America Needs a Very Different Republican Party

McJoan:

Daily Kos: Cantor's income disparity speech: 'How we make sure the people at the top stay there': When House Majority Leader Eric Cantor backed off from his "mob" characterization of Occupy Wall Street last week, some might have thought that this savvy politician was catching a clue about the national zeitgeist. Well, maybe, kinda, sorta:

The Virginia congressman, the most recent and prominent Republican whipping boy for Democrats, is heading to the Wharton School at the University of Pennsylvania to talk about income disparity and how Republicans believe the government could help fix it, an aide said. The speech will zero in on how Washington could help a "a single working mom… a small business owner… and how we make sure the people at the top stay there," the aide said…


Three Questions for a Representative from the American Enterprise Institute

Three questions for Dr. Mathur:

  1. The large increase in uncertainty about long-run fiscal policy came in 2001-3, when the Bush administration and the Republican congressional majority pushed through tax cuts and entitlement expansions without making any provision for funding them. I never heard anyone at AEI say a peep of criticism. How do your elders at AEI explain themselves to you when you ask them why they supported these mammoth increase in uncertainty?

  2. The large increase in uncertainty in regulatory policy came in 2009, when rather than embracing the Romneycare-Heritage exchange-based plan that became the ACA, and that is in fact very close to what Doug Holtz-Eakins and company said they would like to do during the 2008 campaign, the Republican Party. Did anybody at AEI complain about this political decision?

  3. Why are you on the macro panel rather than the micro panel?


More Republican Mental Pathology

Mark Thoma:

Economist's View: A Convenient Excuse: If you don't have a job, many in the GOP think it's your own fault. Never mind that there are fewer jobs than people looking by a wide margin, somehow if the unemployed would try harder, the jobs will magically appear…. Convenient, isn't it? It gives people who don't think they have any obligation to contribute to social insurance a reason to turn their backs on the unemployed.

Greg Sargent talks about the same thing:

Greg Sargent:

GOP debate crowd cheers idea that jobless are to blame for their plight: This moment from last night’s debate, in which the audience cheered the idea that the unemployed are solely to blame for not having a job, strikes me as one of the most iconic moments we’ve seen at the debates yet:

Anderson Cooper says: “Herman Cain, I’ve got to ask you — two weeks ago, you said, `Don’t blame Wall Street, don’t blame the big banks. If you don’t have a job, and you’re not rich, blame yourself.’ That was two weeks ago. Do you still say that?” At this point applause starts, and after Cain stands by the claim, the applause crescendos and hoots of approval can be heard.

Lovely. I get that this applause might be an affirmation of the idea of self reliance as much as anything else, but the fact remains that the crowd is applauding the idea that the unemployed are solely to blame for their plight. The basic suggestion here is that the private sector is entirely unimpeachable and must be shielded from blame at all costs — the only morally correct position is to place all the blame for unemployment on the jobless themselves.…

As Alex Seiz-Wald noted recently: “Blaming unemployment on the unemployed is a common trend among conservative politicians.” If this video is in any way representative of the GOP base’s sentiments, we can see why…. If Obama hopes to contrast his call for a larger, inclusive, charitable vision with the fundamentally exclusionary and meanspirited one he accuses the GOP of harboring, this video seems like a pretty good data point.

Steve Benen:

Political Animal - Blaming the victim: On the one hand, Cain insists the unemployed and struggling families are to blame for their own plight. On the other hand, Cain also said:

I still stand by my statement, and here’s why. They might be frustrated with Wall Street and the bankers, but they’re directing their anger at the wrong place. Wall Street didn’t put in failed economic policies. Wall Street didn’t spend a trillion dollars that didn’t do any good. Wall Street isn’t going around the country trying to sell another $450 billion. They ought to be over in front of the White House taking out their frustration.

There’s obviously a breakdown in Cain’s logic here. He wants victims of the crash to blame themselves for being solely responsible for their own misfortunate — a sentiment that drew hearty cheers from the Republican audience — and he wants Americans to blame the White House. Cain should probably pick one.

The larger problem, though, is that Cain is wrong on both counts. On the first part of Cain’s argument, which absolves Wall Street of its responsibilities for the crisis, the thinking here is practically pathological…. On the second part of Cain’s argument, which blames President Obama, one can only wonder if perhaps Cain has suffered some kind of head trauma that interferes with his cognitive abilities. The recession began in 2007, before Obama had even won the Iowa caucuses. The economy fell off a cliff in the fall of 2008, before Obama had won the election….

That the audience saw fit to cheer all of this nonsense speaks volumes about the alternate GOP reality.


What Needs to Happen for the Fed to Successfully Target the Level of Nominal GDP?

Paul Krugman writes:

Getting Nominal: “Market monetarists” like Scott Sumner and David Beckworth are crowing about the new respectability of nominal GDP targeting. And they have a right to be happy. My beef with market monetarism early on was that its proponents seemed to be saying that the Fed could always hit whatever nominal GDP level it wanted; this seemed to me to vastly underrate the problems caused by a liquidity trap. My view was always that the only way the Fed could be assured of getting traction was via expectations, especially expectations of higher inflation –a view that went all the way back to my early stuff on Japan. And I didn’t think the climate was ripe for that kind of inflation-creating exercise.

