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April 2013

What Economists to Listen to? And Why?

I really wish that Jonathan Portes had written this before I had to give my talk on economists as public intellectuals yesterday…

Jonathan Portes:

Not the Treasury view...: Which (macro)-economists are worth listening to?: [W]hen economists argue about the correct stance of policy, who should we (policymakers, commentators, and the general public) listen to?… I [had] pointed out that not only was the government's decision in 2010 to cut the deficit too quickly doing considerable economic damage, but that this was both predictable and predicted by economists such as Paul Krugman and Martin Wolf. Their response was essentially "how were we to know which economists to listen to? Others were saying the opposite". 

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Noah Smith: KrugTron the Invincible: What Is His Secret Weapon?

Noah Smith:

Noahpinion: KrugTron the Invincible: If you grew up in the 80s you probably remember Voltron. Although the show often had convoluted plotlines, it would somehow always end with Voltron (a super-powerful robot formed from five mechanical lions) facing off against a monster called a "Robeast"…. [T]o a four-year-old, it was pure gold.

In the econ blogosphere, a similar dynamic has played out over the last few years. Each week a Robeast will show up, bellowing predictions of inflation and/or soaring interest rates. And each week, Paul Krugman… I mean, KrugTron, Defender of the Blogoverse, will strike down the monster with a successful prediction of… low inflation and continued low interest rates. Goldbugs, "Austrians", New Classical economists, and harrumphing conservatives of all stripes have eagerly gone head-to-head with KrugTron in the prediction wars, and have been summarily cloven in twain…. [H]ere's a quick (partial) episode guide: Krugman vs. Peter Schiff (see also here)… Krugman vs. Ron Paul… Krugman vs. Robert Murphy… Krugman vs. Niall Ferguson (see also here)… Krugman vs. Allan Meltzer… Krugman vs. a giant hive-mind of goldbugs.

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Ryan Avent: Inflation in the US

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Ryan Avent:

Monetary policy: How does inflation matter?: THE IMF's recently published a thought-provoking analysis on changes in the apparent relationship between inflation and unemployment…. I've since reflected more on the work, and on some related writing by Nick Rowe…. The IMF notes the stability of inflation expectations and reckons that it is attributable to central bank credibility…. Inflation expectations became so well anchored that not even the worst few months of economic performance since the 1930s could produce deflation. I've been thinking about whether that narrative seems right….

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Review of Robert Skidelsky (2000), "John Maynard Keynes: Fighting for Britain": Hoisted from the Archives from Twelve Years Ago

Review of Robert Skidelsky (2000), "John Maynard Keynes: Fighting for Britain" (London: Macmillan: 0333604563), pp. xxiii, 580.

J. Bradford DeLong

July 2001

Each of the first two volumes of Robert Skidelsky's biography of John Maynard Keynes--Hopes Betrayed, and The Economist as Saviour--was an astonishing intellectual achievement. Now that it is complete, it is clear that as a whole the three-volume biography is the finest biography of an economist that I have ever read, or that I ever expect to read. However, this third volume--Fighting for Britain--does not quite measure up to its predecessors. Nevertheless, it is still a superb book. It falls short only because its predecessors have raised the bar so very high indeed.

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Liveblogging World War II: April 24, 1943

Eleanor Roosevelt:

FORT WORTH, Texas, Friday—A call has gone out from the government to every housewife in this Nation. If she does not actually run her own kitchen, then she should see that whoever holds sway there understands the importance of her particular war job—the salvaging of fat for the use of the government. Fats contain glycerine, glycerine makes gun powder, explosives and medicine.

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Noted for April 24, 2013

  • Jane Mayer: Senator Ted Cruz, Communists, Harvard Law School, and Joe McCarthy: "Ted Cruz gave a stem-winder of a speech at a Fourth of July weekend political rally in Austin, Texas…. His spokeswoman didn’t respond to a request to discuss the speech…. Cruz greeted the audience jovially, but soon launched an impassioned attack on President Obama, whom he described as 'the most radical' President 'ever to occupy the Oval Office…. There were fewer declared Republicans in the [Harvard Law School] faculty when we were there than Communists! There was one Republican. But there were twelve who would say they were Marxists who believed in the Communists overthrowing the United States government.'… Harvard Law School Professor Charles Fried, a Republican who served as Ronald Reagan’s Solicitor General from 1985 to 1989, and who subsequently taught Cruz at the law school, suggests that his former student has his facts wrong. 'I can right offhand count four “out” Republicans (including myself) and I don’t know how many closeted Republicans when Ted, who was my student and the editor on the Harvard Law Review who helped me with my Supreme Court foreword, was a student here.' Fried went on to say that… 'I would be surprised if there were any members of the faculty who "believed in the Communists overthrowing the U.S. government"'."

  • Felix Salmon: The tragedy of long term unemployment: "The lesson of the past few years is that this is not a normal recovery: corporate profits are doing great, while total employment remains anemic. We can’t trust the invisible hand to generate the millions of jobs that are needed, especially with regards to the long-term unemployed. With gridlock in Washington, the result is a huge amount of unnecessary human misery."

  • Michael Specter: Marco Rubio Needs Evolution: "Suddenly, all we could hear about were the next generation of [Republican] leaders. And nobody has been talked about with more excitement than Florida Senator Marco Rubio…. In the December issue of GQ, which was published online today, Rubio tells Michael Hainey that he loves the music of Afrika Bambaataa. And Tupac. He feels empowered by Eminem. Rubio is cool…. So it was with genuine amazement that I read his response when Hainey asked him about the age of the earth. I think, in fairness to Rubio, it’s best to reprint the entire exchange: 'GQ: How old do you think the Earth is?' 'Marco Rubio: I’m not a scientist, man. I can tell you what recorded history says, I can tell you what the Bible says, but I think that’s a dispute amongst theologians and I think it has nothing to do with the gross domestic product or economic growth of the United States. I think the age of the universe has zero to do with how our economy is going to grow. I’m not a scientist. I don’t think I’m qualified to answer a question like that. At the end of the day, I think there are multiple theories out there on how the universe was created and I think this is a country where people should have the opportunity to teach them all. I think parents should be able to teach their kids what their faith says, what science says. Whether the Earth was created in 7 days, or 7 actual eras, I’m not sure we’ll ever be able to answer that. It’s one of the great mysteries.' Actually, there are two basic theories about how the universe was created. There is a scientific explanation: that the universe began to expand about 13.7 billion years ago and continues today to do so. And there’s an explanation offered by people who believe that angels are real. There is a great deal of evidence to support the first…. Physics, astronomy, and molecular genetics have all made it possible to trace our genetic, viral, and biological heritage back millions of years. The earth, give or take a few hundred thousand years, is 4.54 billion years old. That is considerably more than seven days. I guess it could be divided into Rubio’s 'seven actual eras', each of which would have lasted roughly 650 million years."

Behavioral Finance Explains Bubbles | TechCrunch: EU austerity measures offered few gains in 2012 | Aaron Carroll: Medicaid Expansion: Good for Children, Their Parents, and Providers | Jared Bernstein: Deficit reduction is not the enemy of jobs | Eric Chaney: Democratic Change in the Arab World, Past and Present | Thomas Herndon: The Grad Student Who Took Down Reinhart And Rogoff Explains Why They're Fundamentally Wrong | Paul Krugman: A Heartbreaking Work of Staggering Folly |

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Debt and Growth since 1950 in the G-7

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Paul Krugman, again:

Economics and Politics: I’ve done a quick and dirty mini-RR for the period 1950-2007 (starting 1950 because that’s where the Total Economy Database starts), focusing only on the G7… there does seem to be an association between high debt and slow growth… most of the apparent relationship is coming from Italy and Japan; Britain didn’t seem to suffer much from its high debt in the 1950s. And it’s quite clear from the history that both Italy and (especially) Japan ran up high debts as a consequence of their growth slowdowns, not the other way around.

