The Instability of Moderation by Krugman

Lands of Ice and Ire by Krugman

Iceland versus Ireland; heterodox versus orthodox.

What’s going on here? In a nutshell, Ireland has been orthodox and responsible -- guaranteeing all debts, engaging in savage austerity to try to pay for the cost of those guarantees, and, of course, staying on the euro. Iceland has been heterodox: capital controls, large devaluation, and a lot of debt restructuring -- notice that wonderful line from the IMF, above, about how "private sector bankruptcies have led to a marked decline in external debt". Bankrupting yourself to recovery! Seriously.

And guess what: heterodoxy is working a whole lot better than orthodoxy.

What Good is Wall Street by John Cassidy

(via Yglesias)

Stereolab has new album out even though they are on hiatus

Dean Baker: Robert Samuelson Does the Big Lie, Big Time

Competent budget analysts know that the long-term budget problem is a health care cost problem. If U.S. per person health care costs were comparable to those in any other wealthy country, we would be looking at huge projected surpluses not deficits. Because health care costs are rising rapidly in the private sector, it means that the public sector programs that pay for these benefits (most important Medicare and Medicaid) also have rapidly rising costs.

If Medicare and Medicaid are lumped together with any other programs then the combination of Medicare, Medicaid, and the other program will be the cause of the deficit. For example, the categories of Medicare, Medicaid, and foreign aid explain the vast majority of the projected increase in the deficit over the next quarter century. Similarly, the combination of Medicare, Medicaid, and school lunch programs also explains the vast majority of the projected increase in the deficit over the next quarter century.

Robert Samuelson throws in Social Security as the third program so that he can tell readers:

"America's budget problem boils down to a simple question: How much will we let programs for the elderly displace other government functions."

Social Security does not in any honest way since it is fully financed over the period in question by the designated Social Security tax. But Samuelson does not feel bound by such details.

Of course there are easy ways to prevent health care costs from bankrupting the country, most obviously by taking advantage of the lower cost health care available in other countries. But, Samuelson never discusses such possibilities, focusing exclusively on cutting benefits on which the vast majority of retirees depend.

via Yglesias, Joe Klein on the Pain Caucus's focus on "fiscal resposibility":

here is, for example, Glenn Hubbard, who was featured on the New York Times op-ed page recently in defense of the deficit commission, describing the problem this way: "We have designed entitlements for a welfare state we cannot afford." This is the same Glenn Hubbard who served as George W. Bush’s chief economic adviser when Dick Cheney was saying that "Reagan proved deficits don’t matter." One imagines that if Hubbard was so concerned about deficits, he might have resigned in protest from an Administration dedicated to creating them. But, no, he’s here to speak truth to the powerless -- to the middle-class folks whose major asset, their home, was trashed by financial speculators, thereby wrecking their retirement plans and creating the consumer implosion we’re now suffering. Hubbard is telling them they now have to take yet another hit, on their old-age pensions and health insurance, for the greater good.

Professor predicts Obama will win in 2012 because economy will be better.

His model forecasts real annualized growth in gross domestic product of 3.69 percent for the first three quarters of 2012. A survey of leading economists by Blue Chip Economic Indicators shows an average forecast of 3.2 percent growth in real G.D.P. in 2012, while the Congressional Budget Office estimates 3.4 percent. Plug either of these estimates into his election algorithm and the result is the same: President Obama wins.

He believes the Fed will keep policy stimulative.

Paul Barrett reviews "All the Devils Are Here: The Hidden History of the Financial Crisis." by Bethany McLean and Joe Nocera.

Others have illuminated facets of the crisis in more depth. John Cassidy’s "How Markets Fail" explained the economic history and theory with greater sophistication. Gillian Tett’s "Fool’s Gold" offered a journey into one investment bank, J. P. Morgan, and a close look at how it helped create a financial instrument, the credit derivative, that amplified risk rather than minimizing it. "In Fed We Trust," by David Wessel, took the reader behind the scenes in Washington, where politicians and regulators missed all the warning signs. For their part, McLean and Nocera concentrate on the basics and bring them together in brisk, well-organized chapters.

I've read Cassidy's book and Wessel's book, but need to get Tett's.

Barrett writes

Another public quarrel McLean and Nocera bring into focus is the esoteric debate about Federal Reserve monetary policy. Ben S. Bernanke, the chairman of the Federal Reserve, has pushed interest rates practically to zero to try to stimulate growth and reduce an unemployment rate that currently hovers near 10 percent. Dissenters from this policy, like Thomas M. Hoenig, the president of the Kansas City Federal Reserve Bank, warn that Bernanke is repeating the mistake of his predecessor, Greenspan, who employed similar measures to combat the recession that followed the dot-com crash of 2000.

There are two different issues about Greenspan. His approach to regulation and his approach to interest rates. Hoenig and Barrett erroneously conflate the two.

Bernanke and Krugman point to the global savings glut rather than the Fed's policy of keeping rates low after the dot-com crash of 2000 as the source of the housing bubble which took on a life its own once it had momentum.