Full employment is no small demand to make. The bourgeoisie hates it, because it would strengthen the bargaining power of the working class. It, plus the other planks of an expanded welfare state mentioned in the Demands draft, would give people the confidence and freedom to think about a better world. This isn’t fictional: it happened in the 1970s, as the transformation of consciousness among middle-class college students spread into the working class. Quality of work life—in a real, not a GM sense—became a central concern in organized labor, at least among the rank and file. It was one of the things that alarmed elites, leading to the crackdown of the late 1970s and early 1980s.I liked how Nick Rowe referred to people from the "concrete steppes" here in the context of targeting NGDP levels.
"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, October 22, 2011
- A wave of increased savings hitting the United States and looking for safe assets in which to invest itself.
- A collapse of lending standards in housing finance so that investments in mortgages that were in fact highly risky were sold as--and were believed to be--safe investments.
- A failure of risk controls in high finance so that the highly-leveraged banks and shadow banks that were supposed to manage their own risks and distribute and diversify risks throughout the economy instead concentrated them--and were threatened with bankruptcy when the housing bubble collapsed.
- An inability or unwillingness by the Federal Reserve to cut off the crisis in its early stages and fix it.
- A mechanism that turned financial distress on Wall Street into a large-scale collapse in employment.
Some free associating brainstorming (TBC):
Bernanke's Global Savings Glut
opportunistic disinflation (graph)
boom on the European periphery
Current Account Deficits
Spanish mortgages, strict regulation vanilla terms
combo monetary and fiscal policy
if policy had been better?
China's stimulus communist efficiency (ironic)
Euro decision-making inefficiency (ironic)
Hopey Changey German worksharing
mortgage dealers financial industry fraud for fees
zombie banks Japanese version
banks sitting on larger reserves, not creating money Minn. Fed Pres speech
shadow banking system
jobless recoveries 1992, 2001
Volcker recession - S&L crisis
Buzzkills on the right say too much debt before means austerity now. Buzzkills on the left point to the trade deficit and the fact workers wages haven't gone up in 30 years. The wealth effect replaced some of the loss of demand there, which has an element of truth. There's no reason we can't return to full employment however.
This Burns cartoon is making the rounds. I saw the movie "Margin Call" last night and wow, talk about a timely movie. And it's good! Jeremy Irons plays a Burns-like character who heads a Lehman brothers-type firm and the film takes place during the day they experience a Minsky or Wile E. Coyote moment and realize they won't be able to meet their margin calls in the near future.
A few things struck me on first viewing. The film points out that two of the risk managers were drawn from different backgrounds, lured by higher pay. Zachary Quinto's* risk analyst has a Ph.D. in propulsion physics, literally is a rocket scientist. Stanley Tucci's veteran once built bridges as an engineer.
An irony is that Quinto's character is promoted in the end, because he and Tucci had developed a friendship or good working relationship. Tucci's character is fired at the beginning of the movie. At the time he was working on some risk analyses that were showing that the firm was in trouble. He hands it off - via a USB flash drive - to Quinto's analyst as he was leaving the building forever. Because they were sorta friends or had a mentor relationship, Quinto was walking Tucci to the door and received the mostly-completed risk analyses which he would explore further and then bring its conclusions to the attention of higher ups. So it's the guys from non-finance backgrounds who allow the company to be the first to dump its toxic assets and minimize the losses the firm will suffer before it goes under.
The film is quite dark and brutal in a David Mamet-social Darwinian manner, but there's also some laugh-out loud humor.
What I didn't quite get is that the film ended with Kevin Spacey's middle manager - who had a conscience somewhat - having sort of a breakdown. He's divorced (from the great Mary McDonnell) and unhappy although successful. Was this some sort of statement that yes these workaholics are rich but unhappy and unfulfilled?
Spacey could get an Oscar for this. He helped produce The Social Network so now he's had back-to-back projects that really, really resonate with the times and are good movies.
Paul Bettany should get an award for his portrayal as one of the firm's knowledgable sergeants. (The rest of the cast is great too.) He gives a pungent, rationalizing speech explaining to a junior colleague that yes they'll be vilified but they're just doing what people want, providing a service, turning their money into more money, like old-timey alchemy. That's why they get paid so much.
*Quinto played Spock in J.J. Abrams' Star Trek and recently came out of the closet. That explains why Spock was giving hunky Kirk those longing looks.
Highlights of recent NBER forum on research on the global financial crisis
RT @davidwessel, via DeLong Twitterstorm
The last panel looks interesting:
Reducing Country Vulnerability: Capital Controls, Reserves, the IMF, or Something New?