So this is really disappointing; they’re basically evading the critique. And that’s a terrible thing when so much is at stake.


Notre Dame Public Intellectualism Conference: Comment on Ahmad Moussalli: Islam and the Public Intellectual

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Last year my former student Eric Chaney wrote a paper "Democratic Change in the Arab World: Past and Present". In it he saw a striking difference between not the Arab lands but rather the lands of the original first two centuries of Arab conquest on the one hand, and the lands of subsequent expansion on the other. In the 28 countries that are lands of the original Arab conquest, there is a substantial "democratic deficit". In the 15 countries that are lands of subsequent post-Ummayad expansion, democracy is doing about as well as one would expect.

From this pattern Chaney concludes that there is little special about Islam, little special about oil, little special about desert terrain, little special about Arab culture, but that there is something special about the long-run historical heritage--about the political modes of domination established after the Rashidun, under the Ummayad and especially the Abbasid ruling dynasties. They led to a millennium-long withdrawal of religious and other intermediary forms of social organization from the task of criticizing the doings of the state to following the doctrine that the state is to be supported.

Now I at least do not think that a theocracy controlled by those of the Party of Ali who claim to speak in the name of the Occulted One is a step forward. And similar currents of theocracy among those following Traditional Practices seem similarly unwise.

But is there a middle way, a creative tension, something like the medieval European intellectual contest between the Emperor's University of Naples and the Pope's University of Bologna both arguing for the rule of law and the curbing of arbitrary power, a way--without a theocratic turn--for the ulema to take on a more active and prophetic critical role vis-a-vis the governments? Not Jerusalem speaking to Athens, but Mecca speaking to Baghdad?


Paul Krugman Makes (Justified) Fun of Allan Meltzer, Who Does Not Know His Basic Price Theory...

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It really does seem as if Allan Meltzer does not understand the basic economics of money demand--does not understand that the short-term safe nominal interest rate is the opportunity cost of holding cash balances. And not understanding that makes it impossible to think coherently about nearly any issues in monetary economics…

Paul Krugman:

Trap Denial: OK, probably going on too much about this, but I want to return briefly to the issue of puzzled economists, specifically Allan Meltzer.

Four years ago Meltzer and I effectively had a debate about the effects of the rapidly expanding Fed balance sheet. He (and others) warned of inflation ahead; I (and others) said that we were in a liquidity trap, so that the Fed’s bond purchases would basically just sit there. So here we are four years later, the huge expansion of the Fed’s balance sheet has not, in fact, led to inflation. And Meltzer is puzzled by the fact that all those bond purchases just sat there:

Since late 2007, the Fed has pumped more than $2 trillion into the U.S. economy by buying bonds. Economist Allan Meltzer asked: “Why is there such a weak response to such an enormous amount of stimulus, especially monetary stimulus?” The answer, he said, is that the obstacles to faster economic growth are not mainly monetary. Instead, they lie mostly with business decisions to invest and hire; these, he argued, are discouraged by the Obama administration’s policies to raise taxes or, through Obamacare’s mandate to buy health insurance for workers, to increase the cost of hiring.

He made a monetary prediction; I made a monetary prediction; his prediction was wrong. Therefore, it must be because of Obamacare!

And, of course, if ObamaCare was causing structural problems and reducing aggregate supply, that would make inflation not undershoot but overshoot Meltzer's forecast. What we have here on Meltzer's part is simply badly-prepared word salad.


Notre Dame Public Intellectualism Conference: The Blogger as Public Intellectual

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I find myself both in substantial agreement and in substantial disagreement with Paul Horwitz's thoughtful and very interesting notes on "The Blogger as Public Intellectual". Let me try to set out seven tentative and provisional markers of disagreement:

"That the blog is 'just' a medium does not make the particular conduit used wholly irrelevant…. [T]he age of the blog is an age of immediacy, of present-mindedness, of thinking by linking instead of thinking by reflection…. [But] the choice of the blogging medium is not in itself all that consequential with respect to the public intellectual question…"

  • I think that it is quite consequential. It seems to me that it is like the difference between the Tanakh and the Talmud: a culture that tries to present a monument--a book--that is in its and its author's self-presentation supposed to be an authoritative word, and a culture where everything is provisional, must be read in context, and is supposed to be subject to correction and development and revision and commentary. It seems to me that, in general, history tells us that the more Talmud-like intellectual communities have progressed faster and produced more insights than the Tanakh-like ones. But I may be wrong: this is just a provisional guess, subject to correction and development and revision and commentary.

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Lorenzo Bini-Smaghi Says He Is Flying Self-Blindfolded...

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Paul Krugman:

The Non-Secret of Our Non-Success: The Non-Secret of Our Non-Success Chris Giles of the FT reports that central bankers are worried that they are “flying blind”; he quotes Lorenzo Bini-Smaghi, formerly of the ECB governing board, saying “We don’t fully understand what is happening in advanced economies.” Um, guys, that’s because you don’t want to understand. Nothing about our current situation, except maybe the absence of outright deflation, is at all surprising or mysterious.

We had a huge financial crisis, and the combination of a housing bust (on both sides of the Atlantic) and an overhang of household debt (also on both sides) has acted as a drag on private demand. Monetary policy quickly found itself up against the zero lower bound, while fiscal policy, after providing some stimulus, soon turned strongly contractionary….

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The Economist as...?: DRAFT Talk: Notre Dame Public Intellectualism Conference

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Draft 0.7 :: PRELIMINARY AND INCOMPLETE

Whenever I begin thinking about the economist as public intellectual, five questions come to the fore:

  1. Why should anybody care what we economists say?
  2. What do we economists have to say?
  3. Do we say it well?
  4. Is there any way to change things so that we say it better?
  5. Given what we economists have to say and how we say it, should the rest of you listen?

Why should anybody care what we economists say?

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Liveblogging World War II: April 23, 1943

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Lt. John F. Kennedy takes command of PT-109:

Motor Torpedo Boat PT-109 - Wikipedia, the free encyclopedia: PT-109 belonged to the PT 103 class, hundreds of which were completed between 1942 and 1945 by Elco. PT-109's keel was laid 4 March 1942 as the seventh Motor Torpedo Boat (MTB) of the 80-foot-long (24 m)-class built by Elco and was launched on 20 June. She was delivered to the Navy on 10 July 1942, and fitted out in the New York Naval Shipyard in Brooklyn.

The Elco boats were the largest PT boats operated by the U.S. Navy during World War II. At 80 feet (24 m) and 40 tons, they had strong wooden hulls of two layers of 1-inch (2.5 cm) mahogany planking. Powered by three 12-cylinder 1,500 horsepower (1,100 kW) Packard gasoline engines (one per propeller shaft), their designed top speed was 41 knots (76 km/h). For space and weight-distribution reasons, the center engine was mounted with the output end facing aft, with power directly transmitted to the propeller shaft. Because the center propeller was deeper, it left less of a wake, and was preferred by skippers for low-wake loitering. Both wing engines were mounted with the output flange facing forward, and power was transmitted through a Vee-drive gearbox to the propeller shafts.[2] The engines were fitted with mufflers on the transom to direct the exhaust under water, which had to be bypassed for anything other than idle speed. These mufflers were used not only to mask their own noise from the enemy, but to be able to hear enemy aircraft, which were rarely detected overhead before firing their cannons or machine guns or dropping their bombs.[3]

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Noted for April 23, 2013

  • Patrick Smith: European Austerity Does a 180 as Lagarde Weighs In: "The IMF and the World Bank, notably by way of IMF Managing Director Christine Lagarde, have put in sharp focus the core components of a recovery strategy. It focuses on two questions: 1) What is the optimal degree of austerity, meaning contraction as opposed to stimulus? Up to what point is it necessary, and at what point does it become counter-productive—that is, when does it start inhibiting growth instead of fostering it? How does demand management fit in? 2) How much public debt—debt as a proportion of GDP—can a nation carry when it is in or near recession? What is the relationship, if any, between debt and growth? Is cutting debt so simple as cutting spending? Lagarde and Olivier Blanchard, the IMF’s chief economist, seem satisfied that the fund and the bank and their member nations understand the centrality of these two questions. Now, do we have consensus on them? Not by a very long way. But this is just the point.Lagarde’s work for much of the past year—trace her steps—has been to destroy what has amounted to an artificial consensus on a set of policies that have yielded paltry results, not only for Europeans but for Europeans more than anyone else."

