Marriner Stoddard Eccles

Dear Ben: It’s Time for Your Volcker Moment by Christina Romer

Wow, I remember DeLong writing this back on the 7th.

Let me be the first to say that I really, really wish the Federal Reserve would pull a Paul Volcker--would change its operating procedures--and announce that it will buy as many risky and long-duration assets for cash as it needs to in order to push market expectations of nominal GDP five years hence back to its pre-2008 trend level of $18 trillion/year.

Evans and Rosengren can quote from the piece and wave the physical New York Times about at next week's FOMC meeting.

Expectations Can Be Frustrated by Steve Waldman

Another Reason the Fed Might Buy MBS by FT Alphaville

Italian Government Bonds 10 Year Gross Yield

You Say You Want a Revolution by Andrew Sullivan

Occupy Wall Street: It's Not a Hippie Thing by Roger Lowenstein

New York Times graphic of the Euro house of cards

(or what do you call those long chain-reaction toys with marbles, chutes and swinging pendulums?)

The Fed meets next Tuesday and Wednesday. The argument for more action should include the notion of insurance against shocks. Policy should not be designed to merely prevent deflation and return unemployment levels to their natural rate eventually. It should help make the system resilient to shocks like, say, a disorderly unraveling of the Euro system.

The argument that they want to keep their powder dry and leave some quivers in their arrow in case of unexpected events sounds good but really doesn't hold up to scrutiny. If they don't do enough to help the economy it will be a self-fulfilling prophecy. If they do more and it doesn't prove enough, they can call for more fiscal help more forcefully. The Great Depression wasn't brought to an end by monetary policy alone. It took World War II.

The Problem
(or Fed Fail)

Notice the "L" shaped recovery, there's no catch-up growth or "V" recovery.

Austrians and lefties who have embraced their siren song on debt argue that the potential GDP line is angled too steeply upward in the chart above. It's true that the housing boom had debt-fueled consumption, but why can't that continue with full employment if it's managed well? Maybe the blue trend line should be angled slightly more downwards but it doesn't mean that the Austrians are right. The argument is over the degree of the angle. To me the angle of the red line is a result of accomadating Fed policy interacting with headwinds from declines in state and local government spending and from headwinds associated with households deleveraging and deleveraging in the mortgage market. It is running parallel with the blue line because Bernanke is more concerned with preventing deflation or runaway inflation than with firming up the job market. In my opinion, Evans and Rosengren are right that runaway inflation isn't a danger. The danger is that the Fed continues to lose credibility over failing to fulfill its dual mandate.

For me I just instinctually (instinctively?) disagree with the conservative, folk wisdom that all debt is bad. One just needs to be prudent.

As DeLong suggests here we should have used that debt-fueled demand on more productive investments than on consumption or tax cuts.

(graph via Bernstein)

When Beavis and Butt-head originally aired, it always had really weird music videos the two would watch from their couch and discuss. They continued that tradition last night with videos from MGMT and Skrillex.



Poor kid.







Creepy!

DeLong asks:

When you were born, you were the: 3,037,348,163rd person alive on Earth, and the 76,687,107,007th person to have lived since history began. How about looking beyond the narrow humancentric? How about apes? Mammals? Chordata? Living beings?

What about pre-singularity? Or pre-grey goo. Or perhaps it's race between the two.

Nation Finally Breaks Down And Begs Its Smart People To Just Fix Everything

NGDP Targeting Fiesta 

Kind of a rambling, free associating post.

NGDP Targeting and Sustainable Growth by Andy Harless

The Fed's Dark Age Communications Strategy by Nick Rowe

The Fed is Talking About a Nominal GPD Target by David Beckworth

(via Thoma)

My thoughts are evolving on this issue. In normal times the Fed can bring the U.S. out of recession by lowering the short term rates.

Bill Clinton complained about being hemmed in by the bond market and parred down his original budget because of it.

