"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

Friday, July 16, 2010

Floyd Norris on which countries will turn out like Greece.
Which governments will not be able to pay their bills?
The ones with private sectors that are not doing well enough to bail out the government.
That should be one lesson of the near default this year of the Greek government. Government finances are important, but in the end it is the private sector that matters most.
It may seem odd to talk of businesses bailing out governments, when the reverse is what appeared to happen over the last couple of years. But government credit, in the end, is based on its ability to collect taxes. A healthy private sector will provide the taxes, if they are to be provided at all. 
The overseas debt of most countries is denominated in currencies the governments cannot print and its citizens do not use, which is one reason crises can sneak up on traditional analyses. Argentina’s debt-to-G.D.P. ratio was about 50 percent, recalled Albert Metz, a managing director of Moody’s, shortly before the nation defaulted in the 1990s. The currency collapsed, and the ratio tripled overnight.
There is another lesson of the recent crisis that should be understood. The obligations of a country’s financial sector are, in extremis, contingent obligations of the government. Allowing the financial system to collapse is simply not an acceptable alternative.
The left wants more stimulus spending, and sees economic optimism as playing into the hands of its opponents. The right wants proof that President Obama is doing a bad job, which it hopes will lead to large Republican gains in November, and sees economic pessimism as in its best interests.
In fact, there are few signs of a double-dip recession. As Daniel Gross asked in Slate this week, "Retail sales are up, and credit card debt is down. Why is that bad news?" Americans are spending about 5 percent more than a year ago, even with this week’s retail sales numbers that were pronounced disappointing by some. But it appears that the spending is coming more from those who can afford it than from those who need to borrow.
The important goal now is a healthy economy, and there are signs that it is arriving. Corporate profits were surprisingly strong in early 2010, and early second-quarter reports are encouraging.
It is the success, or failure, in obtaining that goal that will determine whether there is a real crisis in federal debt.
Yes the bursting of the housing bubble caused a lot of wealth and demand to vanish. However part of the financial crisis was pure panic and a "flight to safety." As people with money gain confidence, they'll begin spending and taking on risk.

The "demand for money" is high as those with wealth are being cautious. Which is why Bernanke should do a helicopter drop.
Simon Johnson on Treasury Secretary Geithner.

Thursday, July 15, 2010

new jobless claims hit 2-year low

The Laws Have Changed - Financial Regulation passes.

Wednesday, July 14, 2010

Dwight Garner reviews Diary of a Very Bad Year: Confessions of an Anonymous Hedge Fund Manager, which contains a series of interviews Keith Gessen, editor of n + 1, conducted with an anonymous hedge fund manager from New York City, referred to as HFM.
These interviews, which first appeared on the n + 1 Web site, nplusonemag.com, began in 2007, when the subprime mortgage disaster become impossible to ignore, and continued through last year. They’re an urbane if frazzled chronicle of shock and despair.
The conversations that fill "Diary of a Bad Year" range across many subjects, including, but far from limited to, computerized trading; Japan’s zombie banks; why the Securities and Exchange Commission is a hapless financial enforcer; the brutal fall of Lehman Brothers; China’s amusement at America’s money woes; the awesome stubbornness of Treasury Secretary Timothy F. Geithner, whom HFM knows a little; how the hippies in the Class of 1969 ruined Harvard’s endowment; why holiday staff parties are so awful; and why, when the subject turns to Bernard L. Madoff, it’s worth keeping in mind that "a lot of economics has the dynamic of a Ponzi scheme -- it really only works when you’re expanding." (emphasis added)
He is lovely on the insanity of what has happened to the market. "This is not a crisis that was caused because there was a drought, or because a meteor hit London and obliterated it, or because there was a war that destroyed capacity," he says. Later: "You know, it’s easy to understand how living standards would go down if somebody bombed all the factories in America. What’s kind of hard to get your head around is that those factories are still there"
He is good, too, on the simple "animal spirits" that drive markets, perhaps in the wrong direction. The world’s financial situation remains precarious. "But after a while when you wake up each day," HFM says, and sun still rises, there’s still food, it’s not 'Mad Max' with Australian guys with mohawks driving up and down the roads killing you for gas* ... and people start to feel better."
How bad can things still get? At one point HFM says about forthcoming bankruptcies: "You know what it’s like? It’s like somebody drops a depth charge onto a submarine, and you hear a big explosion, but you don’t know what’s happening. Like, a little while later bodies start to bob up? We’re waiting for the bodies to bob up"

Go Ben. Go Ben. Go Ben.