At this point, however, we seem to have a broad convergence. As I read them, the market monetarists have largely moved to an expectations view. And now that we’re almost four years into the Lesser Depression, I’m willing, out of a combination of a sense that support is building for a Fed regime shift and sheer desperation, to support the use of expectations-based monetary policy as our best hope.

And one thing the market monetarists may have been right about is the usefulness of focusing on nominal GDP. As far as I can see,the underlying economics is about expected inflation; but stating the goal in terms of nominal GDP may nonetheless be a good idea, largely as a selling point, since it (a) is easier to make the case that we’ve fallen far below where we should be and (b) doesn’t sound so scary and anti-social.

I still believe that the chances of success will be a lot larger if we have expansionary fiscal policy too; but by all means let’s try whatever we can…

Let's try to answer this question by using… the IS-LM model!

If you are--as we are right now--in a liquidity trap, with extremely interest-elastic money demand, then expansionary monetary policy that involved the Federal Reserve buying financial assets for cash:

  1. will have next to no effect on the short-term safe nominal interest rate--it's already zero.
  2. will decrease the long-term safe nominal interest rate to the extent that your open-market operations today change people's expectations of what your target for the short-term safe nominal interest rate in the future.
  3. will decrease the long-term safe real interest rate to the extent that it decreases the short-term nominal interest rate and changes expectations today of what inflation will be in the future.
  4. will decrease the long-term risky real interest rate to the extent that it decreases the long-term safe real interest rate and to the extent that the assets purchased for cash by the Federal Reserve free up the risk-bearing capacity of private investors and lead to a reduction in risk spreads.
  5. will increase spending to the extent that it decreases the long-term risky real interest rate and to the extent that private spending responds positively to decreases in the long-term risky real interest rate.

Lots of steps here, some of which may well be weak.

By contrast, the alternative expansionary policy is for the government to print money and spend it buying useful things. Then:

  1. The buying of useful things raises spending.
  2. Financing it by printing money rather than issuing bonds means no increase in interest rates to crowd out private spending.
  3. Financing it by printing money rather than promising to levy future taxes means no increase in the present value of future tax liability to crowd out private spending.
  4. Financing it by printing money means no worries about any increase in fears of some future government default.

By contrast, if we tried to target nominal GDP through fiscal policy alone--through borrowing and spending buying useful things:

  1. The buying of useful things raises spending.
  2. Financing it by issuing bonds might mean an increase in interest rates that would crowd out private spending.
  3. Financing it by promising to levy future taxes means an increase in the present value of future tax liability that might crowd out private spending.
  4. Financing it by issuing bonds means a possible increase in fears of some future government default.

To try to target nominal GDP using either only monetary policy or only fiscal policy seems hazardous. To coordinate--monetary and fiscal expansion, money printing-financed purchase of useful things--seems to be the winner.


Paul Krugman and Menzie Chinn on "Validators" of the "Real American Jobs Act"

Paul Krugman:

Adventures In Credibility: Menzie Chinn takes us through the “Real American Jobs Act”, which is every bit as ludicrous as one might imagine. What caught my eye, however, is who the GOP is leaning on for economic validation: namely the Heritage Foundation. Yep, the people who released an analysis claiming that the Ryan plan would drive unemployment down to 2.8, that’s right, 2.8 percent; and who then tried to flush that analysis down the memory hole, but weren’t quick enough to forestall others from keeping cached copies. And the GOP is relying on Heritage not once but twice — for the claim that the Affordable Care Act has somehow cost vast numbers of jobs already, even though the thing hasn’t even gone into effect yet, and for the claim that the GOP bill would create 1.6 million jobs.

Here’s a suggestion for the GOP: why not rely instead on diviners who examine the entrails of sacrificed rams? It would improve your credibility.


Josef Stalin Liveblogs World War II: October 19, 1941

Josef Stalin:

In order to ensure the defence of the Moscow frontier, to reinforce the back lines of troops defending Moscow, and to repress the underhand manoeuvres of spies, saboteurs and other agents of German fascism, the State Committee for Defence resolves :

  1. To proclaim, as from 20 October, 1941, a state of siege on the city of Moscow and its adjacent regions.

  2. To prohibit travel in the streets, equally for persons as for vehicles, from midnight until 05.00 hours, with the exception of persons or transport holding a special pass issued by the commanding officer of the city in the case of alert, the evacuation of the population and of vehicles must take place according to the ruling established by the DCA of Moscow and published in the press.

  3. To commit to the commanding officer of the city of Moscow, Major General Comrade Sinilov, the ensurance of the most strict order in the city and in neighbouring regions, and to this effect to put at his disposal troops of the Interior Guard of the Commissariat of the People of the Interior, the Militia and some detachments of voluntary workers.

  4. To immediately summon before the Military Tribunal those infringing law and order, and to shoot on sight provocateurs, spies and other enemies intent upon disturbing order.