  • Paul Krugman: Basic macroeconomics — IS-LM type macro"the stuff that’s in Econ 101 textbooks — has performed spectacularly well in the crisis. The true test of an analytical framework is how it performs in unusual or extreme circumstances, how well it predicts 'out of sample'. What we have experienced since 2007 is a series of huge policy shocks — and basic macroeconomics made some very counterintuitive predictions about the effects of those shocks. Unprecedented budget deficits, the model said, would not drive up interest rates. A tripling of the monetary base would not cause runaway inflation. Sharp government spending cuts wouldn’t free up resources for the private sector, they would depress the economy more than one-for-one, so that private spending as well as public would fall. Quite a few people considered these predictions not just wrong but absurd; they braced for soaring rates and inflation, they waited for the good news from austerity. But the model passed the test with flying colors…. So how is it that economists look so bad? The answer is that too many prominent economists chose, for one reason or another, to reject the existing model. Maybe they were just trying to score points by being different; maybe they were sucked in by the approbation of the VSPs, the rewards that came from telling important people what they wanted to hear… Alesina/Ardagna saying that austerity is actually expansionary thanks to confidence effects; Reinhart/Rogoff saying that debt has terrible effects on growth via unexplained channels. This stuff was creative, different, deeply appealing to powerful people — and dead wrong. If you stayed with Econ 101, you got it right, if you went with the trendy stuff you made a fool of yourself. The lesson we should have taken from this crisis was that plain ordinary macro is actually a very powerful, very useful tool, one that you ignore at your peril."

  • Paul Krugman: The Jobless Trap: "[W]hen future historians look back at our monstrously failed response to economic depression, they probably won’t blame fear, per se. Instead, they’ll castigate our leaders for fearing the wrong things. For the overriding fear driving economic policy has been debt hysteria, fear that unless we slash spending we’ll turn into Greece any day now. After all, haven’t economists proved that economic growth collapses once public debt exceeds 90 percent of G.D.P.?… America isn’t and can’t be Greece, because countries that borrow in their own currencies operate under very different rules from those that rely on someone else’s money. After years of repeated warnings that fiscal crisis is just around the corner, the U.S. government can still borrow at incredibly low interest rates. But while debt fears were and are misguided, there’s a real danger we’ve ignored: the corrosive effect, social and economic, of persistent high unemployment. And even as the case for debt hysteria is collapsing, our worst fears about the damage from long-term unemployment are being confirmed…. The key question is whether workers who have been unemployed for a long time eventually come to be seen as unemployable, tainted goods that nobody will buy. This could happen because their work skills atrophy, but a more likely reason is that potential employers assume that something must be wrong with people who can’t find a job, even if the real reason is simply the terrible economy. And there is, unfortunately, growing evidence that the tainting of the long-term unemployed is happening as we speak…. [W]e are indeed creating a permanent class of jobless Americans. And let’s be clear: this is a policy decision. The main reason our economic recovery has been so weak is that, spooked by fear-mongering over debt, we’ve been doing exactly what basic macroeconomics says you shouldn’t do — cutting government spending in the face of a depressed economy It’s hard to overstate how self-destructive this policy is. Indeed, the shadow of long-term unemployment means that austerity policies are counterproductive even in purely fiscal terms. Workers, after all, are taxpayers too; if our debt obsession exiles millions of Americans from productive employment, it will cut into future revenues and raise future deficits. Our exaggerated fear of debt is, in short, creating a slow-motion catastrophe."

Tim Duy: Economist's View: Fed Watch: Monetary Policy and Financial Stability | Tim Duy: Three Parts to Macro Policy | Matthew Dalton (2010): Is Europe Right to Push Austerity? | Jose Marti. Versos Sencillos. Yo soy un hombre sincero | Benjamin R. Mandel and Geoffrey Barnes: Japanese Inflation Expectations, Revisited | Mark Thoma: Why Politics and Economics Are a Toxic Cocktail | Steve Randy Waldman: The generalized resource curse | Miles Kimball: An Economist's Mea Culpa: I Relied on Reinhart and Rogoff | Tertullian: De praescriptione haereticorum | Dylan Matthews: Lead abatement, alcohol taxes and 10 other ways to reduce the crime rate without annoying the NRA | Japan Inc. Hesitates to Invest as Yen Spurs Nikkei Rally | Henry Farrell: Dragons and Credible Commitments [Warning: Dubious Economic Theory and Game of Thrones Quasi-Spoilers] | Giancarlo Corsetti at IDEAS |

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John Makin Sensibly Says: NO MAS! to Additional Austerity Right Now

From David Frum:

There's No Need for Further Near-Term Spending Cuts: The Deficit is Under Control: AEI's John Makin studies the numbers and concludes that the United States has already achieved a sustainable fiscal path for the medium term. There's no need for further near-term spending cuts. Instead, Congress should go to work on longer-term tax and entitlement reform. Here's a quote with permission from an advance copy, the text will be available on the AEI site tomorrow.

The United States has actually made substantial progress toward deficit reduction in 2013….

On January 2, as part of an agreement to avert the sharpest austerity that would have been triggered by the “fiscal cliff,” Congress did pass a total of about $180 billion of annual tax increases. The result is that, by the 2014 fiscal year, the fully phased-in sequester, along with the January 2013 tax increases, will cut the US deficit—already on a downward path—from $1,089 billion in 2012 to $845 billion in 2013, and then further to $615 billion in 2014. In terms of the deficit-to-GDP ratio, that is 7 percent in 2012, down to 5 percent in 2013, and down further to 3.7 percent in 2014.

That is substantial progress, especially when compared with the G7 average ratio of deficits-to-GDP projected to be −4.0 for 2014.

The years 2015–17 look even better, with Congressional Budget Office (CBO)–projected deficits averaging just 2.5 percent of GDP, very close to the 30-year average of 3.4 percent and well below the projected G10 average of 3.5 percent. The US debt-to-GDP ratio stabilizes at about 75 percent on a slight negative trajectory from 77 percent in 2014 down to 73.1 percent in 2018. The United States is well below the much-feared 90 percent [Reinhart & Rogoff] threshold, which itself has been called seriously into question.

The American fiscal austerity has been moderate and probably, at the current pace of deficit reduction of about $300 billion per year over the next half decade, has proceeded far enough for now. … [I] is important for the US Congress to take yes for an answer to the question of whether it has already achieved substantial deficit reduction. Perhaps by accident, Congress has in fact reduced the US budget deficit by enough to enable working at long-term fiscal reform,


Is Microsoft the Quiet Villain of Global Finance?

Richard Beales:

Is Microsoft the quiet villain of global finance?: Microsoft may be the quiet villain of global finance. Excel errors overstated pre-crisis structured finance ratings, dented JPMorgan’s risk management just as banks were on the mend, and tripped up influential fiscal policy ideas. The rest of the Office suite of “productivity” applications - the bulk of a division responsible for $24 billion in revenue in the last fiscal year - seems equally apt to court trouble.

