WASHINGTON, DC--In a move designed to make the United States seem more "bad-assed and scary in a quasi-heavy-metal manner," Congress officially changed the nation's name to the Ünited Stätes of Ämerica Monday. "Much like Mötley Crüe and Motörhead, the Ünited Stätes is not to be messed with," said Sen. James Inhofe (R-OK). An upcoming redesign of the Ämerican flag will feature the new name in burnished silver wrought in a jagged, gothic font and bolted to a black background. A new national anthem is also in the works by composer Glenn Danzig, tentatively titled "Howl Of The She-Demon."
"It is easy to confuse what is with what ought to be, especially when what is has worked out in your favor."
- Tyrion Lannister
"Lannister. Baratheon. Stark. Tyrell. They're all just spokes on a wheel. This one's on top, then that's ones on top and on and on it spins, crushing those on the ground. I'm not going to stop the wheel. I'm going to break the wheel."
- Daenerys Targaryen
"The Lord of Light wants his enemies burned. The Drowned God wants them drowned. Why are all the gods such vicious cunts? Where's the God of Tits and Wine?"
- Tyrion Lannister
"The common people pray for rain, healthy children, and a summer that never ends. It is no matter to them if the high lords play their game of thrones, so long as they are left in peace. They never are."
- Jorah Mormont
"These bad people are what I'm good at. Out talking them. Out thinking them."
- Tyrion Lannister
"What happened? I think fundamentals were trumped by mechanics and, to a lesser extent, by demographics."
- Michael Barone
"If you want to know what God thinks of money, just look at the people he gave it to."
- Dorothy Parker
Saturday, July 03, 2010
Friday, July 02, 2010
Optimism/Pessimism, Spin and Public Policy
One thing I've noticed about discussing the economy is that if you want more stimulus and less austerity, it's suggested that you highlight how bad things are. Yesterday, Duncan Black wrote that he was looking for bad news in today's job report.
As I've written before, I have no desire to destroy the Village to save it, and I have no desire for a single more person to be without a job. But the number that comes out tomorrow is just an estimate, and all estimates are imperfect. I'm not confident that anything will spur elites to do more, but the best chance we have is bad news, or a bad estimate of the actual news. The reality should be bad enough, but for some reason it isn't.Also, people who have been arguing for more stimulus can say "I told you so" if or when the numbers are bad.
But that can be depressing, so sometimes it's nice to highlight the bright spots in the economy, like the fact that it's growing (however slowly) and the private sector added around 83,000 jobs last month (better than losing jobs). Also, the worse the economy is, the better the Republicans will do in November.
Ezra Klein writes about the White House's dilemma.
"Today’s employment report shows continued signs of gradual labor market recovery," reads the first line of Christina Romer's analysis of the May jobs report. She emphasizes the 83,000 jobs created in the private sector (the 125,000 net job loss is due to census jobs expiring), and says that non-census employment rose by 100,000. That's true, and it may be an important way to look at it, but the census jobs were still jobs, and we're not growing nearly fast enough to reabsorb those workers.
Romer's blog post and recent statements from and meetings with administration officials suggest that the White House's broad approach on the economy is to emphasize how much improvement there is, rather than how much needs to be done. That makes political sense, of course: The economy has largely stabilized, which is a huge achievement, and the only chance Democrats have in the midterms is convincing the country that they're responsible for that stabilization. But it also makes it difficult for the White House to run around with its hair on fire about how bad things are and how necessary it is that Congress doesn't abandon the labor market in order to pretend to care about the deficit.Probably, the best practice is to try to describe the situation as accurately as possible. Christina Romer isn't running around with her hair on fire, but in the blog post Klein links to, she does assert that the country needs much stronger job growth.