  5. The State Committee for Defence exhorts all workers of the capital to observe order and peace and to give all their assistance to the Red Array which defends Moscow.


Yes, Herman Cain's 9-9-9 Plan Is Regressive

Jared Bernstein writes:

9-9-9 in One (Really Long) Graph: "In my previous post decrying the extreme redistribution of the tax burden from the wealthy to everyone else, I had to use two graphs to tell the story.  I couldn’t fit the increase in tax liabilities for the bottom 80% on the same graph that include the over $1 million decrease in tax liability for the top 0.1%.

But my CBPP colleague Brian Highsmith could.  So here you have it: the change in tax liabilities, compared to current tax policy, under 9-9-9, for different income groups, in one incredibly unsettling graph.


Department of "Huh?!": Business Cycle Edition

FRED Graph  St Louis Fed 2

Tyler Cowen wrote:

What does the new gdp report imply for structural explanations of our current troubles?: I find the most plausible structural interpretations of the recent downturn to be based in the “we thought we were wealthier than we were” mechanism, leading to excess enthusiasm, excess leverage, and an eventual series of painful contractions, both AS and AD-driven, to correct the previous mistakes...

"We thought we were wealthier than we were, and so we...

  1. "... consumed more nondurables and services than we should have, and saved and invested too little" is not a reason for our employment-to-population ratio right now to be 58.3%--and likely to stay 58.3% for a while--rather than its normal 63%. It is an reason for us right now to have an economy with a high investment share and a 63% employment-to-population ratio.

  2. "... built too many houses and need to shift labor to other things" is not a reason for our employment-to-population ratio right now to be 58.3%--and likely to stay 58.3% for a while--rather than its normal 63%--especially now that any cumulative housing investment surplus has been burned off.

  3. "... invested too much in risky long-run ventures, and now do not want to undertake more long-run ventures unless they are safe" is not a reason for our employment-to-population ratio right now to be 58.3%--and likely to stay 58.3% for a while--rather than its normal 63%. It is an argument for why we should right now have a nondurables and services-heavy economy with a 63% employment-to-population ratio.

Are there any more stories?

None of these seem to me to make any sense. Indeed, the market economy was doing a perfectly good job at shifting resources out of housing construction and into other things starting in late 2005 as the housing bubble deflated--until the financial crisis hit in late 2007:

FRED Graph  St Louis Fed 97 1 1 1


The European Crisis Gathers Force

Credit Revulsion in Belgium France and Austria  naked capitalism

Credit Revulsion in Belgium France and Austria  naked capitalism 1

Ed Harrison:

Credit Revulsion in Belgium, France and Austria: Yes, the periphery looks bad. But look at Belgium, Austria and France. That’s the euro zone core. As I predicted in August and reiterated most recently last week when I saw Belgium’s CDS indicating a one in four chance of default….

My hope is that Europe moves to address the medium- and long-term issues before the crisis flares. However, I don’t anticipate they will….

Belgium is clearly suffering some serious credit revulsion. France and Austria are being carried in tow. That’s where we stand now. The word is that the EFSF will get levered up and banks will be recapped. This may provide some relief but ultimately the euro crisis is more fundamental. Martin Wolf is right when he writes:

The fundamental challenge is not financing, but adjustment. Eurozone policymakers have long insisted that the balance of payments cannot matter inside a currency union. Indeed, it is a quasi-religious belief that only fiscal deficits matter: all other balances within the economy will equilibrate automatically. This is nonsense. By far the best predictor of subsequent difficulties were the pre-crisis external deficits, not the fiscal deficits

Deciding between breakup and deep fiscal integration is the only long-term crisis remedy.


Twitterstorm delong: October 18, 2011

  • RT @JustinWolfers: It's a secret? RT @hblodget Even Peter Schiff thinks Herman Cain's 9-9-9 plan is secretly a huge tax increase for poo ...

  • RT @EconEconomics: European and American banks are no safer than they were in 2008 http://econ.st/qg2QpA

  • RT @TPM: Uh-oh: McCain's 'Straight Talk Express' bus was from Canada too http://tpm.ly/oZtW6Z

  • RT @owillis: democrats need to learn there's no such thing as an unadulterated "governing" mode anymore.

  • RT @INETeconomics: Monetary policy: Momentum building for NGDP targeting: New Goldman Sachs research by Jan Hatzius and Sven Jari Stehn ...

  • @EricBoehlert @andrewbreitbart @DanRiehl That is actually relatively coherent on the Riehl scale... http://bit.ly/nqWDIK

  • RT @FTAlphaville: Breaking: Europe is saved! Actually, wait… http://dlvr.it/rGRs9

  • RT @bradplumer: You can put away the cake. The world's 7 billionth person probably won't be born this month: http://wapo.st/p0cbyK

  • RT @thinkprogress: Schoen writes a "large majority" of #occupywallstreet support "radical redistribution of wealth" Poll found 4% suppor ...