In 2007, the triumph of the spreadsheet-style financial model peaked with so-called constant proportion debt obligations. This piece of structured finance genius managed to garner AAA ratings despite being designed so that as losses started accumulating, the built-in leverage would automatically increase (yes, increase). Sure enough, a coding error at Moody’s Investors Service had inflated the firm’s CPDO ratings.

Then there was JPMorgan’s $6 billion “London whale” trading loss last year. Excel flubs made another appearance. Also, overly flattering input assumptions allowed risk outputs to be understated - the garbage in, garbage out principle. Most recently, a graduate student discovered a spreadsheet error missed by two Harvard economists, undermining part of their widely cited theoretical case for austerity.


Yes, the Entire Washington Post Ediitorial Board and Its Columnist Robert Samuelson Are Clown Shows. Why Do You Ask?

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Why oh why can't we have a better press corps?

Outsourced to Jared Bernstein:

The Papers: Weirdness at the WaPo: First, on the oped page, a confusing, ahistorical editorial riffing off of the Rogoff-Reinhart (R&R) debacle. The piece starts… [saying that] absent [the RR] paper, the austerions would find other misguided sources…. The fact that one of those sources would indeed be the editorial page of the WaPo is where the editorial gets weird.  All the sudden, the ed board is all “austerity?…us?…really?…why, we’ve been veritable Keynesians over here, praising the stimulus and simply calling for long-term balance.” [I’m paraphrasing.] In fact, they’ve constantly criticized policy makers for not cutting deep enough and fast enough, and have consistently failed to blow the whistle on cuts that have us stuck in our current slog and Europe back in recession. It’s interesting to see reactions like this to R&R’s mistakes.  An optimist might think that some of those who’ve been relentlessly confident in their bad, contractionary advice might start thinking twice.  I am not such an optimist.

Next, just across the broadsheet, we come across an even weirder commentary by Robert Samuelson, on how economics has just become really confusing, and no one knows what to do because nothing seems to work. Huh? This is like someone who’s supposed to be getting in shape for a race saying “I’ve tried eating extra snack foods, sitting around watching TV, and napping…but nothing seems to be improving my speed.  It’s a mystery!”

Interestingly, on a different oped page today, Krugman writes:

The main reason our economic recovery has been so weak is that, spooked by fear-mongering over debt, we’ve been doing exactly what basic macroeconomics says you shouldn’t do — cutting government spending in the face of a depressed economy….

[T]he evidence, both from our own Recovery Act, and from research on the European situation (see box 1.1 here), is very strong, showing multipliers from Keynesian measures that are well above 1 right now. To say “we just don’t get it” is to stubbornly and willfully ignore that evidence.

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The Social Affordances of the Internet for Networked Individualism: Tuesday Hoisted from Ten Years Ago on the Internet Weblogging

Barry Wellman et al.:

The Social Affordances of the Internet for Networked Individualism: We review the evidence from a number of surveys in which our NetLab has been involved about the extent to which the Internet is transforming or enhancing community. The studies show that the Internet is used for connectivity locally as well as globally, although the nature of its use varies in different countries. Internet use is adding on to other forms of communication, rather than replacing them. Internet use is reinforcing the pre-existing turn to societies in the developed world that are organized around networked individualism rather than group or local solidarities. The result has important implications for civic involvement.


Notre Dame Public Intellectualism Conference: Ezekiel's Call: Comment on Joan Chittister on Public Intellectuals

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Ezekiel's Call:

And he said unto me: "Son of man, stand upon thy feet, and I will speak unto thee." And the spirit entered into me when he spake unto me, and set me upon my feet, that I heard him that spake unto me.

And he said unto me: "Son of man, I send thee to the children of Israel, to a rebellious nation that hath rebelled against me: they and their fathers have transgressed against me, even unto this very day. For they are impudent children and stiffhearted.

"I do send thee unto them; and thou shalt say unto them: 'Thus saith the Lord GOD.' And they, whether they will hear, or whether they will forbear, (for they are a rebellious house,) yet shall know that there hath been a prophet among them."


Notre Dame Public Intellectuals Conference: Comment on Enrique Krauze: Latin America: Intellectuals or Intelligentsia?

It seems to me that I have both more hopes and more fears for democracy and liberty and progress in Latin America.

The first is Brazil and Mexico. Should Brazil and Mexico become normal social-democratic growing-economies--and, the Mexican drug war aside, they have had now good 15 years--then they will be of sufficient weight to pull the rest of Latin America in their wake, and that would be a great accomplishment.

The fear is, largely, the consequences of the failure of the neoliberal promise. The hope was that by turning to market mechanisms to attain social democratic ends then, with skillful Keynesian or Friedmanite technocratic governance and with the assistance of publicly-provided pensions, education, infrastructure, etc., the world could rapidly become much more prosperous while becoming somewhat more equal.

The reality has been that the "much" in "much more prosperous" has fallen by the wayside, and in the past five years the "more" part has vanished as well. The reality is that if the world as a whole has become more equal over the past generation it is because the peasants of China and India are no longer so desperately poor. The rest see growing global wealth, and see that if they do not belong to the plutocracy at the top they are not getting a proper share of that growing global wealth.

And the people feel betrayed.

And the people are betrayed.

Copying the United States does not look attractive to anybody in Latin America, given our rapidly-growing inequality of wealth. Copying Russia never looked attractive. Copying Cuba does not look attractive. Copy Venezuela requires that you have a lot of oil per capita--much more oil than even Brazil and Mexico can muster.

We up here at least would like a Latin America taking a somewhat different road--if only because a diversified intellectual and institutional portfolio is a very important thing for the human race to have. But it is not clear to me what that road might be. And I was hoping that you would provide an answer...


Notre Dame Public Intellectualism Conference: Mark Lilla and My Instant Reaction

Mark Lilla: Caveat Lector:

I speak as a defender of liberal democracy. But I want to be a lucid one. I don't think it can be understood or defended without recognizing two things. First, that the finance-driven economy of today is no longer your mother's capitalism, and is threatening important democratic values around the world, including in the West, even the United States; and, second, that liberal democracy is not in the future in many countries of the world, and that to understand them we need to, well, understand them and not ourselves. During the Cold War I felt that the most important function the intellectual could serve was to expose and dismantle the radical ideologies of left and right that were spawned by the French Revolution, to hold other intellectuals responsible for the consequences of their ideas. That has been accomplished. The intellectual task before us today is different. It is to think the present, the way it actually is, and try to develop a coherent, historically grounded picture of it. As Alasdair Macintyre might have put it in an earlier stage of his career, "We are waiting not for a Godot, but for another--doubtless very different--Karl Marx.

My comment on his paper:

The puzzling thing from my perspective about Mark Lilla's talk was that he blames the current troubles in Europe on (a) a lack of coherent grand-narrative ideologies and (b) the power of international financial markets.

I would blame it on the weakness of international financial markets--the inability of banks and bankers to win the trust of people and so mobilize the risk-bearing capacity of the world to bear the risks of investing in a radically-uncertain future, and the unwillingness of governments to do what is necessary--either abandon the euro or move forward to the continent-wide banking regulatory union, fiscal transfer union, and political union necessary if the market is to be properly backstopped and regulated by the state. The problem is not that international financial markets are too strong. It is that they are too weak to bear the weight that the EU's institutions have placed on them.

And they are too weak precisely because of an ideology--the sound-finance ideology: gold and hard money are good, people should pay their debts, the bankers have sinned and because they sinned Greece and Spain must suffer.

So I would call for managerialism: for public intellectuals as people able to step back and bring what concerns ordinary people and should concern those who hold power and megaphones.

