"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, September 11, 2010

Austan Goolsbee is the new CEA Chair.

(via Calculated Risk)

Thomas Guinzburg dies at 84.  As a marine he survived the battle of Iwo Jima in World War II. As head of Viking Press, he published Thomas Pynchon's "Gravity's Rainbow."
On the occasion of Mr. Pynchon’s receiving the National Book Award, Mr. Guinzburg arranged for the comic actor Professor Irwin Corey to accept the award for the famously reclusive author.
I witnessed Corey ask a question at a Nation event in New York City in the mid 1990s.

Friday, September 10, 2010

There He Goes Again

David Brooks's column for today:
Britain soon dominated the world. But then it declined. Again, the crucial change was in people’s minds. As the historian Correlli Barnett chronicled, the great-great-grandchildren of the empire builders withdrew from commerce, tried to rise above practical knowledge and had more genteel attitudes about how to live.
This history is relevant today because 65 percent of Americans believe their nation is now in decline, according to this week’s NBC/Wall Street Journal poll. And it is true: Today’s economic problems are structural, not cyclical. We are in the middle of yet another jobless recovery. Wages have been lagging for decades. Our labor market woes are deep and intractable.
Um, not really. Two world wars and a Great Depression did in the British Empire. Plus some other stuff. In America, conservatives have won politically in some ways so tax rates and union membership are down from where they were during the Golden Age* of the post-war years, 1945-1973.

The recent crisis and slump was caused by the global savings glut and a housing bubble which was enabled by conservative policy decisions.

Krugman writes that Japan actually did an okay job after its real estate bubble burst in the late 1980s. Not enough, but could have been worse.
Yet the picture is grayish rather than pitch black. Japan’s economy may be depressed, but it’s not in a depression. The employment picture has been troubled, with a growing number of "freeters" living from temporary job to temporary job. But thanks to those government job-creation plans, the country isn’t suffering mass unemployment. Debt has risen, but despite constant warnings of imminent crisis -- and even downgrades from rating agencies back in 2002 -- the government is still able to borrow, long term, at an interest rate of only 1.1 percent.
In short, Japan’s performance has been disappointing but not disastrous.
DeLong on CPAN. He mentions what he would have recommended to Obama in December 2008.

* Obviously wasn't a golden age for women, blacks, Latinos, and LGBTs.
James Warren on Rahm Emanuel
At his press conference, Obama seemed to hint that he'd pick Elizabeth Warren to head the Consumer Financial Protection Agency.

Yes we can!

Thursday, September 09, 2010

Matt's Talking Loco and I Like It!

Yglesias on the Federal Reserve System:
Given the destructive impact the Dallas, Minneapolis, Richmond, and Kansas City Feds are having on national policy, it’s really time to revisit the absurd governance structure of these entities. The regional Fed presidents exercise important public policy authority, but they’re primarily selected by local for-profit business interests rather than by public officials. It would be as half the Supreme Court justices were selected by corporate law firms dispersed around the country. As long as the Fed seemed to be performing well, I suppose most people took an "if it ain’t broke don’t fix it" line. But the country is mired in tight money, and the regional feds seem to be behind it.
Mark Thoma comments on a Wall Street Journal "symposium" on monetary policy. Long story short: conservative policy makers respond with the usual tripe.

These guys and their type missed the housing bubble and missed the rise of the shadow banking system - the two prime causes of the crisis and slump. Actually not only did they miss the causes, their policy recommendations actively enabled the causes. And not only that, conservatives* tried to block policies like TARP and the stimulus that helped prevent another Great Depression!

As Krugman wrote:
But the story of 1938 also shows how hard it is to apply these insights. Even under F.D.R., there was never the political will to do what was needed to end the Great Depression; its eventual resolution came essentially by accident.
I had hoped that we would do better this time. But it turns out that politicians and economists alike have spent decades unlearning the lessons of the 1930s, and are determined to repeat all the old mistakes. And it’s slightly sickening to realize that the big winners in the midterm elections are likely to be the very people who first got us into this mess, then did everything in their power to block action to get us out.
The governance structure of the Federal Reserve System and the United States Senate need to be revisited.

