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Noted for February 27, 2013

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  • Martin Wolf: The sad record of fiscal austerity: "The ECB could have prevented the panic. Tens of millions are now suffering unnecessarily: At the Toronto summit of the Group of 20 leading economies in June 2010, high-income countries turned to fiscal austerity. The emerging sovereign debt crises in Greece, Ireland and Portugal were one of the reasons for this. Policy makers were terrified by the risk that their countries would turn into Greece. The G20 communiqué was specific: 'Advanced economies have committed to fiscal plans that will at least halve deficits by 2013 and stabilise or reduce government debt-to-GDP ratios by 2016'. Was this both necessary and wise? No…. The idea that being Greece was around the corner gained traction in the US, too, notably among Republicans. Today’s battle over sequestration is partly a product of that concern…. A leading and, in my view, persuasive proponent of a contrary view is the Belgian economist, Paul de Grauwe, now at the LSE. He has argued that eurozone countries’ debt crises resulted from European Central Bank policy failures… the decision in principle of the ECB to buy up the debt of governments in trouble, through the so-called 'outright monetary transactions' (OMT), allows one to test his hypothesis…. By adopting OMT earlier, the ECB could have prevented the panic that drove the spreads that justified the austerity. It did not do so. Tens of millions of people are suffering unnecessary hardship. It is tragic."

  • Laura Tyson: America’s Sequestered Recovery: "The United States is confronting another round of cuts in federal government spending, this time threatening to trim at least 0.5 percentage points from GDP growth and to precipitate a loss of at least one million jobs. Automatic across-the-board spending cuts, the so-called “sequester,” would reduce spending by $85 billion, with defense programs cut by about 8% and domestic programs by about 5% this year…. These cuts, along with the tax increases agreed to in January, would knock about 1.25 percentage points off 2013 GDP growth, consigning the economy to another year of tepid recovery and disappointing job gains…. Anemic government spending, not profligacy, has been a major factor behind the economy’s lackluster recovery."

  • Ramesh Ponnuru: Romney and the Senate Candidates: "In Wisconsin, Virginia, and Texas, Romney ran just barely ahead of Tommy Thompson (by 0.03 percent), George Allen (0.3 percent), and Ted Cruz (0.7 percent), respectively. In Nebraska, Ohio, and Arizona, Romney ran ahead of Deb Fischer (2.3), Josh Mandel (3), and Jeff Flake (4.3). Romney performed significantly better in Michigan, Florida, North Dakota, Indiana, Montana, and Missouri than Pete Hoekstra (6.7), Connie Mack IV (6.9), Rick Berg (9), Richard Mourdock (9.8), Denny Rehberg (10.5), and Todd Akin (14.7). I had not noticed earlier that Berg and Rehberg underperformed Romney by about as much as Mourdock did."

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  • Mark Thoma: Economist's View: 'How To (Maybe) End Too Big To Fail': "I mostly wanted to highlight this slide from the presentation because it answers a question I've been asking for a long time, how big do banks need to be in order to reach the minimum efficient scale?… The conclusion seems obvious to me."

  • Steve Fazzari, Pietro Ferri, Edward Greenberg and Anna Maria Variato: The Slack Wire: Reviving the Knife-Edge: Aggregate Demand in the Long Run: "The dominant answer… is… economic growth is supposed to depend on a different set of factors -- technological change, population growth and capital accumulation -- than those that influence demand in the short run. But it's not obvious how you get from the short-run to the long…. This is the question posed by Fazzari et al…. The old textbook solution was price flexibility. Demand constraints are supposed to only exist because prices are slow to adjust, so given enough time for prices to reach market-clearing levels, aggregate demand should cease to exist. The obvious problem with this, as Keynes already observed, is that while flexible prices may help to restore equilibrium in individual markets, they operate in the wrong direction for output as a whole…. As Leijonhufvud notes, it's a weird irony that sticky wages and/or prices are held to be the condition of effective demand failures, when the biggest demand failure of them all, the Depression, saw the sharpest falls in both wages and prices on record."

  • Robin Harding: Bernanke plays down easing concerns: "The chairman said he took 'very seriously' the risk that a prolonged period of low interest rates could damage financial stability, but argued that cheap money lowered risk in other ways. 'In the present circumstances [low rates] also serve in some ways to reduce risk in the system, most importantly by encouraging firms to rely more on longer-term funding, and by reducing debt service costs for households and businesses', Mr Bernanke said, adding that the Fed had stepped up its monitoring of the financial system. 'To this point we do not see the potential costs of the increased risk-taking in some financial markets as outweighing the benefits of promoting a stronger economic recovery and more rapid job creation.'"

  • Marco Del Negro and Mary Tao: How Do You Say “Wall Street” in Latin?: "To quote Cicero (De Officiis, Book II): 'But this whole subject of acquiring money, investing money . . . is more profitably discussed by certain worthy gentlemen at the Exchange [ad Janum medium] than could be done by any philosophers of any school.' Just like with FICO scores today, creditors would share information about delinquent debtors and post it on a column—the Columna Maenia…. Aristocratic finance—the faeneratores—was… a sort of proto-“shadow banking system.” Elite financiers… would invest in far-flung places, especially the provinces, and would have intermediaries (societas danistaria) making sure their loans produced a good return. Sometimes they would act as private wealth managers (procuratores) for other patricians who didn’t want or didn’t know how to invest their money…. How much money was going through a faenerator’s hands? Well, we know that one fellow, Q. Considius, probably a senator, held 15 million sesterces worth of debt claims. How much is that? The annual pay of a soldier in those days was about 9 aurei (see M.E.K. Thornton), and 1 aureus was worth 100 sesterces. With that money, Q. Considius could therefore have raised an army about the size of Slovakia’s. What happened if the lenders needed their money right away? Basically, there was something like a secondary market for debt."

Matthew Yglesias: BipartisanThink at the Washington Post editorial page on sequestration | Kevin O'Rourke: The Irish Economy: Italy, and Karl Whelan on the need for growth | Richard Kogan: The Pending Automatic Budget Cuts: How the Two “Sequestrations” Would Work | Paul J. Steinhardt: Inflationary cosmology on trial | Ulrike Malmendier: Publicani | Tom Slee: Notes on Identity, Institutions, and Uprisings | Evan Soltas: The Rise of Finance

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On February 26, 2013:

February 26, 2013 at 22:05 in #weblogging | | Comments (3)

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