(via DeLong)
Yglesias's predictions for November 2010:
After all, Republicans are dead-certain to pick up Senate seats in North Dakota and Arkansas and favored in 5 or 6 more good pickup opportunities. Once that happens, who’s really going to care about Scott Brown? The action will shift to Mark Kirk or Charlie Crist or someone else.

Get to the Choppa!

Brad DeLong agrees with me! (Or I agree with him rather).
Helicopter Drop Time: Paul Krugman Gets One Wrong
[Krugman] writes:
Nobody Understands The Liquidity Trap: [W]hen you have bought so much debt and created so much money that [short-term safe nominal] rates are near zero, the public is saturated with liquidity; from that point on, they’re holding money simply as a store of value, which makes it no different from bonds -- and hence a perfect substitute for bonds. And at that point further open-market operations do nothing -- they just swap one zero-interest asset for another, with no effect on anything.
So why not forget about open-market operations, and just drop the stuff from helicopters? Well, remember that at this point cash and short-term bonds are equivalent. So a helicopter drop is just like a temporary lump-sum tax cut. And we would expect people to save much or most of such a tax cut -- all of it, if you believe in full Ricardian equivalence...
But we don't believe in full Ricardian equivalence. Maybe we would if this year's helicopter drop was to be followed by next year's great helicopter vacuuming, but it isn't. So printing money now--and promising never to buy it back--is a way of having some impact on future inflation, and thus of getting some traction. Moreover, "much or most" is not all.
The "much or most" is, I think, reason to go for money-financed government spending as a preferable policy to a helicopter drop--which is a money-financed tax cut. And it is reason to go for an explicit raising of the Federal Reserve's long-term inflation rate target from 2% to 3%.
But if we are not going to do either of those things--and it looks like we are not--it's time to rev up the helicopters...
Or rather I believe Krugman and Thoma could be right, but DeLong and Bernanke could be right also and it's worth a shot.
Have We Blown Our Load?

Krugman blogs that any further actions by the Federal Reserve Bank may be ineffective.
Sigh. In an otherwise useful article about divisions in the Fed, Jon Hilsenrath says this:
The Fed is better equipped to solve some economic problems than others. As Mr. Bernanke noted in a now-famous 2002 speech, the Fed has the power to fight deflation -- or falling wages and prices --- by printing money.
But the bank’s tools aren’t perfectly suited to reducing unemployment, which is influenced by a range of factors including fiscal policy, regulation and global demand.
Sorry, but that’s totally wrong. The question is whether, at the zero bound, the Fed has the ability to increase aggregate demand -- full stop. If it can increase aggregate demand, it can fight both deflation and unemployment; if not, not.
In a way, the problem with Bernanke’s speech was that he made increasing demand and fighting deflation sound too easy. 
But as I tried to point out a long time ago, this simple story breaks down when short-term interest rates are near zero.
In my simple 1998 model, there’s only one way the Fed can affect things at all: by promising, credibly, to print more money in the future, when the zero lower bound no longer binds.
In practice, things are more complicated, because long-term bonds aren’t perfect substitutes for short-term -- so the Fed can get some traction by buying at longer maturities. But I always felt than Ben was overstating the effectiveness of such purchases. It’s worth noting that in his "it" speech Bernanke’s more-or-less specific proposal was to set a ceiling on the yield on two-year securities. How much would that accomplish now, when even the 2-year yield is only 0.67 percent?
Mark Thoma isn't convinced either that the Fed can help on the demand side. I say we find out.