* Bush was actually good on immigration, AIDS in Africa, and Islam as a religion of peace. He also appointed okay guys in Bernanke and Paulson who saved our asses. In his memoir Hank Paulson said Congressional Republicans were worthless during the crisis, especially the number two guy in the House, Eric Cantor. From a Newsweek summary:
Meetings with Senate Republicans were "a complete waste of time for us, when time was more precious than anything" (page 275). Ideas that Republicans do add are "unformed," like Virginia Rep. Eric Cantor’s plan to replace TARP with an insurance program. In a rare moment of sarcasm, Paulson goes off on the minority Whip: "I got a better idea. I’m going to go with Eric Cantor’s insurance program. That’s the idea to save the day" (page 285).

Below I sketched out the gist of the arguments made by Robin Wells and Paul Krugman* in their piece The Slump Goes On: Why? as I understood it.

What's great about their article is that they confront some widely-held misperceptions on what has occurred and what's happening now.

Ostensibly, the piece is a book review of three books: Rajan's Fault Lines; Roubini and Mihm's Crisis Economics; and Koo's The Holy Grail of Macroeconomics.

Wells and Krugman are extremely dismissive of Rajan and argue he's just peddling conservative propaganda. Rajan believes that the Fed held rates too low in the past decade and Roubini and Mihm give this view qualified support. However as Wells and Krugman point out, the Fed was facing possible deflation after the tech stock crash when it lowered rates from 6.5 percent in 2000 to just 1 percent in 2003. Inflation had been at a thirty-five year low and Japan's lost decade was on people's minds at the time.

Rajan blames Democrats, the Community Reinvestment Act and Fannie and Freddie for the subprime crisis. Wells and Krugman say Roubini correctly points out how Rajan is wrong in that the huge growth in the subprime market was primarily underwritten by private mortgage lenders like Countrywide Financial.

Wells and Krugman say Roubini and Mihm give a good overview of Hyman Minsky's highly relevant work and that Crisis Economics  "is a very good primer on how finance gone bad can wreck an otherwise healthy economy." The book makes the essential point that bubbles are not uncommon. "Bubbles have happened in small economies and large, in individual nations and in the global economy as a whole, in periods of heavy public intervention and in eras of minimal government."

Koo's book focuses on the problems economies face in the aftermath of a "Minsky moment" (although he doesn't use that term or mention Minsky). Basically, there is a problem of red ink and deleveraging. Koo focuses on Japan whose nonfinancial corporations were saddled with debt after the real estate bubble burst in the late 1980s. Currently it is households who are deleveraging in America, not corporations. In a blog post Krugman argues that after the Great Depression, World War II inflated away much of the debt.

It will be interesting to see what Wells and Krugman argue in their second article. The current slow growth in GDP is reminiscent of the recoveries after the recessions of 1991 and 2001. However, "only once since World War II has the unemployment rate stood this high on Labor Day -- during the steep recession of 1982 under President Reagan. It has remained at 9 percent or higher for 16 straight months and is likely to surpass the 19-month record of such high rates set in 1982 and 1983."

The 1982 recession was caused in part by Fed Chairman Volcker jacking interest rates and it was ended by Volcker lowering rates once inflation was tamed. We went into the 2008-2009 recession with rates already low, whereas from 2000-2003 the Fed had room to lower rates from 6.5 to 1 percent.

Bernanke says the Fed has more tools to use if there's a double dip, but apparently these tools aren't worth using to maintain low unemployment. Instead we just get pathetic excuses about structural changes in the job market and the fact that "central bankers alone can't solve the world's economic problems." No, but the Fed's only missions are price stability and maintaining low unemployment and currently it's failing at both.

Yesterday I linked to "The Slump Goes On: Why?", the impressive tour d'horizon of the recent economic crisis by Robin Wells and Paul Krugman which ran in the New York Review of Books.

It might be the best comprehensive piece on the subject yet.* In their view, what happened:

1. a global savings glut
2. which led to a North Atlantic** housing bubble
3. which led to a "Minsky moment"***
4. which led to an old-fashioned bank run on the "shadow banking system"****
5. which led to a deleveraging of the American household*****