Jeffrey Frankel introduced the final panel. Over the past few decades, countries have relied more heavily on large emergency lending packages to stabilize economies during crises. As the size of the packages increases and contagion has become more virulent, this approach is becoming increasing costly. This panel explored options to reduce country vulnerability. Dominguez, Hashimoto, and Ito show that having measured reserves after appropriately adjusting for exchange rate movements and emergency assistance packages, they served as an important counter-cyclical policy tool for a number of emerging markets during the crisis. Chamon, Ghosh, Ostry, and Qureshi find that certain types of prudential regulations and capital controls can help to strengthen a country's liability structures and to restrain overall credit booms. They show that this helped to stabilize output declines during the crisis. Barkbu, Eichengreen and Mody argue that more innovative approaches need to be considered and they focused in particular on "sovereign cocos": contingent debt securities that automatically reduce payment obligations in the event of debt-sustainability problems.
Zanny Minton-Beddoes chaired the final discussion in which Erdem Basci stressed the importance of exchange rate flexibility, moving towards the greater use of equity-like contracts to share risks, and reducing currency exposure, to stabilize countries during a crisis. He also discussed the measures undertaken by Turkey to manage capital flows, highlighting the innovative use of volatile interest rates, and argued that because of its successful policy management, Turkey did not need to use capital controls. Olivier Blanchard reminded us of the challenges of large capital inflows-from bubbles and overheating to "sudden stops". He suggested that value of more borrowing in domestic currency and macro-prudential measures in response to these inflows-which would include a continuum of measures ranging from domestic macro-prudential measures to broad capital controls aimed directly at foreigners. He questioned the effectiveness of reserve accumulation. Kathryn Dominguez discussed the challenges in measuring reserve accumulation and the need to distinguish between passive valuation changes and active management of the assets. She showed that many countries depleted their reserves during the crisis and that this active management helped economies recover.
Friday, October 21, 2011
Krugman on Iceland
Part of the story, of course, is that Iceland refused to take responsibility for the debts run up by runaway bankers. But the other part of the story, surely, involves the exchange rate. The others were either on the euro or insisted on remaining pegged to it; Iceland allowed a big depreciation of the krona.
Basically, what all of these countries experienced was a “sudden stop” — huge inflows of capital came to a screeching halt. What has to happen if a country is going to adjust to such a sudden stop is a sharp fall in the relative price of its goods and labor, because it needs to export much more and/or import much less. If you’re not going to get this via a currency depreciation, you have to have an “internal devaluation” — a fall in money wages and prices.
And nominal wages are downwardly rigid. That’s simply a fact, true always and everywhere.
The Fed Is Laying the Groundwork for Further Easing by Mark Thoma
The Fed is very sensitive to and very fearful of deflation, and the fall in inflation expectations evident in the graph was one of the reasons the Fed decided to implement QE1. And as you can see from the graph, this (along with the other steps the Fed took at that time) turned the expectations around, at least for awhile. However, just before the dotted vertical line on the graph, expectations began falling again. What is the vertical line? It shows the point in time when QE2 was announced by Ben Bernanke (August 27 of 2010 at Jackson Hole, Wyoming), and once again inflation expectations turned around.Price Pressures?... I don't see it. by Jared Bernstein
However, notice that recently the trend has turned downward again and if this continues the Fed is likely to intervene once again.
In fact, the Fed is beginning to lay the groundwork for this. As the WSJ reports:
Federal Reserve officials are starting to build a case for a new program of buying mortgage-backed securities to boost the ailing economy, though they appear unlikely to move swiftly.And Federal Reserve governor Dan Tarullo in his speech on Thursday:
I believe we should move back up toward the top of the list of options the large-scale purchase of additional mortgage-backed securities (MBS), something the FOMC first did in November 2008 and then in greater amounts beginning in March 2009…Finally, in a meeting with members of the Senate on Thursday, Ben Bernanke stressed the need for more action to help housing markets (though he didn’t mention it specifically, further purchases of mortgage backed securities would provide more help for to these markets).
It’s not a done deal yet. Recent inflation data, which appears to be elevated by temporary factors, has some members of the Fed wary of doing anything that might further increase the risk of inflation. In addition, fears of a double-dip could diminish and bring inflation expectations back up without Fed action. But it does appear the Fed is trying to move in this direction.