The danger is that the bond vigilantes will come calling. But that doesn't seem likely at the moment. As Krugman writes in an interesting blog post on delusions about debt dynamics:
So the debt dynamics coming out of interest payments on existing debt aren’t anything like the explosive force the austerity crew would have you believe. Even after all these years of borrowing, the overwhelming determinant of growth in Japan’s debt is still the primary deficit, not interest payments on past debt.
By the way, in an earlier post discussing Tim Duy, Felix Salmon and the Federal Reserve, I linked to Duy's blog post where he writes
Salmon believes that Federal Reserve Chairman Ben Bernanke - a Republican - will not break from that party's consensus that too much has been done already. 
Would a loyal "party man" write an "it" speech that breaks from party consensus? Would he write a speech that is even more slutty about debasing the currency than Krugman or Thoma? I doubt it.

White House pushes for more fiscal stimulus.

Larry Summers, the great bugbear of the extreme far left in Blogistan, blogs on the Economic Case for Extending Unemployment Insurance:
The lapse in extended unemployment insurance benefits at the end of May has resulted in 2.5 million jobless Americans exhausting their assistance.  If we do not reinstate benefits by the end of the month, this number will grow to 3.2 million.  These losses are exacting an enormous human toll on families who count on these benefits as they continue to search for jobs.
As the President recently remarked:  "Lasting unemployment takes a toll on families, takes a toll on marriages, takes a toll on children.  It saps the vitality of communities, especially in places that have seen factories and other anchoring businesses shut their doors.  And being unable to find work -- being able to provide for your family -- that doesn’t just affect your economic security, that affects your heart and your soul.  It beats you up.  It’s hard."
It is also bad for the economy.  But unemployment insurance puts money in the pockets of the families most likely to spend the money -- which in turn expands the economy and creates jobs.  The nonpartisan Congressional Budget Office has identified increased aid to the unemployed as one of the two most cost-effective policy options for increasing economic production and employment.
Missed unemployment insurance payments since May total over $10 billion -- enough to have created 100,000 jobs. An abrupt and premature withdrawal of relief is not only something families cannot afford, it is something that the economy cannot afford at a time when the economy is at a critical juncture.  The economy is finally creating jobs, but not nearly fast enough to close the 8 million-job gap opened by the recession.
Some opponents of providing relief to unemployed families have been making the fallacious claim that unemployment benefits are a cause of the unemployment we are face today.  Some of them have even taken an article I wrote two decades ago, under different economic circumstances, and used excerpts out of context to suggest that I share their view.
This is a misreading both of my research and of the economic situation today.
In an economy that is as demand constrained as ours, whatever small changes in search intensity may be associated with unemployment insurance are not the reason for the persistence of joblessness.  With five unemployed Americans seeking work for every job opening available, there can be little doubt that the overwhelming cause of unemployment is not a lack of will among the jobless to find work, but a lack of work opportunities. 
Opposing extending unemployment benefits will do nothing to put people back to work.  It will not result in an increased number of job openings to apply for.  And it will not result in a higher level of employment.  What it will do is create a more difficult situation for thousands of families hit hardest by the economic crisis and cut off a powerful channel for spurring economic growth. 
That is why President Obama will continue to press Congress to extend unemployment benefits and pass commonsense measures to strengthen our economic recovery -- like extending unemployment insurance and COBRA, supporting our clean energy economy, providing aid to state and local governments, and saving the jobs of thousands of teachers.
(via DeLong)
Tim Duy writes that Felix Salmon believes the debate within the FOMC is already over.
But Salmon also notes that even Democrats are not eager for additional policy action.  If the White House is not willing to push for more, why should Bernanke, especially when it will apparently require him to expend political capital internally?
The White House can't get fiscal stimulus past Republicans in the Senate. The Fed is supposed to be insulated from politics and if deflation does appear, perhaps Bernanke will be more inclined to act. But then again maybe Duy and Salmon are right. To me they seem like the types who want Obama to emote more.

Tuesday, July 13, 2010

Fool's Gold 
(or the Axis of Fools)

I'm still in the middle of Lords of Finance and have come to the part where Churchill has been brought on as Chancellor to the Exchequer by Stanley Baldwin. Churchill is genuinely undecided on whether or not to return to the Gold Standard. To help himself decide, he organizes an evening party at his house and invites the top people from both sides of the debate. All of the establishment at the Treasury and Bank of England advise him to, and so he does. BIG mistake.