On February 17, 1993, in a nationally televised address to a joint session of Congress, Clinton unveiled his economic plan. The plan focused on deficit reduction rather than a middle class tax cut, which had been high on his campaign agenda.^[14] (Clinton was pressured by his advisers, including Robert Rubin formerly of Goldman Sachs, to raise taxes on the theory that a smaller federal budget deficit would reduce bond interest rates

...

One of Clinton's major policy initiatives in his first term was on the American economy. Clinton's economic plan included a major expansion of the existing Earned Income Tax Credit, aimed at working class families just above the poverty line, which helped ensure that it made sense for them to work rather than seek welfare. John F Harris, argues that "this would be prove to be one of the most important and tangible progressive achievements of the Clinton years".^[40]

A major problem with the economy at the time was the issue of the massive deficit and the problem of government spending. In order to address these issues, in August 1993, Clinton signed the Omnibus Budget Reconciliation Act of 1993 which passed Congress without a single Republican vote. It raised taxes on the wealthiest 1.2% of taxpayers, while cutting taxes on 15 million low-income families and making tax cuts available to 90% of small businesses.^[41] Additionally, it mandated that the budget be balanced over a number of years and the deficit be reduced.^[42] This was to be achieved through the implementation of spending restraints.

But when the economy is in a liquidity trap and short term rates are up against the zero bound, the Fed needs to pursue unorthodox measures which may not be as effective and draw political heat. Fiscal help for the economy will help. In an emergency, the Fed becomes the lender of last resort, while the government should become the buyer of last resort, or the supplier of missing demand.

Ideally the Fed should adhere to its mandate of price stability and keeping unemployment low. It has failed to this since unemployment has been high for two and half years and shows no sign of decreasing. Why isn't there an outcry that the Fed isn't doing its job? Its forecasts have been wrong regularly.

If since 2009 the Fed had been targeting a trend NGDP level - perhaps a little lower than the housing boom years - it would obviously be failing. Press conference and media reports would focus on how it is failing. Growth of GDP is not catching up to trend, but merely growing enough to avoid deflation. To outward appearances this seems to be what Bernanke and the FOMC want the economy to do. Its seems they want 2 percent inflation and 9 percent unemployment.

Two Fed Presidents, Evans and Rosengren, have suggested that higher inflation - 3 percent - and lower unemployment 7 percent - should be the target and argue we should step on the gas until this is achieved. This would be the same as targeting a higher NGDP level than what they appear to be targeting now.

If the Senate wasn't blocking Obama's Jobs Act, perhaps the Fed wouldn't need to do as much.

As I understand, I think it can work on the expectations level. If the Fed says it will do whatever it takes to get to 3 percent inflation and/or 7 percent unemployment people will spend and save with the view of that occurring in the near term. This will add demand to the economy and hopefully provide catch-up growth. What the Fed will do is continue its quantitative easing - buying assets like MBS - to take risk out of the market. If inflation ticks up, it will make deleveraging happen more quickly. It will also spur people to spend as I have said.

Ezra Klein interview with Joe Gagnon from August

Gagnon says the Fed got nervous in the Spring because core inflation went up to 2.5 percent, whereas he said he'd get nervous at 3 percent.

Looks like Obama may go with Gagnon and Bill Gross's idea about Fannie and Freddie backed mortgage rates being lowered, but you need the go ahead from the head of the housing agency which overseas them.

From the end of the interview:

EK: One criticism you hear of the Obama administration is that there are two open seats on the Fed board. If the White House had filled those seats would things be significantly different today?

JG: Well, if they had put me and someone else on the board and we would be out there dissenting on the other side from the inflation hawks, but I’m not sure we could have swayed much policy. I don’t know that two votes is decisive. People overstate the influence of the hawks. They are a permanent minority. They’re really off on their own. There is a core of centrists that Bernanke could lead wherever he wants.

EK: On the same subject, what would their role be in the policy you lay out? The Federal Reserve can bring mortgage rates down, but that doesn’t repair the housing market on its own. It creates an opportunity for the administration to do more to repair it, right?