For this ideology that we have is, precisely, our great-grandmother's capitalism. It is the "austerity" of Baldwin and Churchill and Coolidge and Hayek and Hoover and Mellon and MacDonald and Norman. It came a-crash in 1929. Yet, somehow, it is back. And it is coming a-crash again. Then the cost was 1933, 1939, and 1945. Now--we hope--the cost will be less. But we must make it so.


Public Intellectualism in Comparative Context: Different Countries, Different Disciplines

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Public Intellectualism in Comparative Context: Different Countries, Different Disciplines

Schedule

Participate in "Public Intellectualism" Conference Sessions Remotely // News // Advanced Study // University of Notre Dame:

If you are unable to attend the "Public Intellectualism" conference this Monday through Wednesday, April 22-24, you can still take part in the conference sessions and engage the discussants over the web. To participate remotely, for FREE, check out our conference blog at http://blogs.nd.edu/ndias/ -- on the blog's Event pages you can watch the conference sessions LIVE via Web Simulcast and ask questions to the conference presenters and commentators in the Comment field at the bottom of the pages. We encourage all of our virtual participants to ask questions early and often.


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This international conference, taking place April 22-24, 2013 in McKenna Hall's Notre Dame Conference Center at the University of Notre Dame, will focus on the roles played by public intellectuals—persons who exert a large influence in the contemporary society of their countries by virtue of their thought, writing, or speaking—in various countries around the world and in their different professional roles. Leading experts from multiple disciplines will come together to approach this elusive topic of public intellectualism from different perspectives.


No, I Don't See Why the Washington Post **New York Times** Employs Peter Baker. Why Do You Ask?

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Margaret Sullivan:

Submitting a Correction to The New York Times - NYTimes.com: Requests for corrections should be submitted to The Times at nytnews@nytimes.com. This office works outside the newsroom and has no say in whether a correction is offered, but please contact us if you are dissatisfied with the response you receive from The Times. Please include the following in your e-mail to The Times:

A request for a correction in The New York Times:

Article Headline:
Date Published:
Web or Print:
Phrase in Question:
Your Concern (please limit to 300 words):

Your Name:
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Michael Froomkin:

A request for a correction in The New York Times:

Article Headline: Rewinding History, Bush Museum Lets You Decide

Date Published: 4/21/13, Print (National Edition, p. A1)

Phrase in Question: “As president, he rarely had a chance to rest….”

Your Concern (please limit to 300 words): In the page A10 continuation of the front-page article in today’s paper by Peter Baker, “Rewinding History, Bush Museum Lets You Decide”, Mr. Baker writes, “As president, he [Bush] rarely had a chance to rest….”

In fact, George W. Bush spent 32 months at his ranch (490 days) or Camp David (487 days) — an average of four months away every year, according the the Washington Post’s POTUS tracker (as cited at http://theweek.com/bullpen/column/235844/deconstructing-the-5-most-ridiculous-myths-about-barack-obama).

I understand Presidents sometimes take their work with them when they travel, but I submit that there were plenty of chances to rest in those 977 days.

Why oh why can't we have a better press corps?


Liveblogging World War II: April 22, 1943

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On April 19, 1943, Jürgen Stroop (1895-1951)

SS Brigadeführer, major general of the police, and head of the SS and police in Warsaw – took command of the so-called large-scale operation [Großaktion] in the Warsaw Ghetto. The aim of the operation was to clear the ghetto of all remaining Jews and to put down the armed uprising of Jewish resistance fighters. After the operation ended on May 16, 1943, Stroop compiled the report that would eventually bear his name. The Stoop Report consists of three sections: a written account of events; Stroop’s communiqués on the course of the operation to Friedrich Wilhelm Krüger (1894-1945), leader of the SS and police in the General Government; and photographic documentation. The Stroop Report was used as evidence by the prosecution at the Nuremberg Trial of the Major War Criminals. On March 21, 1947, a U.S. military tribunal found Stroop guilty of participating in the murder of American prisoners of war and sentenced him to death. He was later extradited to Poland, where he was tried in Warsaw from July 18 to July 23, 1951. Polish authorities were given one of the rare original copies of the Stroop Report to aid in his prosecution. He was sentenced to death by hanging and executed on September 21, 1951, in Warsaw.

The photograph, taken from the Stroop Report, shows a German assault detachment in the Warsaw ghetto and residential buildings in flames. The original caption reads: “Fumigation of Jews & bandits.”


The Best Case Against Fiscal Stimulus: Monday DeLong Smackdown Watch Weblogging

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Matthew Yglesias:

Best case against fiscal stimulus: From a stimulus supporter: Amidst all this Reinhart and Rogoff mishegas, it's worth saying that I recently read Brad DeLong's [and Laura Tyson's] slideshow about what we've learned about fiscal stimulus since the crisis began and even though he doesn't read it this way I think it contains far and away the most persuasive argument that the "old" (1977-2007) consensus against discretionary fiscal stimulus is still roughly valid. It's right there in his first slide "What We Thought About Fiscal Policy in 2007", which I'll retype:

  • Near-consensus support of John Taylor's (2000) argument that aggregate demand management was the near-exclusive province of central banks.

  • Five reasons for near consensus:

    1. The problem of legislative confusion.
    2. The problem of legislative process
    3. The problem of implementation.
    4. The problem of rent-seeking.
    5. The problem of superfluity.
  • Monetary policy was strong enough to do the job. Fiscal policy was simply not necessary.

Now looking back on this the crisis has done a lot to imperil (5), the notion that fiscal stimulus is superfluous. But it's reinforced 1-4.

Even if you assume perfect good faith on the part of each and every member of congress (which seems like a stretch) there's an inherent tension between the desire to do high-multiplier stimulus and the desire to do high social value expenditures. And not only is there empirical disagreement about multipliers, there's complicated and multi-layered disagreement about the social value of different expenditures. And operating in an environment of uncertainty, in which members know that their colleagues are seeking to advance what they believe to be socially valuable expenditures members are rational to worry about ratchet effects. What you get is gridlock and confusion. The old thinking was that a "let's do stimulus now" mentality would lead to overstimulus (and indeed multiple accounts have the Obama administration assuming congress would substantially exceed its ARRA requests) which is wrong, but the general concern about confusion/process/implementation/rents has been [validated].

So we're left with superfluity, and the revelation that whether or not "monetary policy" is in some sense "strong enough" the actual practice of Western central banks is not strong enough.

But the solution to this problem can't be to say "next time congress is going to be way better and less partisan and fiscal stimulus will work out great."


Noted for April 22, 2013

  • Kevin Drum: Why Global Recovery Has Been So Slow: In previous recessions, government expenditures in advanced economies continued to rise during the recovery period, helping to bootstrap a return to growth. This time, spending spiked up during the recession itself, but since then it's fallen…. Why? Probably because advanced countries entered the Great Recession with higher debt ratios than in the past…. Rightly or wrongly, most central governments have a limited tolerance for debt…. But which is it, rightly or wrongly? Mostly it's wrong, especially in the short term during and after a serious recession, but it's not entirely wrong. There's certainly some point at which debt service can overwhelm a government, and if investors feel that a country is headed toward that point with nothing to stop it, they'll start demanding higher interest rates on government bonds. Needless to say, this just makes debt service problems even worse, leading to a death spiral of sorts. So the trajectory of debt probably matters, even if there's no special debt level at which things fall apart. This, along with the plain fact that governments are spooked by debt, whether we like it or not, is one of the reasons that long-term deficit reduction really is pretty important."