Thursday, October 20, 2011
Michael Hardt and Antonio Negri in Foreign Affairs:
The political face of the Occupy Wall Street protests comes into view when we situate it alongside the other "encampments" of the past year. Together, they form an emerging cycle of struggles. In many cases, the lines of influence are explicit. Occupy Wall Street takes inspiration from the encampments of central squares in Spain, which began on May 15 and followed the occupation of Cairo's Tahrir Square earlier last spring. To this succession of demonstrations, one should add a series of parallel events, such as the extended protests at the Wisconsin statehouse, the occupation of Syntagma Square in Athens, and the Israeli tent encampments for economic justice. The context of these various protests are very different, of course, and they are not simply iterations of what happened elsewhere. Rather each of these movements has managed to translate a few common elements into their own situation.
Keith GessenIn Tahrir Square, the political nature of the encampment and the fact that the protesters could not be represented in any sense by the current regime was obvious. The demand that "Mubarak must go" proved powerful enough to encompass all other issues. In the subsequent encampments of Madrid's Puerta del Sol and Barcelona's Plaça Catalunya, the critique of political representation was more complex. The Spanish protests brought together a wide array of social and economic complaints -- regarding debt, housing, and education, among others -- but their "indignation," which the Spanish press early on identified as their defining affect, was clearly directed at a political system incapable of addressing these issues. Against the pretense of democracy offered by the current representational system, the protesters posed as one of their central slogans, "Democracia real ya," or "Real democracy now."
"Dornish law does not apply." Tyrion had been so ensnared in his own troubles that he'd never stopped to consider the succession. "My father will crown Tommen, count on that."George R.R. Martin -- A Storm of Swords
"He may indeed crown Tommen, here in King's Landing. Which is not to say that my brother may not crown Myrcella, down in Sunspear. Will your father make war on your niece on behalf of your nephew? Will your sister?" [Oberyn] gave a shrug. "Perhaps I should marry Queen Cersei after all, on the condition that she support her daughter over her son. Do you think she would?"
Never, Tyrion wanted to say, but the word caught in his throat.... "I don't know how my sister would choose, between Tommen and Myrcella," he admitted. "It makes no matter. My father will never give her that choice."
"Your father," said Prince Oberyn, "may not live forever."
Something about the way he said it made the hairs on the back of Tyrion's neck bristle. Suddenly he was mindful of Elia again, and all that Oberyn had said as they crossed the field of ash. He wants the head that spoke the words, not just the hand that swung the sword. "It is not wise to speak such treasons in the Red Keep, my prince. The little birds are listening."
"Let them. Is it treason to say a man is mortal? Valar morghulis was how they said it in Valyria of old. All men must die. And the Doom came and proved it true."
(via Mark Thoma)
CNBS's Steve Liesman tweets "Boston Fed's Rosengren tells
(via David W4ssel, via DeLong twitterstorm.)
Rosengren is echoing Evans, who Liesman interviewed on CNBC. Maybe Rosengren is the mysterious second member favoring stronger action in this article.
Lockhart admits the Fed's forecasts have been way off (maybe they should take out some insurance given the economy's susceptiblity to shocks?). He says recent incoming data however is better than expected so a double-dip is unlikely. Hopefully the better-than-expected data doesn't forestall action.
He closes with:
So, in closing, I would offer the following thought with all appropriate tentativeness and caveats. If the European situation is stabilized and put on a believable resolution path, and if the supercommittee delivers a believable fiscal plan accepted by Congress, these two developments would go a long way toward clearing the air and energizing economic activity.???
Maybe Lockhart is one of those sarcastic types with a weird sense of humor?
Shorter Richard Fisher, using the phrase Chernyshevsky is reputed to have come up with: “the worse the better.” The worse it gets for people, the better the opportunities for our ideology to be put into action. I never thought I’d have to go digging into the immediate influences of Vladimir Ilyich Lenin to get a handle on how “independent” monetary policy works in the 21st century, but here we are.(via DeLong twitterstorm)
Yglesias links to Krugman who links to David Beckworth who links to Joe Weinsenthal's post "The Hottest Idea In Monetary Policy:"
CaveatsOver the weekend, Goldman came out with a report calling on the Fed to embrace Nominal GDP targeting: In other words, set as a goal for the economy that nominal GDP that we saw back in 2007, and then produce enough inflation so that we got there.
Now Bernanke is out with a new speech about monetary policy in the post-Great Recession era, and though he doesn't say that much substantive, he does talk more about trying to more clearly express monetary policy goals.
According to PIMCO's Bill Gross, that's code for... targeting Nominal GDP. Meanwhile, Chicago Fed President Charles Evans has been making similar comments, about weighting the Fed's mandate much more towards the full employment/growth end of the spectrum, even if it means high inflation.