JG: The Fed should create an opportunity and the Obama administration should take advantage of it. The Obama administration has the power to really extend the universe of homeowners who can take advantage of lower rates. Fannie and Freddie announced programs over the last two years saying if you already have a guaranteed mortgage, even if you would not normally be able to refinance, now you could. But they put on too many conditions. They said you needed to use your normal servicer, for instance. They also made Fannie Mae and Freddie Mac raise their standards on borrowers, which is scaring the banks.

They need to break those restrictions. I agree that new borrowers should require downpayments and so forth. But if you have an existing loan, it’s a win-win for the government to help you refinance, because if you can refinance, you’re less likely to default. There is a loser here, but it’s China and rich investors who hold these loans. And why should we be protecting them?

So according to Gagnon, Bernanke is really in charge and two more rational voices on the FOMC wouldn't matter that much.

1997 Asian Financial Crisis

Another major factor was that these countries became excessively dependent upon exports for their economy. Indonesia, Philippines and Thailand had seen their exports to GDP ratio grow from average 35% in 1996 to over 55% in 1998. Such huge dependence upon trade made these countries susceptible to currency movements. At the time of the mid-1990s, Thailand, Indonesia and South Korea had large private current account deficits and the maintenance of fixed exchange rates encouraged external borrowing and led to excessive exposure to foreign exchange risk in both the financial and corporate sectors. In the mid-1990s, two factors began to change their economic environment. As the U.S. economy recovered from a recession in the early 1990s, the U.S. Federal Reserve Bank under Alan Greenspan began to raise U.S. interest rates to head off inflation. This made the U.S. a more attractive investment destination relative to Southeast Asia, which had been attracting hot money flows through high short-term interest rates, and raised the value of the U.S. dollar. For the Southeast Asian nations which had currencies pegged to the U.S. dollar, the higher U.S. dollar caused their own exports to become more expensive and less competitive in the global markets. At the same time, Southeast Asia's export growth slowed dramatically in the spring of 1996, deteriorating their current account position.

A Note on the U.S. Comparative Advantage in the Sale of "Political Risk Insurance" by DeLong

The Global Saving Glut and the U.S. Current Account Deficit by Bernanke

Where is the new Keynes? by John Cassidy

I like how he writes:

Endnote: Others will have different ideas about the lessons learned in the past few years. I’d be interested in seeing them. But please, spare yourself the effort of posting a comment to say that Keynesian stimulus programs don’t work or that a return to the Gold Standard is our only salvation. Those are old canards, not new insights.

Fed Fail

Picture of a Slog by Jared Bernstein

–In fact, 2.5% is considered the trend growth rate in the economy—about the average over a cycle.  The problem is we’re coming off of such a deep recession, we need a bunch of quarters that do much better than average.  In other words, we need a “V”-shaped recovery; we’re getting more of an “L.”

–real GDP is finally back to its pre-recession peak, and it’s taken us an historically very long time to get here.  The figure (hat tip, BH) shows the number of quarters it has taken in the past for real GDP growth to regain its prior peak before the recession knocked it down (the top date on the x-axis is the quarter that GDP regained the peak; the bottom date is the prior peak).  The average is 5.2 quarters…this go round, it took 15.   That, my friends, is a long slog.

In comments, Bernstein writes that during the Great Depression it took seven years - 1929-1936 - to reach the pre-depression peak.

Was the Fed aiming for 15 quarters until we returned to pre-recession peak?

Don't Blame the Krona by Krugman

One thing that was clear during yesterday’s Iceland conference was that many people here (I’m still in Reykjavik) believe that the floating krona was responsible for the huge capital inflows that set the stage of the crisis. The story they tell is that expectations of a rising krona, combined with relatively high interest rates, drew hot money in via the carry trade. And this story is used to argue that things would have been much better if Iceland had adopted the euro.

I was kind of surprised by this, well, insularity (which I guess is more excusable if you are in fact on an island in the middle of the North Atlantic). For Iceland was by no means unique in its inflow of funds. Here’s the average current account deficit (which is equal to capital inflows) as a percentage of GDP for a bunch of European countries, over the boom years from 2000-2007:

The fact is that there was a tsunami of money flowing from the European core to peripheral economies; Iceland was just part of a broader class that included countries on fixed rates against the euro and some countries already on the euro.