  • RT @owillis: apparently doug schoen lied about his own poll http://bit.ly/ncpi8Z but @simonmaloy could have told u that

  • RT @mattyglesias: @delong @ryanavent @Neil_Irwin Krugman laid this out in a February 2009 column: http://ygl.as/oGAqm5

  • @ModeledBehavior Hatzius has plan: take Fed balance sheet to $5T immediately and thus commit. M&K would have to agree on something...

  • Martin Wolf: There is no sunlit future for the euro http://t.co/GC0ECDLo

  • RT @conor64: Do folks who effusively praise Rush Limbaugh get embarrassed every time he shows his true colors? bit.ly/q54urv about 2 hours ago from web

  • How Big Should the Eurozone's BIg Bazooka Be? http://bit.ly/n44lgT


The Financialization of the American Economy

FRED Graph  St Louis Fed 2

Microsoft Excel

Microsoft Excel 1

Finance and Insurance go from 3.8% of GDP in 1960 to 6% of GDP in 1990 to 8.7% of GDP today. Real Estate (rentals, sales commissions, and imputed rent on owner-occupied housing) goes from 10.7% of GDP in 1960 to 12% of GDP in 1990 to 13.7% of GDP today.

Finance and Insurance goes from 3.5% of nonfarm payroll employment in 1960 to 4.6% of nonfarm payroll employment in 1990 to 4.3% of non farm payroll unemployment today. Real Estate grows from 1.2% to 1.5% of nonfarm payroll between 1960 and 1990s, and stays constant at 1.5% of nonfarm payroll employment between 1990 and today.

For Finance and Insurance, value added per worker goes from 1.09 times the national nonfarm average in 1960 to 1.30 times the nonfarm national average in 1990 to 2.02 times today.

What have we purchased with this rise in value added in Finance and Insurance from 3.8% of GDP two generations ago to 8.7% of GDP today?


Matthew Yglesias on the (Latest) Pinker Thesis

First, the past is another country:

1: Gregory, Bishop of Tours:

Sicarius… celebrated the feast of the Nativity… with Austrighiselus and the other neighbors…. The priest… sent a boy to invite some of the men to come to his house for a drink. When the boy got there, one of the men he invited drew his sword and did not refrain from striking him. He fell down and was dead…. Sicarius… took his arms and went to the church to wait for Austrighiselus. The latter heard about this and armed himself…. [B]oth parties suffered harm…. Sicarius got away unnoticed… made for his homestead… leaving behind… his silver, his clothes, and four of his servants who had been wounded. After he had fled, Austrighiselus broke into the building, killed the servants, and took away with him the gold, the silver, and the other things. When they appeared later before the people's court, the sentence was that Austrighiselus was to pay the legal penalty for manslaughter…. Sicarius, forgetting about these arrangements… broke the peace… invaded the home, killed father, brother, and son, and having done away with the servants took all their belongings and their cattle. When we heard this, we grew greatly perturbed…

2: Gilgamesh:

Gilgamesh strides throughout the city of Uruk, mighty as a wild bull, head held high over others. No rival can arise his weapon against him. The men stand anxious and alert, unwilling to cross him, eager to do what he commands. Gilgamesh does not leave a son to his father. Day and night he arrogantly [missing].

The people of Uruk, they cry out:

Is Gilgamesh the shepherd of the haven of Uruke? Is he the shepherd, bold, eminent, knowing, and wise? Gilgamesh does not leave a girl in the care of her mother, does not leave the daughter of the warrior or the bride of the young man untouched.

The gods kept hearing their complaints.

The gods of the heavens implored Anu, the Lord of Uruk [Anu]

You have indeed brought into being a mighty wild bull, head raised! There is no rival who can raise a weapon against him. His fellows stand (at the alert), attentive to his orders. Gilgamesh does not leave a son to his father. Is he the shepherd of the haven of Uruk? Is he their shepherd, bold, eminent, knowing, and wise? Gilgamesh does not leave a girl in the care of her mother, does not leave the daughter of the warrior or the bride of the young man untouched.

Anu listened to their complaints. The gods called out to Aruru:

it was you, Aruru, who created this man. Now create a [zikru] for him. Let him be equal to Gilgamesh's stormy heart. Let them be a match for each other. And so Uruk may find peace!

Matthew Yglesias:

Violence And Tail Risk | ThinkProgress: Suppose instead that the apparent decline in violence is like the apparent decline in economic volatility formerly known as the Great Moderation. The first half of the 20th century, after all, seemed to indicate an increase in violence including the episodes Pinker splices up as the First World War (16th worst), the Russian Civil War (20th worst), Joseph Stalin (16th worst), Mao Zedong (11th worst), and the Second World War (9th worst).

Given that those rankings are scaled to population size and include events going as far back as the 3rd century, that’s rather a lot of violence for 50 years.

The cycle has switched back into decline since then. But how do we know that’s a real decline in violence rather than a shunting of violence into “tail risk” through nuclear war? A model in which nuclear weapons make great power conflict much less frequent and much more deadly seems like an obvious suggestion. Looking backwards from the aftermath of the multi-faceted nuclear exchange that devastates the entire Northern Hemisphere in 2043 we’re not going to say the world got “less violent” and then suddenly became “more violent” again. We’ll say nuclear weapons made the world seem less violent while masking the fact that the technologies of stabilization were actually creating new vulnerabilities.