* A second article on what needs to be done is coming.
** the U.S., England, Ireland, Spain
*** "Minsky’s theory, in brief, was that eras of financial stability set the stage for future crisis, because they encourage a wide variety of economic actors to take on ever-larger quantities of debt and engage in ever-more-risky speculation. As long as asset prices keep rising, driven by debt-fueled purchases, all looks well. But sooner or later the music stops: there is a "Minsky moment" when all the players realize (or are forced by creditors to realize) that asset prices won’t rise forever, and that borrowers have taken on too much debt."
**** A crisis of confidence in the banking system. In the United States, the banking system gave way to the more profitable "shadow banking system." As much as 60 percent of business now used "repo" (repurchase) agreements - very short-term loans to hedge funds and investment banks - to finance their business. In Europe, there was a crisis of confidence in governments' ability to backstop their overextended banks. So in addition to a run on the banks, there was a "sovereign debt crisis" in countries such as Iceland, Greece and Ireland.
***** American businesses are profitable and sitting on liquidity, however American households are collectively paying down debt so there is a lack of aggregate demand and government needs to step in and fill the gap.
Federal Appeals Court sides with C.I.A. over its rendition program and torture charges, which means it sided with Holder and the Obama Justice department over the "state secrets doctrine." The court was divided 6-5 and the Supreme Court may hear the case.

The lead plaintiff is Binyam Mohamed, an Ethiopian citizen and legal resident of Britain who was arrested in Pakistan in 2002. He claimed he was turned over to the C.I.A., which flew him to Morocco and handed him off to its security service.
Moroccan interrogators, he said, held him for 18 months and subjected him to an array of tortures, including cutting his penis with a scalpel and then pouring a hot, stinging liquid on the open wounds.
Mr. Mohamed was later transferred back to the C.I.A., which he said flew him to its secret prison in Afghanistan. There, he said, he was held in continuous darkness, fed sparsely and subjected to loud noise -- like the recorded screams of women and children -- 24 hours a day.
He was later transferred again to the military prison at Guantánamo Bay, Cuba, where he was held for an additional five years. He was released and returned to Britain in early 2009 and is now free.
There were signs in the court’s ruling that the majority felt conflicted. In a highly unusual move, the court ordered the government to pay the plaintiffs’ legal costs, even though they lost the case and had not requested such payment.
Judge Fisher, who was a senior Justice Department official before President Bill Clinton appointed him to the bench in 1999, also urged the executive branch and Congress to grant reparations to victims of C.I.A. "misjudgments or mistakes" that violated their human rights if government records confirmed their accusations, even though the courthouse was closed to them.
He cited as precedent payments made to Latin Americans* of Japanese descent who were forcibly sent to United States internment camps during World War II. But the five dissenting judges criticized the realism of that idea, noting that those reparations took five decades.
"Permitting the executive to police its own errors and determine the remedy dispensed would not only deprive the judiciary of its role, but also deprive plaintiffs of a fair assessment of their claims by a neutral arbiter," Judge Michael Daly Hawkins wrote.
After the A.C.L.U. filed the case in 2007, the Bush administration asked a district judge to dismiss it, submitting public and classified declarations by the C.I.A. director at the time, Michael Hayden, arguing that litigating the matter would jeopardize national security.
The case could lead to prosecutions of George Tenet, Bush, Cheney and/or their lieutenants. My view is that Obama and Holder want to "turn the page" as Obama said recently about Iraq. It's analogous to when fascist or Communist dictatorships give way to democratic governments who in turn go out of their away not to provoke previous regimes lest the military re-enter politics. See Chile or Spain for example.

NYTimes editorial

Glenn Greenwald

* huh?
Tony Blair's memoir selling very well.

Wednesday, September 08, 2010

George Soros is a mensch.

He gave $100 million to Human Rights Watch. 

Maybe I was sort of wrong in this post.
Bond Vigilantes Ignored

If they're not saying what people want to hear. Krugman and Steve Collender highlight the hypocrisy.
Another Example of Why I Distrust Polls

A week ago Gallup said Democrats were down ten points in a generic ballot. This week Gallup says it's even.

(via DeLong, also reported in the NYTimes today)
Dean Baker writes about David Leonhardt's interesting piece on housing.
The Slump Goes On: Why? by Robin Wells and Paul Krugman

1938 in 2010 by Krugman

Sunday, September 05, 2010

Forever Is a Long Time

The Obama administration and the Federal Reserve Bank say we're on the (very) slow road to recovery but Krugman begs to differ:
I’ve had a couple of conversations lately with people who follow politics and public affairs, but aren’t that close to the economic discussion -- and I’ve discovered that there are two comforting delusions still out there.
Delusion #1 is that we’re on the road to recovery, just more slowly than we’d like; to be fair, the White House keeps saying this.
But it’s not at all true. GDP is growing below potential; employment, even if you focus just on private employment, is growing more slowly than the working-age population. If you ask how long it will take us to return to, say, 5 percent unemployment on the current track, the answer is forever.