There are valid arguments for euro entry (and arguments against, which I think win on balance). But this isn’t one of them.

Wikipedia - Current Account:

In economics, the current account is one of the two primary components of the balance of payments, the other being the capital account. The current account is the sum of the balance of trade (exports minus imports of goods and services), net factor income (such as interest and dividends) and net transfer payments (such as foreign aid). You may refer to the list of countries by current account balance.

The current account balance is one of two major measures of the nature of a country's foreign trade (the other being the net capital outflow). A current account surplus increases a country's net foreign assets by the corresponding amount, and a current account deficit does the reverse. Both government and private payments are included in the calculation. It is called the current account because goods and services are generally consumed in the current period.^[1]

The balance of trade is the difference between a nation's exports of goods and services and its imports of goods and services, if all financial transfers, investments and other components are ignored. A Nation is said to have a trade deficit if it is importing more than it exports.

Positive net sales abroad generally contributes to a current account surplus; negative net sales abroad generally contributes to a current account deficit. Because exports generate positive net sales, and because the trade balance is typically the largest component of the current account, a current account surplus is usually associated with positive net exports. This however is not always the case with secluded economies such as that of Australia featuring an income deficit larger than its trade deficit.^[2]

"I put the bastards of the world on notice that I do not have their best interests at heart."

The Rum Diary: a literary equivalent of a superhero origin story

The Obstacle by Ryan Avent

(via DeLong)

A Note: Components of Autonomous Spending by DeLong

The longer I stare at figures like this, the more impressed I am with how well Say's Law worked between the peak of the housing boom in the third quarter of 2005 and the start of the recession in the first quarter of 2008.

Housing construction (and government purchases) sit down. Exports, equipment investment, and nonresidential construction stand up. Even as of 2008:III, the sum of the components of autonomous spending was only 0.7% of potential GDP lower than trend.

It is in the next three quarters to 2009:II that the autonomous spending shortfall grows swiftly to -5.6% of GDP.

This makes me suspicious of accounts of the Lesser Depression that rely on the loss of household wealth in the collapse of the housing bubble as a big explanation. At the very least, such explanations need to be supplemented by an account of why the damage done by real-estate losses' effects on household balance sheets was not linear. It also makes me even more suspicious of "Austrian" accounts. For the first three years after the peak of the housing bubble, redeploying labor out of housing construction imposes no requirement that other sectors shrink: rather the reverse: they grow.

I agree with this line of thinking. The Great Depression wasn't started by a great loss of wealth in households. There were bank failures then layoffs which led to a loss of aggregate demand which led to more layoffs.

I am very resistant to the line Austrians are pushing and some on the left are pushing too that it was all about easy money and a credit binge. There was some of that as consumers used their houses as credit cards and there was a housing boom and bubble.

A Song of Ice and Ire: Iceland in Context by Krugman

(Nice! Skip down to Session II. via Krugman)

Update: Session II

Sisyphus Gets to the Top: How America's forbidding political landscape made health care reform impossible for Clinton and nearly so for Obama.

(via DeLong twitterstorm)

No Double-Dip: Dean Baker called it and predicted the MSM's reaction

Seems to me that 2.5 percent annualized growth for the third quarter means QE1 and QE2 worked.

A Note on the U.S. Comparative Advantage in the Sale of "Political Risk Insurance" by DeLong

China Reigns in Liberalization of Culture 

Whether spooked by popular uprisings worldwide, a coming leadership transition at home or their own citizens’ increasingly provocative tastes, Communist leaders are proposing new limits on media and Internet freedoms that include some of the most restrictive measures in years.

The most striking instance occurred Tuesday, when the State Administration of Radio, Film and Television ordered 34 major satellite television stations to limit themselves to no more than two 90-minute entertainment shows each per week, and collectively 10 nationwide. They are also being ordered to broadcast two hours of state-approved news every evening and to disregard audience ratings in their programming decisions. The ministry said the measures, to go into effect on Jan. 1, were aimed at rooting out “excessive entertainment and vulgar tendencies.”