I would say that people have become less violent--a smaller proportion of us find ourselves of broken heads of a Saturday night. But systems--total thermonuclear war most obviously, but also industrialization, bureaucratization, and nationalism--have raised the chances that huge numbers of us will be BBQed into ash. Individuals have become less violent. But the world may well have become more dangerous. It's not a paradox, but it doe require a more than one-dimensional view of the issue.


How Big Should the Eurozone's BIg Bazooka Be?

Gavyn Davies gives his view: $1.5T:

The size of the eurozone’s “big bazooka” The outline of a package to “save the eurozone” began to emerge at the G20 meeting last weekend…. The big questions surround Greek government solvency, the recapitalisation of the eurozone’s banking system and the leveraging of the resources of the EFSF. Expectations are now running high that Germany and France plan to deploy the “big bazooka”…. The more immediate market response is likely to hinge on whether the package is large enough to reverse the recent downward spiral in confidence. I would suggest using the following litmus tests in each of the key areas:

  1. Greece: The eurozone still seems reluctant to bite the bullet, and accept that an involuntary default on Greek debt is inevitable…. One litmus test for “credibility” would be that the package reduces the debt target to an ambitious 80 per cent of GDP by 2016. That requires the total package to amount to 82 per cent of Greece’s likely GDP in 2016, which is the equivalent of €200bn…. Currently, around €240bn of Greek government debt is in private hands. A 50 per cent haircut on this debt, as discussed in Germany recently, would thus raise €120 bn… it would still leave another €80bn to be found in order to hit the €200bn target, either from new official funding (i.e. from the EFSF and the IMF), or from write-downs on official debt….

  2. Bank recapitalisation: The amount that is needed to restore confidence in the banking system depends partly on the size of the Greek write-downs, and partly on the market’s expectations of possible future write-downs of other sovereign debt, especially in Italy and Spain…. Bank analysts’ estimates for the required amount of additional capital centre around €200bn… an announcement of €100bn new capital would be skimpy, while  €300bn would be impressive. Banks would be given time to raise this from private sources, but any shortfall would have to come from national exchequers or – once again – the EFSF.

  3. Leveraging the EFSF: This is perhaps the key component…. Theoretically, the EFSF has €440bn of equity capital which could be leveraged…. There are problems with this whole idea (see this earlier blog) but it has led to optimistic talk of leverageable capacity amounting to over  €2,000bn. This is probably far too high….

Overall, then, my litmus tests for the package are that it needs to reduce Greek debt by €200bn, that it needs to add €300bn to bank capital, and also add €1,000bn to the effective capacity of the EFSF. The first two components look difficult, but the third is critical, and it looks more probable that it can be achieved. There is no room for disappointment on that score.


NOW IS THE TIME FOR ALL ECONOMISTS TO SPEAK UP FOR NOMINAL GDP *LEVEL* TARGETING

Http delong typepad com 1014wkly pdf 1

Modeled Behavior commands: "Now is the time for all high profile economists to speak up for nominal GDP targeting."

That's nominal GDP level targeting, MB.

We obey:

OUR DEMAND: CLOSE THE GAP BACK TO THE PRE-2007 NOMINAL GDP GROWTH TREND BY 2015:

Adopt the Goldman-Sachs Economic Forecasting Plan to close the gap between the level of nominal GDP and the pre-2007 trend by 2015 by:

  1. Taking the Federal Reserve's balance sheet up to $5T by the end of 2012:QI.

  2. Thereafter, unwind the asset purchases back to the current $2.7T balance sheet gradually as nominal GDP growth increases.

  3. Thereafter, announce that if the forecast nominal GDP growth rate over the next year falls below 7% that the Federal Reserve will suspend its unwinding of its balance sheet and begin increasing it again.

  4. Thereafter, announce that the Federal Reserve will do whatever it takes--market interest rates, charging interest on reserves, asset purchases, loan guarantees, bank nationalizations--to hit its noinal GDP level targets.

  5. Announce that it plans to resume a nominal GDP growth target of 4.5% per year as of 2015

Http delong typepad com 1014wkly pdf


Karl Smith Needs to Avoid the Siren Embrace of the Latter-Day Physiocrats

Karl Smith wrestles with the Latter-Day Physiocrats

Back in the mid-eighteenth century, the Physiocrats--Turgot, Quesney, Boisguilbert and a number of others about whom Michael Perelman has forgotten more than I will ever know--worried about the state of the French economy. They argued as follows:

  1. Agriculture takes the sun, the rain, the soil--the bounties of nature--and uses human labor to produce new value, the "net product" of the economy, some of which the farmers and their farmworkers consume.
  2. The rest of the "net product" of the economy is consumed by the (unproductive) landlords who receive their rents and by the state which receives its direct and indirect taxes.
  3. One of the things that the state and the aristocrats do as they consume the net product is to employ non-agricultural workers: personal servants to dress them, cooks to feed them, craftsmen to make their furniture, merchants to bring them goods from far away.
  4. These other non-idle but non-agricultural workers are not productive of value but they are rather transformative: they transform value from its agricultural form--wheat, milk, cheese, vegetables, etc.--into another form--clothes, furniture, buildings, imported luxuries, personal services--that has the same value but is more useful to the upper class.