  • Sascha O Becker and Hans K. Hvide: Do entrepreneurs matter?: "[W]hat matters more, the horse (i.e. the products) or the jockey (i.e. the owner-manager) in the life of young firms? Do entrepreneurs matter and should they be encouraged by economic policy?… [W]e analyse data on 341 privately owned companies where the majority owner dies during the first ten years of operations. The data is from Norway…. We compare these 341 companies with an identical number of ‘twin’ organisations that shared similar characteristics but where the founder had remained alive… companies have a 20% lower survival rate two years after the fatality compared with companies whose founders have not died. On average, 60% of a company’s sales are lost and 17% of jobs cut in the four years after a majority-owning entrepreneur dies…. Even four years after the death, most firms show no sign of recovering and the negative effect on performance appears to continue even further beyond that…"

Lemin Wu: Millennia of Poverty: If Not Malthusian, Then Why? | Kevin Drum: The Carbon Tax: A Tax Everyone Can Love (But No One Actually Does) |

Continue reading "Noted for April 22, 2013" »


Noted for April 21, 2013

  • Tim Duy: Accepting Failure - Tim Duy's Fed Watch: "It is starting to look like European policymakers have given up trying. Bundesbank President Jens Weidmann, via the Wall Street Journal: '"Overcoming the crisis and the crisis effects will remain a challenge over the next decade", he said in an interview from his conference room at Bundesbank's headquarters overlooking Frankfurt's financial district, contrasting recent comments from European Commission President José Manuel Barroso that the worst of Europe's crisis is over.' Also from the Wall Street Journal: 'An aging society and the time needed to work through its debt crisis will keep growth in Europe subdued for years to come, German Finance Minister Wolfgang Schaeuble said Friday. “No one should expect that Europe will deliver high growth rates for years,” he said.' Apparently the new strategy is to keep expectations low.  One has to imagine that given the current path of activity and the lack of fiscal support from European nations, the European Central Bank will find itself not only cutting rates but implementing its own version of quantitative easing by year end.  The only other option would be to sit back and watch Europe slide from recession to depression.  And that does not seem like a credible policy path."

  • De Grypis (2008): Cicero Epistulae ad Atticum 2.1: "Nam Catonem nostrum non tu amas plus quam ego; sed tamen ille optimo animo utens et summa fide nocet interdum rei publicae; dicit enim tamquam in Platonis πολιτείᾳ, non tamquam in Romuli faece, sententiam."

Ashok Rao: Economics by Induction | Michael Dirda:James Davidson's "Courtesans and Fishcakes" | Edmund Wilson on Leon Trotsky | John Maynard Keynes (1926): Trotsky On England | John Maynard Keynes (1930): Economic Possibilities for our Grandchildren | J. Bradford DeLong (2009): Economic Growth: The Ultimate Bird's-Eye View | Hermippos of Smyrna | Simon Wren-Lewis: The Stupid Cruelty of the Creditor | Brad DeLong: Henry A. Wallace (1952) on the Ruthless Nature and Utter Evil of Soviet Communism: Cold-War Era God-That-Failed Weblogging |


Conference: Notre Dame: Public Intellectualism in Comparative Context

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Sunday, April 21: Welcome Dinner

Monday, April 22: ​8:00 a.m.​Continental Breakfast

  • 8:30 a.m. Welcome, Robert Bernhard, Vice President for Research, University of Notre Dame
  • 8:45 a.m. ​“Caveat Lector: Intellectuals and the Public” Mark Lilla, Commentary: Michael Zuckert
  • 10:45 a.m. “The Public Intellectual in China” Willy Lam, Commentary: Lionel Jensen ​​* 2:00 p.m. “The Public Intellectual in Latin America” Enrique Krauze, Commentary: Paolo Carozza ​​* 4:00 p.m. “The Artist as Public Intellectual” Maxim Kantor, Commentary: Peter Holland
  • 5:45 p.m. Dinner
  • 7:15 p.m.: Evening Presentation "The Religious Leader as Public Intellectual” Sr. Joan Chittister, Commentary: Ann Astell

Continue reading "Conference: Notre Dame: Public Intellectualism in Comparative Context" »


Adam Posen:: A Dose of Reality: Deficit-Cutting Right Now Is Extraordinarily imprudent: Creating a Crisis Now to Forestall a Future Crisis That Is Unlikely to Come

Adam Posen:

A dose of reality for the dismal science: A casual perusal of 20th-century economic history, let alone more rigorous econometric analysis, turns up multiyear periods in the UK and US following the second world war, and in Belgium, Italy, and Japan in the past 20 years, when public debt was greater than 90 per cent of GDP but nothing much happened. Either stagnation in economies led to slowly rising debt levels, as in Italy or Japan of late, or growth returned and debt levels declined, as in the UK and US in the 1950s. The latter two escaped the black hole of debt without an austerity rocket booster…. [S]low growth is at least as much the cause of high debt as high debt causes growth to slow – which if you stop to think about it, as some of us did before this week, makes more sense. The current UK economy is exhibit A for such a dynamic…. On the other hand, public debt is sometimes incurred by spending on constructive things with a positive return, such as infrastructure and education. So it is common sense that slow growth is always bad for debt accumulation, but not all debt accumulation is bad for growth. Thus, the causality runs more dependably from growth to debt than vice versa….

Continue reading "Adam Posen:: A Dose of Reality: Deficit-Cutting Right Now Is Extraordinarily imprudent: Creating a Crisis Now to Forestall a Future Crisis That Is Unlikely to Come" »


Liveblogging World War II: April 20, 1943

L. Ron Hubbard liveblogs World War II:

L. Ron Hubbard's second and last command was aboard the USS PC-815, a Pacific Ocean subchaser. His career aboard lasted just 80 days; its disastrous conclusion ruined any chance Hubbard might have had of commanding another warship…. The Church of Scientology has long claimed that PC-815 was a "corvette". However, it quite definitely was not. "Corvette" refers specifically to a class of small British warships of between approximately 600-1300 tons…. They were not referred to as "subchasers"; that name was coined and used for a generic type of US anti-submarine vessel. The 38 corvettes lend-leased to or built for the US Navy had a different hull nomenclature, PG- (for Patrol Gunboat) rather than PC- (Patrol Craft, aka subchasers)…. Displacement: PCs - 280 tons. Corvettes - 925 tons. Dimensions: PCs - 170 (wl) 174¾ (oa) x 23 x 7½ ft. Corvettes - 190 (wl) 205/208¼ (oa) x 33 x 14½ ft…. In all, 317 steel-hulled PCs were completed. Unlike corvettes, they were not long-range oceanic vessels but were tasked with escorting ships along the USA's long and vulnerable coastlines. It has to be said that they were not particularly well-suited to this task…. The weak armament of PCs made them fairly ineffective at sinking submarines….

Continue reading "Liveblogging World War II: April 20, 1943" »


Noted for April 20, 2013

  • Paul Krugman: Correlation, Causality, and Casuistry: "One last thing: even if you take Dube’s forward-looking regression as a causal relationship, which you shouldn’t, notice how weak that relationship is in the relevant range. It looks as if raising debt from 50 to 150 percent of GDP, other things equal, reduces growth by around 0.1 percentage point over the next three years. This is the dreadful consequences that prevents us from doing anything about mass unemployment?"

  • Paul Krugman: Lack Of Nuance Is Not The Problem: "I see that both Tyler Cowen and Austin Frakt are offering explanations/excuses for the Reinhart-Rogoff affair in terms of the dynamics of wonk celebrity…. As an explanation, I think this has some merit; as an excuse, none…. What happened with R-R was that they came out with a sloppy paper that played to the spirit of the times. The sloppiness was immediately obvious from the way they highlighted slow US growth in the late 1940s as an illustration of the price of debt overhang, somehow missing the point about postwar demobilization. It took only a few days for critics to point out the correlation versus causation issue too…. But the paper was also a huge immediate hit with the austerians, and they got sucked in. Notice, however, that the problem with the original wasn’t that it failed to convey the nuances. The problem was that it was just plain wrong — wrong about America after the war, wrong about what a debt-growth correlation means. (It turns out that there was other wrongness too, but that was enough)."