Obama can't get more fiscal stimulus past the Republicans in the Senate. Bernanke needs to convince the FOMC to enact unconventional measures like inflation targeting and quantitative easing. If he doesn't we could be in for a "lost decade" like Japan's.

Nouriel Roubini and Ian Bremmer are worried about prospects for world economic growth.
Countries that save too much must also do their part for global demand. In particular, the Chinese leadership should recognise that failure to allow a more substantive revaluation of its currency will have serious consequences at home. It makes little sense to try to boost China’s local exporters while undermining the longer-term health of their best customers. Beijing must also move much more quickly to boost China’s domestic consumption.
The eurozone needs fiscal austerity, but it also needs a level of growth best provided by an easing of monetary policy from the European Central Bank. Early debt-restructuring of insolvent members should also be on the agenda. Germany should postpone its fiscal consolidation for a couple of years to boost disposable income and consumption. Outside Europe, Japan must accelerate economic reforms.
Meanwhile the IMF - who never warned about the housing bubble by the way - sees little risk of a double dip.

Peter Bienart on Why Liberals are Down on Obama. No it's Firebaggers* and Clintonoids like Eric Alterman who are down on Obama. (I bet the poor are so glad Clinton did welfare reform with unemployment at 10 percent!)

Jonathan Cohn writes about dishonesty of the Republicans.
To review the relevant history: Early in the year, leaders of the Democratic Party called for a new stimulus program--a combination of public works spending, aid to states, and other measures that, they said, would create jobs and strengthen the weak recovery. President Obama eventually came forth with a package of that would have cost the federal treasury more than than $200 billion.
The Republicans rejected this idea flatly, saying (among other things) that the country couldn't afford such to keep running such high deficits.
OK, Democrats said. How about some smaller programs? Just before the July 4th recess, Senate Democratic leaders tried to pass a $33 billion bill focusing on unemployment benefits only. The federal government has done this many times before, during downturns, in part because unemployment benefits give a real boost to the economy.** (Unemployed workers tend to spend the money right away, because they need it just to cover essentials like food and rent.) Surely that would be ok.
Nope, Republican leaders said. Even $33 billion in new deficit spending is too much. The country can't afford it.
Then, a few days ago, Judd Gregg, chairman of the Senate Budget Committee, and Eric Cantor, minority whip in the House, appeared on CNBC. When asked about the economy, the two proposed extending the Bush tax cuts that are set to expire at the end of this year. Not some of them, mind you. All of them. (A Gregg spokesperson later told me he was speaking only "generally," about the importance of the tax cuts. I'm not sure what that means, but full extension of the tax cuts has long been GOP dogma.)
What would extending all the Bush tax cuts mean, in dollar terms? According to the Center on Budget and Policy Priorities, which quickly ran some numbers at my request, extension would raise the deficit about $3.7 trillion--roughly $820 billion more than extending only the middle class tax cuts, as Democrats have proposed.
Numbers like this make people's eyes glaze over. A billion here, a trillion there. What's the difference? So maybe a more concrete comparison will help.
Rejecting a $33 billion proposal, because of its alleged impact on the deficit, and then embracing an $820 billion one is a bit like a dieter passing on a plain baked potato
...and then gorging on four pints of Ben & Jerry's Chocolate Fudge Brownie Ice Cream...
Also, if the Republicans' filibustering of further fiscal stimulus throws us into a lost decade of deflation, that will worsen the budget picture. I believe it's called slash and burn politics.

Barry Eichengreen writes:
It is almost as if governments like Britain’s are attempting to manipulate the private sector into believing that the dire conditions required for an expansionary fiscal consolidation have already been met. It as if they are trying to terrorize the private sector, so that when the fiscal ax actually falls, consumers and investors will be sufficiently relieved that disaster has been averted that they will increase spending.
If so, leaders are playing a dangerous game that depends on encouraging more future spending by exciting consumers and investors now, while depressing actual spending just when it is most urgently needed.
Or maybe politicians don’t believe any of this and are simply intent on cutting spending for ideological reasons, irrespective of the economic consequences. But who would be so cynical as to believe that?
I blame Greece! But seriously, if world growth slows to a crawl and America enters a Lost Decade, it will be thanks to Senate Republicans, the Chinese Communist Party and the European Central Bank: an Axis of Fools.***