Maybe they're trying to head off the coming "reality show" onslaught and prevent a Chinese Jersey Shore craze.

The End of Cheap Chinese Goods by Floyd Norris

Henwood interview with Sam Seder

Republican Keynesianism

Reaganomics

Bush tax cuts (which Paul Ryan supported)

Bush's 2008 stimulus

The Military Spending Fairy by Dean Baker

A Brief History of Europe

1) Germany inflicts a Carthaginian Peace on France.

2) France inflicts a Carthaginian Peace on Germany.

3) The U.S. enacts the Marshall plan (while warily watching Stalin and the Soviet Union).

4) Soviet Union collapses

5) Together, France and Germany inflict a Carthaginian Peace on Greece, Ireland, Portugal, Spain, Italy, etc.

Carthaginian Peace

John Cassidy has a good interview about his New Yorker piece on Keynes. The article is now available. 

(via Mark Thoma)

Cassidy uses the phrase "Carthaginian peace" in the context of discussing what Keynes would think about Greece. In Cassidy's opinion Keynes would argue for debt relief since he described the Treaty of Versailles as a Carthaginian Peace and it lead to the rise of fascism. (The beatings will continue until morale improves or until you elect a demagogic, genocidal monster as your leader.)

From the Wikipedia entry:

Carthaginian Peace can refer to two things: either (1) the peace imposed on Carthage by Rome in 146 BC, whereby the Romans systematically burned Carthage to the ground, or (2) the imposition of a very brutal 'peace' in general.

Origin

The term refers to the outcome of a series of wars between Rome and the Phoenician city of Carthage, known as the Punic Wars. The two empires fought three separate wars against each other, beginning in 264 BC and ending in 146 BC.

At the end of the Third Punic War, the Romans laid siege to Carthage. When they took the city, they killed most of the inhabitants, sold the rest into slavery, and destroyed the entire city. As Tacitus wrote in a different context, quoting or paraphrasing the Caledonian chieftain Calgacus, "they make a wasteland and call it peace". Some modern accounts say they plowed over the city and sowed the ground with salt, but this is not supported by ancient sources.[1]

By extension, the term "Carthaginian Peace" can refer to any brutal peace treaty demanding total subjugation of the defeated side. 

Modern Use

Modern use of the term is often extended to any peace settlement in which the peace terms are overly harsh and designed to perpetuate the inferiority of the loser. Thus many (the economist John Maynard Keynes among them[2]) deemed the Treaty of Versailles to be a "Carthaginian Peace." The Morgenthau Plan, which was dropped in favor of the Marshall Plan (1948–1952), might be described as a Carthaginian Peace, as it advocated the 'pastoralization' (de-industrialization) of Germany following her 1945 defeat in World War II.

General Lucius D. Clay, deputy to general Dwight D. Eisenhower who in 1945 was military governor of the U.S. occupation Zone in Germany, and who would go on to replace Eisenhower as governor and as commander in chief, U.S. Forces in Europe, would later remark regarding the occupation directive guiding his and General Eisenhower's actions in occupied Germany: "there was no doubt that JCS 1067 contemplated the Carthaginian peace which dominated our operations in Germany during the early months of occupation."[3]

The key to reading Yglesias is that everything Clinton is good, everything Bush is bad and he'll fudge facts over it. 1992-2000 is utopia, 2001-2008 is hell on earth. DeLong is similar. Usually the key maneuver is to leave relevant facts out of the narrative.

Yglesias on globalization:

It seemed to me both then and now that the big problem with the global justice movement of that era wasn’t that the issues it was grappling with were too complicated for the average person to understand, it’s that the movement’s analysis was mistaken. The late 1990s were a very prosperous time for America. And the analysis that the spread of global capitalism to what we used to call “the third world” would be immiserating for those countries was wrong. China has not been immiserated. Nor has India. Nor has Brazil. Nor has Turkey. Africa’s just wrapped up a very solid decade. It’s true, as Dani Rodrik will tell you, that none of the development success stories (except maybe Chile) has come from a carbon copy implementation of the full Washington Consensus. But it’s even more true that none of the development success stories have come from developing a radical alternative to participation in a globalized market economy.