All of which means you should really be reading the work of Bentley Economist Scott Sumner, who has been writing forever about the of Nominal GDP targeting, and who is sure to be the hottest economist in the world, as this takes off.
... As I read them, the market monetarists have largely moved to an expectations view. And now that we’re almost four years into the Lesser Depression, I’m willing, out of a combination of a sense that support is building for a Fed regime shift and sheer desperation, to support the use of expectations-based monetary policy as our best hope.DeLong blogs
I still believe that the chances of success will be a lot larger if we have expansionary fiscal policy too; but by all means let’s try whatever we can.
If you are--as we are right now--in a liquidity trap, with extremely interest-elastic money demand, then expansionary monetary policy that involved the Federal Reserve buying financial assets for cash:
Lots of steps here, some of which may well be weak.
- will have next to no effect on the short-term safe nominal interest rate--it's already zero.
- will decrease the long-term safe nominal interest rate to the extent that your open-market operations today change people's expectations of what your target for the short-term safe nominal interest rate in the future.
- will decrease the long-term safe real interest rate to the extent that it decreases the short-term nominal interest rate and changes expectations today of what inflation will be in the future.
- will decrease the long-term risky real interest rate to the extent that it decreases the long-term safe real interest rate and to the extent that the assets purchased for cash by the Federal Reserve free up the risk-bearing capacity of private investors and lead to a reduction in risk spreads.
- will increase spending to the extent that it decreases the long-term risky real interest rate and to the extent that private spending responds positively to decreases in the long-term risky real interest rate.
To try to target nominal GDP using either only monetary policy or only fiscal policy seems hazardous. To coordinate--monetary and fiscal expansion, money printing-financed purchase of useful things--seems to be the winner.
Wednesday, October 19, 2011
Yglesias agrees with Dana Goldstein who blogged "There’s no reason, as the movie seems to suggest in its final scene, to feel that voting or working for him would be futile, or that either act lacks basic integrity."
I often agree with them, but in this instance I think Morris (and Clinton and Edwards) showed bad judgement because no matter the morality of the act of infidelity, it wouldn't play well with the public and hurt their cause. It demonstrated bad judgement. Interestingly candidate Morris has a sound bite about having our "heads in the sand" regarding oil and Iraq. That's the title of Yglesias's book. Maybe the screenwriter borrowed it or it was in the original play.
Anyway it was a thought-provoking movie with great acting and I highly recommend it.
Tuesday, October 18, 2011
The episode began when a relatively small group of ultraconservative Islamists attacked the television station that had broadcast the 2007 film, about a Muslim girl growing up in post-revolutionary Iran, because of a scene in which she rails at God. He is depicted as she imagines him, violating an Islamic injunction against personifying him.
But it soon became clear that ultraconservatives were hardly the only ones offended. The broadcast has touched a nerve among a far broader section of Tunisia’s Muslims, even in the coastal regions where many pride themselves on their cosmopolitanism. “It is true we do not all fast, and we do not all pray,” said Saleh Mohamed Khoudi, 53, a director of technology at a private company. “But this is too much.”
Semiha Sehli, 33, who works in finance, said she wanted nothing to do with the Islamists and did not trust Ennahda. But even she was shocked when she saw the offending scene on Facebook. Sure, she acknowledged, all little children imagine a personified God. “You can imagine it, but you shouldn’t put it in a movie,” she said.
...The reception is bound to be quieter than it was in the ’90s: back then the two became controversial figures, at the vanguard of televised crudeness, but they’ve since been far surpassed in the onscreen moron category. And the world that Beavis and Butt-Head have returned to, with its blogs and its Twitter feeds and its customer reviews, is bloated with dumb commentary.
But Beavis and Butt-Head’s comments are dumber and funnier, which has less to do with the message than with the perversely upbeat messengers. For everything in their world that “sucks” (wedding music, exercise, trees), they find something else “cool” (a sadistic bully, a gushing nosebleed, head lice). “It doesn’t get any better than this” is one of Butt-Head’s signature lines. Their topsy-turvy outlook, often very funny in itself, sets up the comedy of the video commentaries, in which Beavis and Butt-Head, who admire all sorts of stupid stuff, nonetheless find certain stupid stuff to be inauthentically stupid, and therefore beneath them.
The main issues with the long-term federal deficit are health care costs and a lack of economic growth. From the article:
BOSTON — On the Republican campaign trail, the health care debate has focused on the mandatory coverage that Mitt Romney signed into law as governor in 2006. But back in Massachusetts the conversation has moved on, and lawmakers are now confronting the problem that Mr. Romney left unaddressed: the state’s spiraling health care costs.Have employers in Massachusetts dropped coverage for their employees?