In the meantime we can enjoy the spectacle of  Firebaggers and Clinton fanboys like Eric Alterman raging at Obama.
* FireDogLake + Teabaggers. Their influence is too negligible for them to be included in the Axis of Fools. Clinton fanboys will switch back to Obama once - if - things turn. As if no one will remember their opportunism.
** Ronnie Raygun extended unemployment insurance for three years during the downturn in the early 1980s.
*** The Chinese dictatorship would correspond to the intransigent, self-centered Saddam-era Iraq, the ECB to the paranoid Iranian theocracy, and the Senate Republicans to the batshit crazy, epistemically closed North Korean regime.

Indian occupiers of Kashmir acting like typical occupiers
SRINAGAR, Kashmir -- On June 11, as Tufail Ahmad Mattoo headed home from a tutoring center where he was studying for the medical entrance exam, a tear gas canister fired from close range bashed a hole in his skull. He died almost instantly.
That morning Mr. Mattoo, 17, had been simply a student with a rucksack full of books. By day’s end, he was being called a martyr for the disputed region of Kashmir, and the next day, against his family’s will, he was buried in the Martyrs Graveyard of Srinagar.
Since then at least 15 Kashmiris have died here in the capital and a few other places, most of them young men killed in encounters with Indian security forces or the Kashmiri police. More than 270 security officers have been injured in confrontations with stone-throwing mobs of youths.
The events that have unfolded here over the past month followed a script that has played out every summer for three years.
In 2008 dozens of Kashmiris died and everyday life was paralyzed in disputes over land for Hindu pilgrims. Last year protests flared after two young women were found dead by a stream in the town of Shopian. It appeared that they had been raped and killed by security forces, but Indian investigators concluded they had accidentally drowned.
Pakistan Says Iran Scientist in U.S. Flees to Its Embassy
ISLAMABAD, Pakistan -- In the latest twist in a murky tale, Pakistan said on Tuesday that an Iranian nuclear scientist who Tehran says was kidnapped by the Central Intelligence Agency has taken refuge in the Iranian interests section of the Pakistani Embassy in Washington.   
Iranian officials were "making arrangements for his repatriation," said Abdul Basit, a spokesman at the Pakistan Foreign Ministry. It was not clear how or when the scientist would leave the country.  
The scientist, Shahram Amiri, 32, vanished during a pilgrimage to Saudi Arabia in June 2009. He had worked at Iran’s Malek Ashtar University, which is linked to the powerful Revolutionary Guards.

Just Dropped In (To See What Condition My Condition Was In)

Wikipedia entry on Liquidity Trap.

Inflation is very low.

IMF says world economy "very far from any kind of double dip."

About Federal Reserve Bank policy, Krugman blogs
... inflation is pretty clearly below target, and given the huge excess capacity, clearly trending down. So even if the Fed only cares about inflation, it’s falling short.
Why? Partly because there are some Fed types -- both regional bank presidents and members of the board -- who are constantly predicting inflation, no matter what. If you look at the minutes from the April FOMC meeting (pdf), you see that two bank presidents predicted above-target core inflation next year, presumably because they still think that deficits and money creation must be inflationary, even with persistent high unemployment.
But they are a minority. What I suspect is going on is something that was all too obvious in Japan, more than a decade ago. Nobody can be sure how well a more aggressive monetary policy would work; there’s a chance that the Fed would buy up long-term bonds, raise its target inflation rate, and see the economy slump all the same. And that would be embarrassing. So the Fed sits on its hands, which means no risk of failure.
Of course, the Fed’s peace of mind comes at the expense of millions of unemployed workers, and the country quite possibly slipping into a long-run deflationary trap. But hey, gotta safeguard the institution.
The Federal Reserve will release minutes from its June meeting Wednesday. Thursday morning the Senate Banking Committee will hold hearings on Obama's 3 nominees to the Federal Reserve.

Monday, July 12, 2010

Neera Tanden asks "Why do some liberals refuse to admit Obama is a change agent?"