By contrast, the main analytic points of Occupy Wall Street and its offshoots are correct. Policymakers promised us broadly shared prosperity and macroeconomic stability. We didn’t get the former, and now we can see that we didn’t get the latter either. Having failed to deliver prosperity or stability, the global elite pivoted to the claim that owing to the lack of past prosperity it would be irresponsible to return us to macroeconomic stability without first cutting pensions. It’s crap, and people shouldn’t stand for it. And in America, at least, it’s already working. Conservative politicians are expressly talking about inequality, and the Obama administration has gone back to talking about aggregate demand instead of grand bargains. There’s more to life than being right, but being right helps a lot. And that’s the main difference here.

The Battle in Seattle was in 1999. Ralph Nader's third party candidacy was in 2000. 9-11 and Afghanistan in 2001 and Iraq in 2003.

The Greeks will agree with the anti-globalization protesters analysis of the IMF. (It was entirely predictable given that the IMF put Argentina through the ringer.) And global trade imbalances led to Bernanke's Global Savings Glut. Globalization and trade via corporate priorities on labor and the enivironment led us to where we are today.

I agree with Yglesias that trade is not the problem and capitalism has worked - sort of- in the BRIC countries like China, India and Brazil. But at what cost?

The anti-globalization protest movement, which was international also, was against corporate priorties at the expense of the 99 percent and the OWS movement is similar except its focus is Wall Street rather than the World Bank and IMF. All three are citadels of elite policy making.

I'll agree that the IMF has gotten better. Krugman has written about it. The IMF has done a 180 on capital controls and expansionary austerity. It's analyses are often reality based. Maybe the anti-globalization protests played some small part in the shift.

It's Consumer Spending, Stupid by James Livingston

Dean Baker comments:

While part of the story sounds very good -- reverse the upward redistribution from wages to profits -- some of the rest does not make sense. Yes, consumption has grown more than investment over the last century. That happens in every country as it develops. When it is poor, there is a real focus on building up the capital stock to get richer.

In China investment accounts for close to 50 percent of GDP now, compared to around 20 percent in the U.S. This doesn't change the fact that it is investment, not consumption, that provide the basis for productivity gains which will make the country wealthier in the future.

Also Livingstone tells us that we should not worry about the large trade deficit because many of the goods we import are made by U.S. owned companies. I understand how this helps the shareholders in these companies, but I can't see what this does for the rest of us.

The basic accounting identity here is inescapable. If we have a large trade deficit then must have either large budget deficits or negative private saving or some combination of the two. Over the long-run, that is not a pretty picture.

NGDP Targeting in Real Life by Karl Smith

Kelly Evans Strange Case Against NGDP Targeting by Yglesias

MMTer Kervick conjures up more arguments againt NGDP Targeting:

There is no reason in principle why you couldn't sustain a continuously growing economy in some country with 15% or 20% of the country's people permanently unemployed.

Seriously? You'd have massive deflation. There's a real relationship between employment levels and growth rates.

Another troll writes

"One of the great advantages of an NGDP target is that it combines prices and real output (which is to say employment) in a single index".

You can have high inflation and negative real GDP growth and still get to your target NGDP. Which tells you its a terrible benchmark.

Stephen Eldrige replies

You *could*, but there's nothing about the present situation that says we *would*. High levels of inflation right now would spur spending and investment rather than hoarding cash and also help highly-leveraged players deleverage, which would help real growth. It's hard to imagine a scenario right now where we get stagflation without a serious supply shock somewhere. Oil issues make that not impossible, of course...

The Problem with Competitiveness Is That We All Can't Win by Yglesias

Ryan Adams interview with Onion AV Club

AVC: But why pay attention to people on the Internet? You’ve reached a point in your career when you can pretty much do whatever you want, can’t you? 