Justin Green: 'Indisputable Torture' | Andrea Terzi: Why the Reinhart-Rogoff paper was flawed right from the start | Justin Fox: Reinhart, Rogoff, and How the Macroeconomic Sausage Is Made | Andrew Gelman: Memo to Reinhart and Rogoff: I think it’s best to admit your errors and go on from there | Arindrajit Dube: Guest Post: Reinhart/Rogoff and Growth in a Time Before Debt | Jeff Frankel: Fear of Fracking: The Problem with the Precautionary Principle | Kevin Drum: Elena Kagan Writes an Awesome Dissent | Mark Thoma: Economist's View: Narayana Kocherlakota contra Jeremy Stein: Low Real Interest Rates and Financial Market Instability | Sarah Bloom Raskin: Aspects of Inequality in the Recent Business Cycle | John Maynard Keynes: Trotsky On England | Gillian Tett: Interview: Facebook’s Sheryl Sandberg | Ambrose Evans-Pritchard: Debunking austerity claims makes no difference to Europe's monks and zealots |

Continue reading "Noted for April 20, 2013" »


Economic Policy: Saturday Twentieth Century Economic History Weblogging

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Note well: the economy will not manage itself, at least not in a good way.

As John Maynard Keynes shrilly stated back in 1926:

Let us clear… the ground…. It is not true that individuals possess a prescriptive 'natural liberty' in their economic activities. There is no 'compact' conferring perpetual rights on those who Have or on those who Acquire. The world is not so governed from above that private and social interest always coincide. It is not so managed here below that in practice they coincide. It is not a correct deduction from the principles of economics that enlightened self-interest always operates in the public interest. Nor is it true that self-interest generally is enlightened… individuals… promot[ing] their own ends are too ignorant or too weak to attain even these. Experience does not show that… social unit[s] are always less clear-sighted than [individuals] act[ing] separately. We [must] therefore settle… on its merits… "determin[ing] what the State ought to take upon itself to direct by the public wisdom, and what it ought to leave, with as little interference as possible, to individual exertion".

The management of economies by governments in the twentieth century was at best inept. And, as we have seen since 2007, little if anything has been durably learned about how to regulate the un-self-regulating market in order to maintain prosperity, or ensure opportunity, or produce substantial equality.

Continue reading "Economic Policy: Saturday Twentieth Century Economic History Weblogging" »


Reinhart-Rogoff Weblogging: No, Their Argument for Austerity Now Out of Fear of Debt Didn't Seem to Me to Make That Much Sense

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Let me highlight a passage from the "Understanding Our Adversaries" evolution-of-economists'-views talk that I started giving three months ago, a passage based on work by Owen Zidar summarized by the graph above:

The argument [for fiscal contraction and against fiscal expansion in the short run] is now: never mind why, the costs of debt accumulation are very high. This is the argument made by Reinhart, Reinhart, and Rogoff: when your debt to annual GDP ratio rises above 90%, your growth tends to be slow.

This is the most live argument today. So let me nibble away at it. And let me start by presenting the RRR case in the form of Owen Zidar's graph.

First: note well: no cliff at 90%.

Second, RRR present a correlation--not a causal mechanism, and not a properly-instrumented regression. There argument is a claim that high debt-to-GDP and slow subsequent growth go together, without answering the question of which way causation runs. Let us answer that question.

The third thing to note is how small the correlation is. Suppose that we consider two cases: a multiplier of 1.5 and a multiplier of 2.5, both with a marginal tax share of 1/3. Suppose the growth-depressing effect lasts for 10 years. Suppose that all of the correlation is causation running from high debt to slower future growth. And suppose that we boost government spending by 2% of GDP this year in the first case. Output this year then goes up by 3% of GDP. Debt goes up by 1% of GDP taking account of higher tax collections. This higher debt then reduces growth by... wait for it... 0.006% points per year. After 10 years GDP is lower than it would otherwise have been by 0.06%. 3% higher GDP this year and slower growth that leads to GDP lower by 0.06% in a decade. And this is supposed to be an argument against expansionary fiscal policy right now?

The 2.5 multiplier case is more so. Spend 2% of GDP over each of the next three years. Collect 15% of a year's extra output in the short run. Taking account of higher tax revenues, debt goes up by 1% of GDP and we have the same ten-year depressing effect of 0.06% of GDP. 15% now. -0.06% in a decade. The first would be temporary, the second is permanent, but even so the costs are much less than the benefits as long as the economy is still at the zero lower bound.

And this isn’t the graph that you were looking for. You want the causal graph. That, worldwide, growth is slow for other reasons when debt is high for other reasons or where debt is high for other reasons is in this graph, and should not be. Control for country and era effects and Owen reports that the -0.06% becomes -0.03%. As Larry Summers never tires of pointing out, (a) debt-to-annual-GDP ratio has a numerator and a denominator, and (b) sometimes high-debt comes with high interest rates and we expect that to slow growth but that is not relevant to the North Atlantic right now. If the ratio is high because of the denominator, causation is already running the other way. We want to focus on cases of high debt and low interest rates. Do those two things and we are down to a -0.01% coefficient.

We are supposed to be scared of a government-spending program of between 2% and 6% of a year's GDP because we see a causal mechanism at work that would also lower GDP in a decade by 0.01% of GDP? That does not seem to me to compute.

Now tonight I have been nibbling the RRR result down. Presumably they are trying to see if it can legitimately be pushed up. This will be interesting to watch over the next several years, because RRR is the heart of the pro-austerity case right now.

Continue reading "Reinhart-Rogoff Weblogging: No, Their Argument for Austerity Now Out of Fear of Debt Didn't Seem to Me to Make That Much Sense" »


Gavyn Davies on Reinhart/Rogoff

Gavyn Davies:

How much of Reinhart/Rogoff has survived?: The work of Carmen Reinhart and Ken Rogoff (RR) on public sector debt ratios, and their relationship with GDP growth, has been extraordinarily influential… had appeared to establish an important stylised fact: that debt ratios above 90 per cent were associated with much lower rates of GDP growth than debt ratios under 90 per cent. The sudden drop in growth at a debt ratio similar to that reached in many developed economies acted as a wake up call to governments and encouraged the adoption of austerity programmes.

This week, a paper by Thomas Herndon, Michael Ash and Robert Pollin (HAP) argued that the RR stylised fact was based on simple statistical errors, including a spreadsheet error which RR have now acknowledged. Their critique of the original RR stylised fact promises to establish an alternative conventional wisdom, which is that high public debt ratios are never damaging for GDP growth. But the truth is more complicated than that, and far less certain….

Continue reading "Gavyn Davies on Reinhart/Rogoff" »


2013 Evolution of 2009 "Economists' Recent Thinking" Talk: Understanding Our Adversaries: Who Are the Foes of Expansionary Fiscal Policy? And Why?

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Right now I am in the middle of a long project with Larry Summers on fiscal policy in a depressed economy. It has a lot of moving parts. Right now, however I am finding it difficult to make progress because it is not clear to me who the audience for this--who we should be trying to convince of what.

So let me, right now, try to spend tonight telling you what I think but rather what I think others think.

Continue reading "2013 Evolution of 2009 "Economists' Recent Thinking" Talk: Understanding Our Adversaries: Who Are the Foes of Expansionary Fiscal Policy? And Why?" »


L'Esprit de l'Escalier: April 19, 2013

L'Esprit de l'Escalier: April 19, 2013

  • The way I put it: Hoover wanted liquidation accomplished, but accomplished with the least amount of human misery. Mellon thought that liquidation that was not accompanied by human misery would fail of its object. Hoover believed in "liquidation" like Schumpeter and Mellon. I bounce back and forth between thinking that Robert Murphy knows full and damned well that he is lying when he mischaracterizes me or just can't think straight. Which do you think it is?