June marks the sixth month in a row that private sector employment has increased. These continued signs of healing are important, particularly given the recent volatility in world markets and the mixed behavior of other recent economic indicators. However, much stronger job gains are needed to repair the damage caused by the financial crisis and put the millions of unemployed Americans back to work.As Dean Baker would point out, the blowing and popping of the housing bubble (in the US and Europe) caused the financial crisis and caused a massive drop in demand. Coordinated action by the world's governments helped stabilize the economy, but stronger job gains are needed to repair the damage caused by the bursting of the bubble and the financial crisis.
To end on a somewhat bright note, David Leonhardt writes that the government is probably understating job growth right now.
As a rule of thumb, the government has understated job growth by roughly 50,000 to 100,000 jobs a month during the first year after a recession’s end. The main reason is the difficulty estimating job changes at new businesses and failing ones. Floyd Norris has written about this issue.
None of this guarantees the government is making the same mistake again. And even if it is, the economy remains a very long way from being healthy. But it’s worth keeping in mind.
Thursday, July 01, 2010
If you look at the American capitalism since World War II, there are ample grounds for optimism. The U.S. economy has experienced almost continuous growth, punctuated by infrequent recessions, from which we have emerged stronger than ever. But the pessimists insist that this recession is different. Here, let me review some of their arguments, and why they are wrong.
First, the upturn in private investment. Declines in investment during recessions are much larger than any other component of the economy. From start of recession through June, 2009, real private investment spending was down 31 percent; since then it is up 16 percent.
Secondly, the rise in inventories. Inventories are very responsive to the business downturns. In 2008 and 2009, inventories fell by nearly $150 billion. In 2010, inventories are rising. Third, business confidence. The latest poll of business owners shows more companies planning to invest now than at any time since the onset of the recession. And fourth, finally, by most accounts, consumer confidence is rising. A survey of the affluent (in households with incomes greater than $90,000) shows a rising number planning on increasing their investments and consumption.)
Wednesday, June 30, 2010
What does the future hold?
In six months time, at the end of December, where will we be? How will the November elections go? How will things go in Afghanistan? Will the American and global economies be expanding or contracting at that time?
My guesses, which easily could be wrong, is that the Democratic party won't do too bad in November, Afghanistan will keep on going as it has been and the American and global economies will keep growing slowly with slow improvements in employment. Again, all of this could be way off.
Matt Yglesias points out that David Leonhardt has delivered a great column once again, this time on the global turn towards austerity.
Longer term, though, it’s still impossible to know which prediction will turn out to be right. You can find good evidence to support either one.
The private sector in many rich countries has continued to grow at a fairly good clip in recent months. In the United States, wages, total hours worked, industrial production and corporate profits have all risen significantly. And unlike in the 1930s, developing countries are now big enough that their growth can lift other countries’ economies.
On the other hand, the most recent economic numbers have offered some reason for worry, and the coming fiscal tightening in this country won’t be much smaller than the 1930s version. From 1936 to 1938, when the Roosevelt administration believed that the Great Depression was largely over, tax increases and spending declines combined to equal 5 percent of gross domestic product.
Back then, however, European governments were raising their spending in the run-up to World War II. This time, almost the entire world will be withdrawing its stimulus at once.However, Yglesias disagrees with Leonhardt's contention that inflation played an important role in the rise of the Nazi party in Germany in the thirties.
As I’ve said before, it’s true that Germans are paranoid about inflation and it’s true that Germany had a major inflation problem in the 1919-1923 period, but it’s simply false to say that inflation played an important role in the rise of the Nazis. In 1924 there was no inflation problem and the Nazis were politically marginal. The same was true in 1925, and in 1926, and in 1927, and in 1928. By the election of 1930, the country was mired in deflation and sky-high unemployment and Nazis were securing over ten percent of the seats in parliament. Those trends--deflation, high unemployment, and a rising share of the Nazi vote--set the stage for the eventual decision of Germany’s mainstream conservatives to hand power over to Hitler. But it was monetary orthodoxy and excessive fear of socialism that put the Nazis in power.I'd argue Leonhardt is technically correct, while Yglesias's larger point should be more well-known. The original cause was the immense austerity inflicted on Germany by the excessively punitive reparations included in the Treaty of Versaille at the conclusion of World War I.* Reparations caused massive resentment in Germany and inflicted pointless economic damage. There was hyperinflation and much suffering in the early years of the Weimar Republic, after WWI, but the 1920s saw stabilization and a golden era until the Great Depression hit at the end of the decade. From Wikipedia:
The Reichstag general elections on 14 September 1930 resulted in an enormous political shift: 18.3% of the vote went to the Nazis, five times the percentage compared to 1928. It was no longer possible to form a pro-republican majority in the Reichstag, not even a Grand Coalition of all major parties except the KPD, NSDAP and DNVP. This encouraged the supporters of the Nazis to force their claim to power by increasing organization of public demonstrations and paramilitary violence against rival paramilitary groups.