Mostly, she is discussing Eric Alterman's piece "Kabuki Democracy." In Alterman's case I think it's simply because he's a dick. Or a douchebag, whichever insult you find less offensive.

Krugman is correct that this attack on him by Josef Joffe in the New Republic isn't very well reasoned. (The New Republic tends to publish this sort of spurious attack every now and then, even though I really like some of their writers like Cottle, Chait and Jonathan Cohn.) Joffe writes:
If the "Great Depression" wouldn’t work, how about the "Long Depression" that American economists date from 1873 to 1896--a slew of panics and crashes bouncing back and forth across the Atlantic, interrupted only by weak growth. "We are now, I fear, in the early stages of a third depression," which, according to the Cassandra of the New York Times op-ed page, will probably look like the nineteenth-century version.
How shall we count the ways in which the current phase is different from the Big D’s that tormented the nineteenth and twentieth centuries? Let’s start with the policies of governments.
I don't think Krugman has ever said it would be exactly like the "Long Depression" just that it wouldn't be as deep as the Great Depression (even though Spain now has 20% unemployment) and that it would be long and grinding.

Joffe doesn't mention the big difference between then and now, developing countries like India and China and Brazil, etc., which the IMF has forcast will grow at a rapid clip.

Joffe asserts the stimulus didn't work and writes lazily:
Above all, stimulus packages don’t deliver much stimulus. The U.S. will run a deficit of $1.5 trillion this year, and unemployment has hardly budged. If you want to know why, look at recent research like "New Keynesian Versus Old Keynesian Government Spending Multipliers," by a team at Stanford (NBER Working Paper No. 14782) and at the data analyzed by Harvard’s Edward L. Glaeser.
Well, many people say the stimulus was too small, included too many ineffectual tax cuts to please Republican Senators, and was canceled out by the austerity measures of all 50 states. It could be that unemployment would be much higher now had it not been for the stimulus.  It almost certainly would have been higher.

Joffe then asserts that governments' deficits are too large:
In the fall of 2008, all governments--from Berlin to Beijing, with Washington in the lead--went into massive overspending from 3 to 5 percent of GDP. Today, the result is a double-digit U.S. shortfall that resembles Greece’s, and a German deficit approaching 6 percent, almost twice as much as permitted by the guardians of the euro.
Does he believe it was a mistake? Doesn't seem like he does. Is it surprising that deficits rise after a financial crisis and recession? It shouldn't be. He ignores the argument that the debt should be paid down once growth picks up again. (Bill Clinton got us to budget surpluses at the end of his term.) Krugman is saying we are at risk of having a double dip, not that deficits aren't a problem in the long term. Joffe is saying we are not at risk of a double dip and that we are more at risk from the invisible bond vigilantes attacking us invisibly in the future.

Krugman says we are trending towards deflation even if there is some growth and corporate profits are back up. This week many large corporations release earnings reports and they are expected to be good. Wall Street is hiring again as optimism takes hold. And Thursday the Senate Banking Committee will hold hearing for nominations to the Federal Reserve. It will be interesting to hear what Senators and the nominees have to say.

But the fact is that the IMF is forecasting unemployment to remain at 9% through 2011. If true this is unacceptable. This will cause long term damage to the economy. Where will the demand come from, another bubble? None of this appears to concern Joffe.

Anyway doesn't look like the economy will get any help from Bernanke:
The Fed and other regulators have urged banks to step up lending to creditworthy small businesses. Despite that, lending to small businesses is declining. Lending has dropped from more than $710 billion in the second quarter of 2008, a period when the country was in a financial crisis, to less than $670 billion in the first quarter of this year.
Mr. Bernanke said it was hard to tell whether the problem was more reflective of banks shying away from making loans to small businesses or a lack of demand from those companies.
Many lawmakers on Capitol Hill have complained that small businesses that want to take out loans are having trouble getting them. Some banks say demand is weak.
I'd guess demand is weak. Dean Baker writes:
The people who could not see an $8 trillion housing bubble before it wrecked the economy are still having a hard time seeing it even after it wrecked the economy. They fail to understand that the economy's problem is due to a loss of demand. We have seen more than $16 trillion in wealth vanish. The demand generated by this wealth cannot be easily replaced without strong action from the government.
If the economy is not going to get any more help on the demand side from Bernanke or the Senate, it will either grind away and enter a long period of deflation - see Japan - or it will turn around of its own accord. We shall see.