  • I don't think that's right. I'm a huge fan of Tony Judt… and of George Orwell. But not of the plaster saint versions…

  • .@GagnonMacro .@nytimeskrugman How about startin' some talk about doubling the pace of QE3? "Joseph Gagnon ‏@GagnonMacro 5 Apr @NYTimeskrugman I hope this ends all the foolish talk about a premature reduction in QE3. QE3 is going to last all year and into next."

Continue reading "L'Esprit de l'Escalier: April 19, 2013" »


Ryan Avent: "Economics: The Ivory Fortress": Kauffman Foundation 2013 Economic Webloggers' Forum

Ryan Avent:

Economics: The ivory fortress: ONE of the more interesting responses to this week's Reinhart-Rogoff debate was this, from the economics blog Cheap Talk. "I Move That The AEA Stop Publishing Papers and Proceedings", the post title reads. Then: 

Non-peer reviewed, inaccessible data, and punditry that can’t tell the difference between P&P and a regular AER article can’t be good for the reputation of the journal, the AEA, or the profession.

Continue reading "Ryan Avent: "Economics: The Ivory Fortress": Kauffman Foundation 2013 Economic Webloggers' Forum" »


Europe Fails to Learn the Lessons of History: Notes on Political Union for Barry Eichengreen's "Future of the Euro" Conference, as Delivered

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What is the best place to start?

The problem is I really have four starting points, or perhaps I have five starting points--fear, surprise, ruthless efficiency, etc….

First, I would have to be even more rash than Charles le Temeraire, last duke of sovereign Burgundy, to opine about classical Dutch history with Jan de Vries in the room, but let me do so to point out that this session's topic, "political union", is a vague and sketchy concept. The political union of the strongest power in 17th century Europe, the seven United Provinces of the Netherlands, was made up of the components. First, there was a talk shop in the Hague--which had rather less power than is currently assembled in Brussels and Strasbourg. Second, the same guy, the Prince of Orange, was nearly always the stadthouder, the chief executive, of all seven provinces. Third, one of the provinces, Holland, was 60% of the total, and so if consensus was not reached could threaten to go it alone and do what was necessary--but when it did so take down names and have a long memory of who had played ball and who had not.

Continue reading "Europe Fails to Learn the Lessons of History: Notes on Political Union for Barry Eichengreen's "Future of the Euro" Conference, as Delivered" »


Thursday Countertrolling the Trolls Weblogging: Noah Smith vs. the Hax of Sol III:

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Noah Smith:

Feigning stupidity is often an effective tactic in an argument, especially when your opponent is interested in explaining an actual idea…. I've used the tactic once or twice myself… to frustrate and exasperate a comparative literature major….

Hans Hermann-Hoppe thinks Paul Krugman is the Comp Lit major - a serious, sober, do-gooding nerd type - and all he has to do to score a win is make Krugman mad. Actually, it's probably more than that; he probably thinks that because the audience for these debates is (in his mind) mostly ignorant simpletons, that if he acts like an ignorant simpleton, he will resonate with the audience - he will seem to them to be one of their tribe - and Krugman will seem like an alien outsider, with his equations and his thought experiments and his other nerdy nerd stuff. "Go home and play with your slide rule, nerd! We Cool Guys know that printing little pieces of paper can never make a country richer! High five!"

Continue reading "Thursday Countertrolling the Trolls Weblogging: Noah Smith vs. the Hax of Sol III: " »


Liveblogging World War II: April 18, 1943

World War II Today: Operation Mincemeat:

An English girl’s love letter for the Gestapo

In a world at war, with millions of people separated from their families and loved ones, the letter was the only possible way for most people to stay in contact. In the context of wartime romance love letters were an essential part of any relationship. So a letter, apparently written on the 18th April 1943, was just very typical of the times:

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Noted for April 18, 2013

  • Jonathan Portes: We're nowhere near knowing what quantitative easing does: "There’s certainly no consensus in academia, policymaking circles or among commentators over how the financial crisis arose, what the responses should be and what the consequences are for economics. I’m not a historian of economic thought but I would assume that if you went back to 1929 the situation was very similar…. The Great Moderation was effectively a period – from a policymaking point of view – where people thought macroeconomics was dead. The received wisdom was that macroeconomics was over as a policymaking problem and hence academic macroeconomics wandered off into areas that had almost nothing to do with policy…. Now, however, there are quite fundamental debates going on for example about what do we think the consequences of deleveraging will be on demand, what channels that could work through and what policies can be undertaken to counter it. Within these you have big differences of opinion with some people arguing that QE is completely ineffective and that monetary policy is impotent, while other people believe that monetary policy just hasn’t been tried hard enough…. I tend to regard fiscal policy as the conservative side of macroeconomic policy management because we do sort of know how to calibrate it. This is why I find the Financial Times editorial line completely bizarre as for a some time now they have argued that we should take the “helicopter money” idea seriously while supporting the government’s fiscal plans on the grounds of credibility. It seems to me the idea that you risk the government’s credibility by borrowing an extra couple of percent of GDP for investment but there would be no risk to credibility by doing something which nobody in modern times in an advanced developed country has ever tried and that is generally considered to be last ditch strategy is an odd conclusion."

  • Paul Krugman: Density: }America is a vast, thinly populated country… fewer than 90 people per square mile, [but] the average American lives in a… neighborhood with more than 5000 people per square mile. The next time someone talks about small towns as the “real America”, bear in mind that the real real America — the America in which most Americans live — looks more or less like metropolitan Baltimore…. US population and hence the population density rose about 10 percent over the course of the naughties, the average American was living in a somewhat less dense neighborhood in 2010 than in 2000, as population spread out within metropolitan areas. If you like, we’re becoming a bit less a nation of Bostons and a bit more a nation of Houstons. This is, I think, a picture of urban geography in which the link between overall rising population and land prices is likely to be diffuse at best. So I think I call this one for Smith — although McBride’s point that actual real housing prices do seem to have an upward trend remains important, and needs explaining."

Lucian A. Bebchuk: The Myth that Insulating Boards Serves Long-Term Value | Zsolt Darvas et al.: Europe's growth problem (and what to do about it) | Stadtholder | M Ayhan Kose, Prakash Loungani, and Marco E Terrones: Why is this global recovery different? | Jim Farmelant: The Strange Case of Dr. Hayek and Mr. Hayek | Jean-Pierre Landau: Macroprudential rebalancing | Tylenol May Reduce Fear Linked to Existential Uncertainty | Scott Lemieux: The Catastrophe of Mass Unemployment |

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Joshua Gans: Blogging Citation Norms: Kauffman Foundation 2013 Economic Webloggers' Forum

Joshua Gans:

Digitopoly | Blogging Citation Norms: One thing I learned at the Kauffman Economic Bloggers Forum last week is that there is angst among the professional (i.e., non-academic) bloggers about citation and re-stating the arguments of other bloggers. It was noted that, a few years back, it was common to cite other bloggers but that these days this seems to have fallen by the way-side. Indeed, now, if another blogger has blogged about an issue there is reluctance to tackle that issue.

Part of this seems consistent with my ‘dual hypothesis’ story of blogging that I articulated in my presentation to the forum. That story went as follows. Readers look to high frequency, written, commentary by bloggers in order to get their take on a particular issue. Blog writers offer a take because, at the time, no one else has offered that specific take. Once they have done so, there is no direct social value to others from re-stating that take. Hence, it is only efficient for them to blog on that issue if they have a different take.

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