From 1930 to 1932, [chancellor] Brüning tried to reform the devastated state without a majority in Parliament, governing with the help of the President's emergency decrees. During that time, the Great Depression reached its low point. In line with conservative economic theory that less government spending would spur economic growth, Brüning drastically cut state expenditures, including in the social sector. He expected and accepted that the economic crisis would, for a while, deteriorate before things would improve. Among others, the Reich completely halted all public grants to the obligatory unemployment insurance (which had been introduced only in 1927), which resulted in higher contributions by the workers and fewer benefits for the unemployed.
Because most parties opposed the new government, von Papen had the Reichstag dissolved and called for new elections. The general elections on 31 July 1932 yielded major gains for the KPD [Communists] and the NSDAP (the Nazis), who won 37.2% of the vote, supplanting the Social Democrats as the largest party in the Reichstag.So the race is on: will private demand continue to grow into a virtuous circle that is able to supplant and surpass the withdrawal of public demand by the world's governments? Will the economies of the relevant election districts improve enough in time for the November elections?
Obama and Bernanke met yesterday at the White House. Bernanke said "What's happening around the world in the emerging markets, in Europe, affects us here in the United States and it's important for us to take that global perspective as we discuss the economy."
Obama said "We've got to continually push the pace of economic growth in order to put people back to work. That ultimately is the measure for most Americans of how well we are economically doing."
*Liaquat Ahamed's Lords of Finance is good on this.
Tuesday, June 29, 2010
The Celtic Tiger
The New York Times has an excellent front-page, above-the-fold article on Ireland's economic troubles today.
Nearly two years ago, an economic collapse forced Ireland to cut public spending and raise taxes, the type of austerity measures that financial markets are now pressing on most advanced industrial nations.
Rather than being rewarded for its actions, though, Ireland is being penalized. Its downturn has certainly been sharper than if the government had spent more to keep people working. Lacking stimulus money, the Irish economy shrank 7.1 percent last year and remains in recession.
Joblessness in this country of 4.5 million is above 13 percent, and the ranks of the long-term unemployed -- those out of work for a year or more -- have more than doubled, to 5.3 percent.
The budget went from surpluses in 2006 and 2007 to a staggering deficit of 14.3 percent of gross domestic product last year -- worse than Greece. It continues to deteriorate. Drained of cash after an American-style housing boom went bust, Ireland has had to borrow billions; its once ultralow debt could rise to 77 percent of G.D.P. this year.
Mr. Honohan predicts growth could revive to a rate of about 3 percent by 2012. But that may be optimistic: Ireland, as one of the 16 nations in Europe that has adopted the euro as its common currency, is trying to shrink the deficit to 3 percent of G.D.P. by 2014, a commitment that could weaken its hopes for recovery.Dean Baker lauds the article but adds:
It also might have been worth talking to an economist who could have pointed out that it is not just markets that are forcing Ireland to go the austerity route, it is the European Central Bank (ECB).
The ECB, like the Fed in the United States, could adopt a more aggresive policy of supporting member states governments. For example, the ECB could buy up large amounts of member state debt and offer extensive guarantees. This would allow Ireland, which had run budget surpluses and had a low national debt before the collapse of its housing bubble, more time to re-orient its economy. Given the huge amount of unemployment and excess capacity in the European Union, there is little risk of inflation from going this route.