After three years of study, the state’s legislative leaders appear close to producing bills that would make Massachusetts the first state — again — to radically revamp the way doctors, hospitals and other health providers are paid.
Although important details remain to be negotiated, the legislative leaders and Gov. Deval Patrick, all Democrats, are working toward a plan that would encourage flat “global payments” to networks of providers for keeping patients well, replacing the fee-for-service system that creates incentives for excessive care by paying for each visit and procedure.
“We have shown the nation how to extend care to everybody,” Mr. Patrick said in an interview, “and we’ll be the place to crack the code on costs.”
Those who led the 2006 effort to expand coverage readily acknowledge that they deferred the more daunting task of cost control for another day. It was assumed then that the politics would pit doctors, hospitals, insurers, employers and consumers against one another, and obliterate the fragile coalition behind the groundbreaking coverage law.
Predictably, the plan did little to slow the growth of health costs that already were among the highest in the nation. A state report last year found that per capita health spending in Massachusetts was 15 percent above the national average. And from 2007 to 2009, private health insurance premiums rose between 5 and 10 percent annually, according to another state study.
Yet the plan, which generated fresh attacks on Mr. Romney in a recent New Hampshire debate and a blistering Internet ad by Gov. Rick Perry of Texas, has largely succeeded in providing nearly universal coverage. Only 2 percent of residents and a fraction of 1 percent of children in Massachusetts are uninsured. The law’s popularity has given state leaders added incentive to make it financially sustainable.
Charles Evans of the Chicago Fed is one of the good guys...There may be no common manifesto or list of goals — something that has drawn criticism from both inside and outside the movement — but there is one common thread: anger. Some have looked for jobs for months; others have lost their homes to foreclosure. Angry, they all are.
In Chicago, where 175 protesters were arrested over the weekend for curfew violations, a crowd outside the Federal Reserve Bank marched to the beat of improvised drums. “Education is a part of it; housing is a part of it; jobs are a part of it,” said Maryem Alyhabib, 34, who left her three children with her mother to protest for an hour and a half on Monday for the first time.
Without the symbolic power of a Wall Street, many local activists have improvised by occupying parks, street corners, always someplace with a link to the power structure they denounce. The many arrests that have taken place across the country have linked protesters in spirit.
Monday, October 17, 2011
(via Calculated Risk)
I'm seeing the movie this week, so I won't read this until then to avoid spoilers. The movie has some of my favorite actresses and actors: George Clooney, Paul Giamatti, Ryan Gosling, Philip Seymore Hoffman, Marisa Tomei, Evan Rachel Wood and Jeffrey Wright.
Possibly. Or they might just yawn. Even the Austrians must be wondering by now whether their pet theories of awesome and evil Fed control over the price level by virtue of quantitative policy are all wet. After all, we have had two rounds of QE already, with little impact. But who knows? Maybe a third push on the string will unleash the great inflationary gusher.http://en.wikipedia.org/wiki/Early_1980s_recession
I also believe without QE and QE2 unemployment would be 10 or 11 percent. Obama wouldn't even have a chance of being re-elected in that case.
NWR: ...And that basically started that whole fascination with Europop, because I essentially wanted this whole Eurovision sound."
Back on September 14th I linked to the following cool video provided by a commenter at Crooked Timber. It's from a 1979 Italian movie Zombie 2. Note the awesome Europop music.
Like the song contest?
NWR: "Yeah, it was a certain kind of pop that was made in the late '70s and early '80s in Europe, that would mostly come out of Germany and Italy and so forth, a little bit of the U.K. You know, pop-ish, electronic sounds that came out of the whole Kraftwerk electronic wave of the late '70s. So when I was making the movie — because I always try to figure out what kind of music a film would be that I make — I would use that music to give me inspiration. A bit like a fetish. It would give me images because I don't do drugs any more. The electronic score was something I knew I wanted to use, and I listened to a lot of Kraftwerk when I was developing the film, and while I was shooting it. And then in [post-production], we would find these songs, and then I would have Cliff Martinez emulate the sound of it."
It's funny you mention Eurovision, because the soundtrack is very international. There are musicians from Brazil and France and Canada and the United States and yet it fits very well within the setting of Los Angeles at night and the idea of being alone in your car. Was there some idea of Los Angeles that you were trying to illustrate?