From this they drew the conclusion that:

  1. A healthy economy was one that had a large, productive agricultural sector.
  2. Anything that diminished employment in French agriculture was surely bad.

After all, they thought, the value of the net product was maximized by having as many (productive) farmers as possible. Better to have more productive surplus-producing farmers and to trade food for manufactures with Holland than to reduce the number of productive agricultural workers to turn some of them into transformative-but-unproductive craftworkers.

The eighteenth-century Physiocrats were wrong: not just farmers and miners but builders and manufacturers are productive.

The twenty-first-century Physiocrats are wrong: not just builders and manufacturers but internet gurus and yoga instructors are productive.


Has Ben Bernanke Just Gone to Bat for Dodd-Frank in His Boston Fed Talk?

Yes. Or, rather, he has just gone to bat for Super Dodd-Frank:

Merrill Goozner emails some quotes:

"One of the most important legacies of the crisis will be the restoration of financial stability policy to co-equal status with monetary policy…. The diverse tools of financial regulation and supervision, together with appropriate monitoring of the financial system, should be, I believe, the first line of defense against the threat of financial instability…. [A]dequate levels of capital and liquidity in the banking sector… increase the resiliency of the financial infrastructure…. [Countercyclical] varying caps on loan-to-value ratios on mortgages…. [D]ynamic provisioning for losses by banks…. [Countercyclical] time-varying margin and haircut rules; and countercyclical capital requirements… (to) damp the buildup of imbalances and bolster the resilience of the financial sector to a decline in asset prices by increasing its capacity to absorb losses…"

Merrill Goozner: http://www.thefiscaltimes.com/Articles/2011/10/18/Bernanke-Hangs-Tough-on-Financial-Reform.aspx


Six Degrees of Separation on the Internet

Matthew Yglesias:

It's Not How Many Followers You Have, It's Who Follows You: [O]ne of the secrets of the faux-meritocracy of the internet. Furnas may appear to be a mild-mannered law student with only 325 Twitter followers. But in an earlier life he was a key player in a ton of CAPAF’s policy products and he’s extremely well socially and professionally connected to the younger cohort of political media people. So that 325 includes reporters and editors from The Washington Post, Politico, Slate, Good, ThinkProgress, Mother Jones, and the Nation and think tank folks from CAP, Third Way, New America, and the Manhattan Institute. Given that particular nexus of people, it’s hardly a long and winding path to wide exposure for something interesting.

This, I think, is an illustration of something important. People sometimes talk about the Internet as if it somehow supplants or replaces personal relationships. But in practice, it often acts as a force multiplier for them…

I think that is both right and wrong. Some of the human neurons in the global distributed brain will fire once a day, some ten times a day; some respond to only one possible input, others have up to a thousand possible inputs. But if what you say resonates, you can get it out there and into the mix.

Whether getting it out there will in the end change anything is, alas, a harder question...


Abacus at Occupy Wall Street

Safari 4

Conor Friedersdorf:

How Occupy Wall Street Is Like the Internet: If you're raging against the symbol of Wall Street, your message is going to resonate with a lot of people. But it's so abstract that it's going to provoke a backlash too -- after all, for some people Wall Street remains a symbol of free enterprise  and meritocracy. The case against symbolic Wall Street turns out to be weaker than the one against actual Wall Street, I wrote, since actual Wall Street's firms did specific unethical and illegal things.

To practice the kind of grounded-in-the-real-world critique I was preaching, I even offered a specific criticism of actual Wall Street.

I wrote:

Figuring out precisely how to feel about Occupy Wall Street or "We are the 53 Percent" is difficult for many. Much easier to decide that it's wrong to create a mortgage-backed security filled with loans you know are going to fail so that you can sell it to a client who isn't aware that you sabotaged it by intentionally picking the misleadingly rated loans most likely to be defaulted upon; or that it actually doesn't make sense to blame Wall Street for inflation in college costs, the student loan market they spurred, and the culture that sent a message to too many young people that borrowing for education is always a good investment. The allusion is to the SEC case against Goldman Sachs that Planet Money made intelligible to me in this podcast -- when I listened to it, back in April of 2010, is another place this story could have begun….