This otherwise good piece does a disservice to readers by implying that markets are forcing this suffering on the Irish population. It is the decisions of the ECB that is leading to this suffering.Krugman blogs:
That’s why the Irish debacle is so important. All that savage austerity was supposed to bring rewards; the conventional wisdom that this would happen is so strong that one often reads news reports claiming that it has, in fact, happened, that Ireland’s resolve has impressed and reassured the financial markets. But the reality is that nothing of the sort has taken place: virtuous, suffering Ireland is gaining nothing.
Yglesias comments:Of course, I know what will happen next: we’ll hear that the Irish just aren’t doing enough, and must do more. If we’ve been bleeding the patient, and he has nonetheless gotten sicker, well, we clearly need to bleed him some more.
But the lesson is still clear enough--what gives confidence to investors is prospects for growth, and what countries need to do to instill confidence is to adopt pro-growth policies. The United States can get away with more short-term borrowing, and will ultimately have an easier time paying off the debts we’ve already accumulated if the economy grows.
Monday, June 28, 2010
I went and saw Brazil beat Chile in soccer at a bar and after the match was over the bar played, in my opinion, the greatest music album of all time, London Calling. First you hear "Hateful" a great song, then "Rudy Can't Fail," then "Wrong 'Em Boyo" among others.
Stagger Lee met Billy and they go down to gambling
Stagger Lee throwed seven
Billy said that he throwed eight
So Billy said, hey Stagger! I'm gonna make my big attack
I'm gonna have to leave my knife in your back
Why do you try to cheat?
And trample people under your feet
Don't you know it is wrong?
To cheat the trying man
Don't you know it is wrong?
To cheat the trying man
So you better stop, it is the wrong 'em boyo
You lie, steal, cheat and deceit
In such a small, small game
Don't you know it is wrong
To cheat the trying man
Don't you know it is wrong
To cheat the trying man
You'd better stop, it is the Wrong 'Em Boyo
Dean Baker on why Robert Samuelson's latest column is wrong.
In these circumstances, a reduction in the deficit could produce a substantial stimulus through two channels. First, it would lower interest rates, which would provide a direct boost to domestic investment and consumption. Second, lower interest rates would lower the value of the currency, which in turn would make its goods more competitive internationally, thereby increasing net exports.
These conditions do not apply for most countries at present and certainly not to the United States. It is very doubtful that even the strongest deficit reduction measures will have a noticeable effect on lowering already low interest rates. It is also not clear that there would be any substantial investment response to lower interest rates by businesses that already are sitting on huge amounts of retained earnings. Heavily indebted consumers are also not likely to substantially boost consumption.
Governments need to boost aggregate demand. At least America is somewhat tepidly showing leadership. Bernanke isn't doing anything to aggravate the situation, unlike some other actors (the IMF, ECB sort of, etc.), but is risking a lot by not doing more. Obama is saying the right things at the G-20 conference in Toronoto:The trade route also does not look especially promising. If interest rates fell in the United States it is unlikely that it will lead to much of a decline in the dollar in a context where has been pushed up by a flight to safety in uncertain times. Furthermore, it is not clear that the United States will be able to increase its net exports by much at a time when every other country is trying to go the same route and is also constricting demand through fiscal contraction.
We must recognize that our fiscal health tomorrow will rest in no small measure on our ability to create jobs today.But the Republicans + 1 are blocking more stimulus in the Senate, even as the states cut budgets, raise taxes and reduce demand.
Krugman writes that it's almost as if the financial markets - bond vigilantes or Tom Friedman's Golden Straightjacket - understand what policy makers don't:
Why the wrong turn in policy? The hard-liners often invoke the troubles facing Greece and other nations around the edges of Europe to justify their actions. And it’s true that bond investors have turned on governments with intractable deficits. But there is no evidence that short-run fiscal austerity in the face of a depressed economy reassures investors. On the contrary: Greece has agreed to harsh austerity, only to find its risk spreads growing ever wider; Ireland has imposed savage cuts in public spending, only to be treated by the markets as a worse risk than Spain, which has been far more reluctant to take the hard-liners’ medicine.