Sunday, July 11, 2010

The Kids Are All Right

In his review of the new Lisa Cholodenko film "The Kids Are All Right" A.O. Scott writes of the son of two lesbian mothers:
What would it be like to have a dad? To help him find out -- and to shut him up -- Laser’s skeptical, kindhearted sister tracks down the sperm donor, who turns out to be a restaurant owner and organic farmer named Paul.

The shorthand description of Paul is that he is played by Mark Ruffalo, with specific reference to the goodnatured, feckless brother Mr. Ruffalo played in "You Can Count on Me." Paul is sort of like a cleaned-up, more self-confident version of that guy, with the same hesitant intonation, crooked smile (behind a graying goatee) and slightly dangerous charm. When Joni calls him, Paul, a good sport and a bit of an adventurer, gamely accepts her invitation to meet the family ("I love lesbians!"), and his relaxed manner smoothes over an awkward initial meeting.
"You Can Count on Me" is a great movie. Anyway, the title of this blog post came to me after reading Matt Yglesias's mild criticism of like-minded bloggers Paul Krugman, Brad DeLong, and Mark Thoma:
I think this Greg Mankiw post against stimulus and Brad DeLong’s riposte are worth reading. Then it’s worth considering that I think writers in the Krugman/DeLong/Thoma vein are all being a bit too literal in their disagreements with the center-of-center economists of the world.
What I take Mankiw et al to be saying is that taxes are really, really, really bad. And taxes on high-income people are really, really, really, really, really, really, really bad. They think that the electorate is joined by leftwing economists in massively underestimating the scale of the badness. And they look at population aging and growing health care costs and see that it’s likely that taxes will go up in the future. And they think this is an incredibly bad outcome, with massive negative long-term consequences.
Etc. I think you get the point. Thoma/DeLong/Krugman probably agree with Yglesias that Mankiw and rightwing economists are concerned about taxes ueber alles. However, I suspect they approach the debate in a more literal vein because they are all professors and are trained to present ideas to their blank slate students in such a manner. (Although DeLong and Krugman have experience working for the Federal government also).  And that's probably not a bad thing, because it's really only the youth you can corrupt. Older people have their minds made up  - unless they're clueless independents - and so with them you can either rally and inspire your own side or just insult the other side with blasphemous facts and counterexamples.

And I must say, I've been impressed with the younger generation as of late. They were instrumental in electing Obama. Without exception, the ones I know are smart and funny and for some unfathomable reason enjoy listening to the campy arena rock of the 1970s like Journey, Styx, REO Speedwagon etc. It's like they're being ironic and yet still love rocking out to the strange, weird over-the-top music from before their time.

The Baker Temptation

DeLong links to Joshua Micah Marshall's essay "The Orwell Temptation." Again. It sort of sums up the left's anti-war/peace faction's  views. I'll quote the last three paragraphs.
For intellectuals, however, there is always a temptation to take momentous, morally serious questions and make them out to be slightly more momentous and world-historical than they really are. Call it the Orwellian temptation. George Orwell not only epitomized what an intellectual can and should be. He has also become the symbol of the role the best intellectuals played in those critical mid-century years. Along the way, however, the image he cast--or rather his ghost, or his shade--has also become part of the pornography of intellectuals. Berman has given way to this craving.
Terror and Liberalism ends with an injunction to stamp out the bacillus of nihilism and totalitarianism in the Muslim world because our safety is incompatible with their continued existence. "In the anti-nihilist system," Berman writes, "freedom for others means safety for ourselves. Let us be for the freedom of others." Given the increasingly small, integrated world we now live in, this may well be correct; our safety and well-being, let alone the perpetuation of our values, are probably incompatible with abandoning a large swath of humanity to a field of poverty, fanaticism, and oppression that is a breeding ground for virulent extremism which can, in turn, lash out against the rest of the world.
Recalling those vivid images of the Twin Towers' collapse, it is uncomfortable to have to argue that someone is overstating the danger of radical Islam. Nevertheless, to confront the very real threat we face, nothing is more important than seeing that danger for what it is--not through the distorting prism of our grandparents' world. We have now toppled one of the worst regimes in the region. We have a foothold in the heartland of Islam. We have to decide how to proceed. Do we declare all-out war with much of the Muslim world or craft an approach more narrowly tailored to secure our safety and advance their freedom? Grandiose visions beget grandiose actions, which often end tragically. And grandiosity is a sin of intellectuals, too.
This past week, Glen Greenwald linked to Digby who noted mainstream commentator Fareed Zakaria said something many in the peace faction believe:
Since the resignation of General Stanley McChrystal as the commander of US forces in Afghanistan and CIA Director Leon Panetta's admission a week ago that there may be no more than fifty to a hundred al-Qaeda members in that nation, there have been increasing signs of a loss of support for the Afghan War.