My words on a sign in New York City, where they were photographed by Ben Furnas, who I bizarrely happen to know, and who presumably didn't know I was their author; he posted the image on his Twitter feed, where it was discovered by Xeni Jardin, a writer at BoingBoing, who then posted the photograph under the headline "#OccupyWallStreet Sign of the Day: It's Wrong."…

I now understand a little better what it means for a protest movement to be without "a traditional narrative arc," to be "the product of the decentralized networked-era culture," to be about "inclusion and groping toward consensus." I now see how Occupy Wall Street is like the Internet -- and that parts of this protest movement would be impossible without it…


Richard Koo Says Europe Needs to Go Big on Banks

Joe Weisenthal:

RICHARD KOO: There's Only One Solution That Can Save Europe Now: The proposal of using taxpayer money to recapitalize European banks is already on the table. If the plan is to be meaningful, the accompanying principal reductions must be large enough to enable the distressed nations to resume growing. Some have proposed increasing the haircut for Greek bondholders to 50% from the original figure of 21%. If they really intend to implement this bold proposal, the authorities should simultaneously announce a large capital injection into the banks. Unless the two measures are presented as a package, attention will focus solely on losses at the banks, exacerbating the atmosphere of mutual mistrust within the financial sector.

The authorities should also declare that they are prepared to inject capital with few or no strings attached. And the capital must be relatively cheap, since the ultimate goal of this exercise is to prevent a credit crunch. With so little time available, the authorities need to prepare a capital injection that can be implemented together with the principal reductions without waiting for banks to raise their own capital….

  1. Provide a full guarantee for financial institution liabilities as Japan did in 1997 and the US did in 2008.

  2. Prepare a capital injection scheme to prevent principal write-downs and the resulting losses from draining bank capital and sparking a credit crunch.

  3. Make it easier for the banks to accept the capital by attaching as few strings as possible, and keep the cost low enough that banks will not need to cut back on lending.

  4. Because so little time is available, the government capital injections should be presented as a funding source of first, not last, resort.

It was, I think… April 2008… when I first said that this could get very bad, and that if it got bad the best solution was for the government to buy the banks for a song--given that they would be insolvent--recapitalize them, and then privatize them off gradually later on.

It's difficult to know what alternative policy road might be successful right now. Yes, there is a Greek debt problem. Yes, there is an Italian growth problem. But those are both less urgent than the bank cratering now going on in Europe.


Quote of the Day: October 18, 2011: The Co-Dependence of the Hunnic Empire and the Western Roman Empire

"The Huns’ second-greatest contribution to imperial collapse, in fact, was their sudden disappearing act after Attila’s death in 453. This was the straw that broke the western Empire’s back. Bereft of Hunnic military assistance, it had no choice but to build regimes that would include at least some of the immigrant powers. This started a bidding war in which the last of the west’s disposable assets were expended in a futile effort to bring enough powerful supporters together to generate stability. But by the late 460s, the more ambitious leaders of these outside groups, particularly Euric, king of the Visigoths, could see that what purported to be the central western authority now controlled too little to prevent him from establishing an independent kingdom. It was this realization that led to the rapid unravelling of the last strands of Empire between 468 and 476…"

--Peter Heather: The Fall of the Roman Empire : A New History of Rome and the Barbarians


Why Oh Why Can't We Have a Better Press Corps?: Investors Business Daily Edition

Paul Krugman

Levels And Changes: Jared Bernstein is annoyed at an Investor’s Business Daily piece that totally misinforms readers about how to think about the effects of stimulus and austerity. Indeed, it’s as bad as he says. IBD says federal spending is still rising, so how can you say that stimulus is fading out?

This is, of course, dead simple stuff. The economy’s growth — the rate of change in GDP — depends on the rate of change in spending, not its level — and the rate of change has been falling. What’s more, lots of people tried to explain this a long time ago. Here was my take back in 2009.

Now, in my experience IBD is a consistent source of misinformation. What’s sad is that people pay money for this, believing that reading the thing will make them smarter, when in fact it actively makes them stupider.

Indeed. My rule in dealing with IBD is that the way to bet is that if it is new to me, it is false; and if it is true, it is not new to me.


Ken Auletta on Judy MIller, Howell Raines, and Jill Abramson

Why oh why can't we have a better press corps? This is why we can't have nice things:

KA:

Jill Abramson, New York Times’ First Woman Executive Editor: [C]ritics of Abramson’s tenure as Washington bureau chief… note that during this period the Times was duped into believing that Saddam Hussein possessed weapons of mass destruction. “She came in during a period where there were many political and domestic stories that were all subjects she was comfortable with,” a fellow-editor who wishes to remain anonymous observed. “Then, after 9/11, the story changed—and she was not as comfortable with foreign policy and intelligence.”

The most prominent problem stemmed from the work of the correspondent Judith Miller, who arrived in Washington soon after 9/11 and began reporting on Iraq’s alleged weapons of mass destruction. Abramson recalls that right after 9/11 Raines said to her, “‘Judy is going down to Washington to do some reporting and she has sources in the White House who will not talk to anyone else.’ He also said, ‘She will win a Pulitzer.’” (Raines says, “With the start of the Iraq war, I became concerned that the bureau seemed reluctant to take ownership of the nuclear-arms story.” He adds, “I don’t recall any Pulitzer reference, though it’s true we won a lot in those days.”)

Miller ended up writing a series of stories about Saddam Hussein’s weapons stockpile that turned out to be exaggerated and erroneous. Raines asserts that Abramson edited several of the erroneous stories on W.M.D.s. Abramson counters that Judith Miller “did not work for me.” Douglas Frantz, who was the investigations editor, and oversaw Miller, agrees that Abramson did not edit Miller’s stories, and says that “Miller operated outside the normal reporting and editing channels.”