NWR: "What's interesting about L.A. is that it basically feels like a city that never left the '80s. Everything about L.A. — the architecture and the feel of the city — it just feels so '80s in all it's aspects. The lighting, the kind of golden glow aura is very '80s appeal. And a lot of the stuff came out of ideas I had while listening to music. Like the white satin scorpion jacket came out of listening to Kiss's 'I Was Made For Loving You' like 1,000 times over and over again in a car."
It being the Sino-German view doesn't make it wrong. Devaluation is a lazy way out. You can't devalue your way to prosperity.Yglesias being all nationalistic is ironic, but what I would say to Henwood is look at Japan. They weren't lazy.
Also, what did Argentina do? What should Greece do?
Jan Hatzius And Sven Jari Stehn Of Goldman Sachs Call For NGDP Level Targeting And Monetary Stimulus by Yglesias
“NGDP level targeting” can sound very technical. But in ordinary language terms, what it means under the present circumstances is that the Fed should say “we would welcome a spurt of unemployment-reducing catch-up growth even if it means needing to tolerate a bit of inflation.” You hear a lot about the need to create more “confidence,” which is generally interpreted as a psychological notion. Be nice to businessmen and make them feel good about themselves. What matters more is expectations, and in particular the coordination of expectations. A firm statement from the central bank that they’re undertaking actions designed to spur catch-up growth and that they’re willing to tolerate a modest increase in inflation to get there alters expectations in a positive way no matter how CEOs feel about Barack Obama.DeLong on the proposal:
They hope such a policy could lower the unemployment rate by two full percentage points--from 8.5% to 6.5%--as of mid-2013.The whole purpose of an independent central bank is so that it can do the right thing with respect to its dual mandate, and nominal GDP level targeting plus quantitative easing now looks to be the right thing to do.
Sunday, October 16, 2011
In this post I wondered why Japan didn't experience a classic overinvestment slump and recovery normally seen in the years preceding WWII.
Via Joe Wiesenthal, Richard Koo, economist for Nomura writes:
Arguing need for longer-term fiscal consolidation is irresponsible
The insistence that fiscal is necessary in the longer term is like the doctor who, faced with a patient who has just been admitted to the intensive care ward, repeatedly questions the patient about his ability to afford the treatment. This is both lacking in decency and irresponsible.
If the patient loses heart after learning the of the treatment, he may end up spending even longer in the hospital, leading to a larger final bill. Completely ignoring the policy duration effect of fiscal policy and constantly insisting on longer-term fiscal consolidation was what prolonged Japan’s recession.
For instance, it was because Japan’s policymakers refused to give up the medium-term fiscal consolidation target of achieving a primary fiscal balance by 2011 that the government stumbled from fiscal stimulus to fiscal retrenchment and back again and, ultimately, was unable to meet its fiscal targets even once in the last 20 years.
That is why Japan’s recession lasted as long as it did and why the nation’s debt has risen to some 200% of GDP.
As DeLong and others have said. Here Krugman points out that Bill Gross has written a letter of apology to PIMCO's investors over being wrong about the end of QE2 this summer. He said interest rates in the bond market would spike, but they didn't and he lost money. As Krugman pointed out at the time, all you needed was an understanding of the IS-LM model to judge that Gross was wrong. Gross is usually good and advocated relief in the mortgage market via Fannie and Freddie to provide stimulus. But Gross wasn't alone with mistaken bet. Ever since the American Recovery and Reinvestment Act was signed into law by Obama, the Very Serious People of Washington and the media have been obsessing over the bond vigilantes and deficit-reduction.
They have been proven wrong again.
Here's Krugman calling it in real time. I remember it very well because up to that point I had some respect for Gross's no-nonsense analytical abilities.
Here's the Wonkish explanation for Krugman's disagreement with Gross.
The Internets are wonderful. Here's a good blog post from Nov. 22 2009, discussing those who warned of a bubble in Treasuries.
Many people on Wall Street are now warning that there’s a huge bubble in government debt, that interest rates will spike any day now; it’s a warning that clearly has the Obama administration’s ear. A good sample is this piece from Morgan Stanley, according to which “Our US economics team expects bond yields to rise to 5.5% by the end of 2010 – an increase of 220bp that outstrips the 137bp increase in the fed funds rate expected over the same horizon.”
Btw: what? Almost everyone expects unemployment in late 2010 to remain close to 10%. Why, exactly, would the Fed funds rate rise sharply?
Coincidently Morgan Stanley and Goldman Sachs economists are now calling on the Fed to target nominal GDP. (via DeLong)Anyway, I was wondering: it’s my impression that the same people now warning about the alleged Treasury bubble dismissed warnings about the housing bubble. Is this true?