Fareed Zakaria, the editor of Newsweek's international editions and CNN host, criticized the war in his strongest terms yet on his CNN program Sunday. "If Al Qaeda is down to a hundred men there at the most," Zakaria asked, "why are we fighting a major war?"

Noting that there were more than a hundred deaths among NATO soldiers last month and that the war is estimated to cost the US more than $100 billion this year alone, Zararia wondered again,"Why are we fighting this major war against the Taliban? ... If al-Qaeda itself is so weak, why are we fighting against its allies so ferociously?"

"The whole enterprise in Afghanistan feels disproportionate," Zakaria remarked, "a very expensive solution to what is turning out to be a small but real problem."
It could be that they're down to those low numbers because of the ongoing wars in Iraq and Afghanistan. McChrystal certainly killed a lot of al-Qaeda in Iraq. Marshall suggests there's an "all-out" war against the Muslim world, but that's not the case. There's a civil war in the Muslim world.

For the past two years Pakistan's troops* have been fighting the Taliban in North Waziristan, after success in South Waziristan and the Swat valley. "Much like the challenge facing American and NATO forces in Afghanistan, an absence of Pakistani civilian authority has made it nearly impossible to consolidate military gains."

Coincidently, a story in the New York Times today reports on the discovery of a hidden cache at General Mladic's Belgrade home.
The find -- 18 notebooks of General Mladic’s wartime military diaries, 120 sound recordings, cellphone cards, computer memory sticks and a pile of documents -- provides some of the most compelling evidence yet of the close, top-level coordination of the Bosnian Serb Army and Serbia, a connection both parties always denied.
Inevitably, they would also serve the trial of General Mladic, if there is one. On the run for more than a decade, he is reported to be in Serbia, moving among different hiding places, protected by loyal followers.
But the diaries offer no details of Srebrenica, according to Frederick Swinnen, an adviser to the prosecutor. Fifteen years ago Sunday, Bosnian Serb troops under General Mladic’s command, assisted by Serbian Special Forces, overran a small contingent of United Nations peacekeepers there and seized the Muslim enclave. Over the following days, they deported women and children and executed close to 8,000 Bosnian Muslim men and boys.
I distinctly remember the anti-war/peace faction at the time arguing that the Bosnian Muslims should be left to their fate, that we shouldn't offend Russia, that we shouldn't risk another quagmire like Vietnam. So if it's true that some intellectuals can suffer from the "Orwell Temptation" what would you call it's opposite or inverse?

I would suggest calling it the "Baker Temptation" after Poppy Bush's Secretary of State James Baker - the man who adroitly won George Bush's election in 2000 - who in reference to the Bosnian wars famously said "we don't have a dog in this fight." But pace the anti-war/peace faction, we do have a dog in the fight occurring  in the Muslim world, a civil war between the more liberal, moderate modernizers and the extremists like al-Qaeda. Yes, the extremists aren't a threat on the scale of a Hitler's Germany, so of course we shouldn't overreact and, say, legalize torture and transform into a paranoid police/surveillance state devoid of civil liberties.
* "More than 2,000 troops have been killed in the last two years fighting the Pakistani Taliban, the military says."