It’s almost as if the financial markets understand what policy makers seemingly don’t: that while long-term fiscal responsibility is important, slashing spending in the midst of a depression, which deepens that depression and paves the way for deflation, is actually self-defeating.
So I don’t think this is really about Greece, or indeed about any realistic appreciation of the tradeoffs between deficits and jobs. It is, instead, the victory of an orthodoxy that has little to do with rational analysis, whose main tenet is that imposing suffering on other people is how you show leadership in tough times.From a glass half-full perspective, at least America is somewhat showing some leadership, via Obama and Bernanke (within the confines of our dysfunctional political system). Europe is performing stress tests on its banks to increase confidence. (And at least the Germans are honest about their deficit-cutting - for example by raising taxes on banks, unlike, say, American Republicans.) China is making noises about allowing its currency to rise, which demonstrates their confidence that the worst is over. They may be control freaks, but they've also proven to be pretty business-savvy. Dominique Strauss-Kahn says the IMF isn't forcasting a double-dip recession.
Japan and India sided with the United States in trying to moderate the austerity tough talk of the G-20 group statement and advocated a measured approach to debt reduction. Maybe all of this austerity talk and sticking it to the lower orders is simply a backlash reaction* to the concerted efforts of the world's governments in successfully staving off the panic of 2008 which was a massive failure of the private sector and markets? Maybe it's a reaction by the usual proponents of orthodoxy to the powerful memes put in circulation by the democratic liberal-left after 2008? If so, in a sense that's a good thing.
Meanwhile Spanish unions plan for a general strike in September even as the French raise their retirement age from 60 to 62, which will probably cause strikes.
*see title of blog post. Anything good on the political front will cause a backlash. Obama's election for instance. (But good things also breed good things. I volunteered to parade with Alexi Giannoulias at Chicago's Gay Pride Parade yesterday and there were tons of energetic young volunteers there pumped up to fight the good fight. Maybe it was Giannoulias's basketball friend Obama who got them interested and motivated? By the way I'm not gay and haven't been to the parade in a few years, but I remember it being much more raunchier in past years. It was fun as I remember though! And I saw Brent Sopel parading with the Blackhawk's Stanley Cup!)
Sunday, June 27, 2010
Brad DeLong on long-term deficit.
75-Year Cost of Bush Tax Cut Extension: 2.2% of GDP
75-Year Cost of Medicare Part D: 0.8% of GDP
A further $100 billion stimulus would raise our 75-year primary fiscal deficit by 0.005% of GDP.
It would take a $2 trillion stimulus to raise our 75-year primary fiscal deficit by 0.1% of GDP
Dean Baker observes that the IMF completely missed the housing bubble, the bursting of which has added a lot to governments' debt. He suggests that their constant errors probably are a result of political motivation.The health care reform act--the PPACA--reduced our 75-year primary fiscal deficit by 0.4% of GDP if repeat if the long-run effects on Medicare spending growth are what the CBO projected them to be last fall.
Felix Salmon reviews books on Bear Stearns and Goldman Sachs.
All this material is then marshaled in support of two big ideas.
The first is that Wall Street is, or should be, a public utility, operating the "money grid" in much the same way that Con Edison operates the electricity grid. McGee talks of the money grid throughout the book while never really bothering to define it, but at the heart of the idea is the notion that banks exist to take money from investors looking to put their cash to work, and to funnel it productively to companies that need to raise capital.
McGee’s other idea is that once all the big banks went public, their shareholders demanded that they maximize their return on equity and try to become as successful, on that front, as the insanely profitable Goldman Sachs. When Goldman’s competitors took on ever-increasing amounts of risk and leverage in an attempt to replicate Goldman, they sowed the seeds not only of their own destruction, but of the entire global financial system as well.