I think so. Morgan Stanley, September 2006:
The pessimists argue that the bursting of a putative housing bubble means that prices could decline significantly. There is some risk that prices could decelerate faster or even decline in real terms — after all, investment and speculative activity has picked up in the past five years. But the character of housing demand makes the much-feared decline in prices on a nationwide basis unlikely …Hmmm.
(or circle firing-squad time)
No doubt you’ve all heard and read about the huge and wonderful Occupy Wall Street satellite rally in Times Square this afternoon.I could have told you by looking at the polls that Democrats are not happy with Obama. The economy is horrible.
This crowd was anything but the shiftless hippies of Ann Coulter’s imagining. I bet a lot of them were Democrats, which means that the process of productive disillusionment I’d hoped for in the summer of 2008 is finally kicking into gear, after a long delay:
Why is it so awful? Well there was the Reagan revolution. Thirty years of anti-government propaganda arguing that deregulation and privatization are the route to prosperity have raised inequality, spawned financial panics and slowed growth. The Republican party has become the party of tax cuts uber alles. As Cheney said, deficits don't matter.
Clinton merely reinforced that message with words ("era of big government is over") and actions (his dismantling of Glass-Steagall and his ending of welfare as we knew it.) (Clinton reinforced big government with regards to the police state and the war on drugs.) Obama's primary victory over Hillary was in part a repudiation of Clintonism. In a campaign interview with David Leonhardt, Obama argued that workers' wages haven't risen alongside productivity gains over the last 30 years and we need government to even things out. That's big government liberalism. (My disagreement with the Reagan revolution and Clinton's reinforcement of it is why I supported Nader in 2000. In hindsight, given what happened because of 9-11 and the Bush tax cuts, it was a mistake.)
Obama got the biggest stimulus he could get out of Congress in 2009, probably the biggest stimulus ever. He brought government regulation into the bloated, dysfunctional health care system, getting the most he could out of Congress, pushing the ball down the field. The Dodd-Frank Act falls short too, but moves the ball in the right direction. Again Obama probably got the most he could out of Congress.
Since I played football I recognize how important it is to move ball down the field and get the first down. You need first downs to get a touch down. Hail mary's rarely work hence the name "Hail Mary" a prayer. One can't depend on prayers. My idea of what a touchdown would mean is probably aligned with Henwood. I just don't see OWS as mostly a repudiation of Obamamania. It is in a way but Henwood for some reason just wants to bait good people like Barabara Ehreinreich and Christopher Hayes for indulging in a hope that things could change for the better and for putting a positive spin on Obama's election.
In the 2008 Democratic primary, people wanted something new. That's why Hillary lost. (Plus Obama ran a better campaign.) His message to Hillary supporters after the election was that "we're on the same team" and he brought her into the cabinet as Secretary of State, a prestigious position. Obama's message to independents in the general was I don't care about the blue versus red cable news culture wars, I will do things that work and move the country in the right direction.
The problem is he didn't. (Well he did but not enough.) The Republicans have been unusually obstructionist but Obama had many unforced errors. As the Fed's iPad App will tell you, Obama left two seats open on the Federal Open Market Committee. Bernanke has gone above and beyond to such an extent that the Fed has drawn the glare of the great Sauron's Eye of conservative Republicans. The victorious House Republicans put Fed Abolitionist Ron Paul in charge of the committee overseeing the Federal Reserve. Viable Presidential candidate Rick Perry called Bernanke's accommodating monetary policy treasonous. Bachmann railed at the Fed for printing money. Republican leaders of Congress mailed Bernanke a threatening letter warning him not to try to help the economy recover. And so on. Still the Fed has not done enough. Their forecasts have been reliably over-optimistic. Opportunistic disinflation continues apace.
Right now the votes on the FOMC have been 7-3. Maybe 9-3 vote splits wouldn't make that much of a difference but two more rational voice echoing what Charles Evans has been saying about having their hair on fire over the jobs recession could make a difference. Narayana Kocherlakota recently gave a speech where he described the process of a regular Fed meeting:
At a typical meeting, there are two so-called go-rounds, in which every president and every governor has the opportunity to speak without interruption. The first of these is referred to as the economics go-round. It is kicked off by a presentation on current economic conditions by Federal Reserve staff economists. Then, the presidents and governors describe their individual views on current economic conditions and their respective outlooks for future economic conditions. The presidents typically start by providing information about their district’s local economic performance. We get that information from our research staffs, but also from our interactions with business and community leaders in industries and towns from across our districts.