Abramson, however, accepts some blame. In 2008, she wrote in the Times, “I failed to push hard enough” to publish an article, written by James Risen, the Times national-security reporter, that was skeptical of claims that Iraq had weapons of mass destruction. She also says, “My responsibility as bureau chief is that I did not pay sufficient attention to the stories Judy was writing. Many were based on Iraqi defectors. I wish I had been more skeptical.” Miller, who now works as a commentator for Fox and as a drama critic for the online magazine Tablet, declined to comment, saying, “I will be addressing these issues and more in my forthcoming book.”

Many in the newsroom place the blame for the stories on Raines. “Howell and Gerald were so excited to have these ‘scoops’ that they bypassed the normal editing strictures,” Susan Chira says. They took away the checks and balances that she believes would have spared the Times some embarrassing stories about Saddam Hussein’s alleged weapons. Under Keller and Abramson, Chira says, “we got back to a desk system where editors did their jobs.”

Raines says that Chira, who was then working in the Times’ book-development office, was in no position to know what happened. “Her statements are made up and false,” Raines told me. He added that he was stunned by “Chira’s assertion that desk editors did not do their jobs. My impression was that Jill was the only department head who wouldn’t take ownership of sensitive stories and difficult personnel matters.”"


Liveblogging World War II: October 18, 1941

Russian spy Richard Sorge arrested in Tokyo.

Wikipedia:

Richard Sorge - Wikipedia, the free encyclopedia: Sorge transmitted information toward the end of September 1941 that Japan was not going to attack the Soviet Union in the East.

This information made possible the transfer of Soviet divisions from the Far East, although the presence of the Kwantung Army in Manchuria necessitated the Soviet Union's keeping a large number of troops on the eastern borders...[21]

Various writers have speculated that this information allowed the release of Siberian divisions for the Battle of Moscow, where the German army suffered its first tactical defeat in the war. To this end, Sorge's information might have been the most important spy work in World War II. At Khimki, a place at the Moscow city border en route to Sheremetyevo International Airport, there is still a memorial plaque reminding visitors of this defining point of modern history….

[D]ue to the increasing volume of radio traffic from one-time pads (used by the Soviets), the Japanese began to suspect a spy ring operating. The Japanese secret service had already intercepted many of his messages and begun to close in. Ozaki was arrested on October 14, 1941, and interrogated. Sorge was arrested on October 18, 1941, in Tokyo….

Initially, the Japanese believed that, due to his Nazi party membership and German ties, Sorge was an Abwehr agent. However, the Abwehr denied that he was one of their agents. Even under torture, he denied all ties with the Soviets. The Japanese made three overtures to the Soviets, offering to trade Sorge for one of their own spies. However, the Soviets declined all the offers, maintaining that Sorge was unknown to them.[24] He was incarcerated in Sugamo Prison.

Richard Sorge was hanged on November 7, 1944, at 10:20 a.m. Tokyo time.


Twitterstorm delong: October 17, 2011

  • RT @sarahkliff: After halting implementation, the White House will not support repeal of the CLASS Act. http://bit.ly/orvlk4

  • RT @DeanBaker13: Hopey Changey work sharing is doing pretty damn well in Germany http://t.co/K0MmJcSU

  • RT @afrakt: If there is no qualitative change in CBO score, how large a roll did CLASS really play in ACA passage? http://t.co/DK2EIiIw

  • RT @drgrist: "Generally speaking, the errors in religion are dangerous; those in philosophy only ridiculous." - David Hume

  • Hatzius and Stehn: Goldman Sachs Recommends Fed Boost the Economy http://t.co/qBYSjBGn

  • RT @michaelscherer: Best press release subject line of day: "When was the last time you played Oregon Trail on an Apple II?" From Sen. W ...

  • RT @Pat_Garofalo: "One $500 donation was from James Conway...whose occupation is listed as an investor in Dead Cat Investment Fund."

  • RT @rortybomb: Bivens is good on, Reinhart/Rogoff, fiscal policy || What should have been different this time? http://shar.es/bqTVy

  • RT @owillis: taxing the uber-rich is super popular, which explains why congress is so reluctant to do it.

  • David Romer recommends: Scott Sumner: Re-Targeting the Fed http://t.co/1hgSMh4j

  • Calibration and Econometric Non-Practice http://bit.ly/risYrc

  • RT @ModeledBehavior: Wall Street wants NGDP targeting now. Occupy the Fed, people!

  • RT @ThePlumLineGS: .@Slate Please ask Zandi if he thinks the Senate GOP jobs plan would ... create jobs

  • RT @markos: Cantor's income disparity speech: 'How we make sure the people at the top stay there' http://shar.es/bsb3G

  • RT @ModeledBehavior: @MarkThoma don't do it! Noise to signal ratio directly related to the number of comments. Only frustration lies tha ...

  • Gideon Rachman: America must manage its decline http://t.co/uM7O3J7H