The chairman speaks at the end of the first go-round. He briefly but thoroughly summarizes the preceding 16 perspectives. I can assure you that this is no easy task—and the chairman’s balanced and thoughtful treatment of our remarks is one of the many reasons that he commands such respect among his colleagues. He then provides his own views on the economy.
The Committee next turns to the second go-round, which focuses on policy. Again, the staff begins, with a presentation of policy options. After that, each of the 17 meeting participants has a chance to speak on what each views as the appropriate policy choice. This set of remarks is followed with a summary by the chairman, in which he lays out what he sees as the Committee’s consensus view for future policy. The voting members of the FOMC then cast their votes on this policy statement and thereby set monetary policy for the next six to seven weeks.Two additional voices of reason could make a difference.
Another big failure was that Obama smoked some Hawaiian green shoots. As early as 2009-2010 he turned to deficit-reduction. Instead of taking out insurance in case the recovery was "L" shaped instead of "V" shaped, Obama turned to happy talk and mistaken analogies about how the government needs to tighten its belt just as families do. And so the economy still sucks and people have become motivated to protest Wall Street's complicity in this state of affairs. Yes the American Jobs Act would help, and I'm not surprised as an Obama supporter that Obama proposed it, but the Senate is blocking it. They might get the payroll tax cuts through, that's something but it may not be enough to help Obama get re-elected and certainly not enough to bring down the unemployment rate much.
As an Obama supporter I was very disappointed the way Obama got rolled during the debt-ceiling clown show. The Republican establishment wanted to take Obama's regressive deal even it meant raising taxes. They saw it for what it was. The Tea Party stopped it. (Maybe it was partly a re-election ploy by the White House to demonstrate to independents how looney the Republican Party has become. Even if that's true, the spectacle demoralized Democrats.)
As an Obama supporter I'm deeply worried about another possible scenario being true. The Obama administration cares about re-election uber alles. So much so that it's plausible to me that the Obama administration brought Romneycare to the Federal level in part to alienate their likely opponent in the re-election contest from his conservative base. Early on, Obama said he wanted to win re-election because he said he didn't want to have spent all that time and energy fixing the economy only to hand it over to Romney so he could take credit.
According to this graph Obama won the electoral college and the Presidency by winning states where voters have high levels of eduction, such as purple states like Virginia and North Carolina. They will be focusing more on these states than redish swing states like Ohio in order to win. The unemployment rate of people with a four-year degree is only 4.3 percent. Maybe this is why they didn't take out any insurance against a "L"-shaped recovery even though the last two recoveries were L-shaped with weak job growth and as Reinhart-Rogoff showed in their book "This Time It's Different" recoveries usually take longer after a financial crisis. They thought the stimulus would cushion the blow and that the private sector would pick up the growth baton and the economy would reach escape velocity. Maybe they thought the Fed would do more but according to Ron Suskind's book they didn't give the Federal Reserve much thought except to mistakenly believe their continually overly-optimistic forecasts. Suskind's portrayal certainly rings true given that there are two vacant seats on the FOMC. What would people say if Obama was leaving two seats open on the U.S. Supreme Court?
If Obama does win in 2012 - and the Republicans certainly are not enchanted with Romney: first Bachmann, now Perry, now Cain - I will grind my teeth constantly over glib news analyses about how the unemployment rate doesn't matter. I remember Yglesias linking to an obnoxious blog post by a poli-sci professor arguing this very exact thing. If Obama isn't re-elected maybe the next Democrat elected in the midst of the next lesser depression would create a 21st century WPA modeled on the National Science Foundation and how it goes about doling out grants. This would provide much bang for the buck in stimulus and certainly help said Democrat get re-elected. (That is if the Senate didn't block its creation.) If Obama isn't re-elected though, the Republicans may severely traumatize the country. It's possible. Although the talk is now that the Senate and House will flip parties.
You would think Henwood would recognize the fact that the 99 percent movement would want to appeal to Obama supporters - when asked, Obama himself said the protesters were legitimately frustrated with a financial system that is responsible for the mess we're in. They're protesting on Wall Street not in front of the White House.
Does Henwood believe Elizabeth Warren's candidacy for the US Senate has some potential for "productive disillusionment"? According to Ron Suskind's book Confidence Men, Obama was impressed with her early on. The Consumer Finance Protection Agency - created by Frank-Dodd - could be good if the Republicans don't gut it.
We tend to underestimate the political power of physical places. Then Tahrir Square comes along. Now it’s Zuccotti Park, until four weeks ago an utterly obscure city-block-size downtown plaza with a few trees and concrete benches, around the corner from ground zero and two blocks north of Wall Street on Broadway. A few hundred people with ponchos and sleeping bags have put it on the map.