RA: Yeah, I am doing what I want, but one of the interesting things about the Internet when you’re a musician is the sociology of the fans, the psychology of being a fan, and observing this negative and positively weird behavior. It’s kind of hard to explain this, but there’s this weird illness with people where it’s almost like they view their [favorite] artist as a football team or something, and all other artists are another team. [Laughs.] Or even sometimes, your records become sports teams. You put out a new record, and it’s like, “Tonight at Dodger Stadium, it’s the Easy Tigers vs. the Heartbreakers.” It’s super-competitive, and it’s a highly judgmental place for a place that should be free of judgment. My feeling about music is that it’s a place to go to get away from fucking negative creeps. And now, what’s really weird is that music is full of negative fucking creeps.

Same with the Left. From comments at Yglesias's blog post on NGDP level targeting:

Adam Short: I don't think that much of NGDP targeting in the abstract, but honestly it's a damn sight better than what we've got now. So, huzzah! Let's do it!

Steve LaBonne: At first blush it seems as though NGDP targeting would just end up providing cover for the reinflation of asset bubbles (and there's certainly a strong political constituency for that.) And that's not better than what we have now, it indeed helped to get us where we are now. Can you convince me that I'm wrong?

Adam Short: Steve LaBonne under our current system any recovery is going to reinflate asset bubbles. Asset bubbles are a natural consequence of our financial system.

So, do you really think not recovering is superior to recovering? If so, I guess I can't convince you.

Steve LaBonne: Adam Short I don't accept your premise. A properly designed Keynesian stimulus should increase inflation on a broad front rather than creating bubbles in particular sectors of the economy. Yes, I know we can't have that politically, so certainly new asset bubbles may be better right NOW than not doing it. But as a long-term policy (which is what the "targeting" implies")? Sorry, no. There, the only thing that will work is fixing the political system so that decently competent management of the economy is possible.

Translated:

Short: It's better than what we have now.

LaBonne: No it isn't. (it will just reflate asset bubbles, nothing more)

Short: A recovery is better than no recovery. (Any recovery will reflate asset bubbles.)

LaBonne: Yes a recovery is better than no recovery (admittedly my earlier comment was one hundred percent wrong). A Keynesian fiscal stimulus would be better (DID SHORT EVER SAY IT WOULDN'T?!?!? - ed.) But a long-term policy (WHICH SHORT SAID NOTHING ABOUT) targeting NGDP levels would be bad.

And negative fucking creep MMTer Dan Kervick comments:

NGDP targeting has a number of features that appeal to upper middle class knowledge elites:

It allows them to target increased inflation without saying "I want increased inflation."

It allows them to support backdoor debt deleveraging for the middle class without supporting the kind of moral hazard that offends bourgeois sensibilities.

It allows them depress the real wages of the most struggling members of our society, whom the knowledge elite believe are overpaid.

It allows them to avoid calling for any redistribution of income, the avoidance of which is a goal they share in solidarity with the very affluent.

Demanding the perfect in place of the good allows MMTers to name-call and insult others as sellouts so as to make themselves feel hardcore.

It allows them to continue believe what they will because their proposals will never see the light of day.

It allows them to keep unemployment at high levels because their policy proposals will never see the light of day.

What would Kervick say about Argentina's recent experience?

Krugman blogs about Dean Bakers commentary on a New York Times story:

Dean Baker is once again on the warpath over Argentina, this time over news reports that treat Kirchner’s reelection as somehow mysterious. The economy is booming and the opposition is hopelessly divided; how on earth did she win?

There is indeed a remarkable unwillingness in press coverage to face up to the reality that Argentina has done very well since its default and devaluation. Yes, there are problems. But there is a stunning contrast between the consistently negative tone of reporting on Argentina and, say, the fawning coverage of Latvia –which has now achieved such vigorous growth that real GDP is only 18 percent below its peak!

But I realized that this is just a sovereign version of Keynes’s dictum:

Worldly wisdom teaches that it is better for reputation to fail conventionally then to succeed unconventionally.

Keynes meant it as a description of bankers, but it goes for economic policy makers too.

Emphasis added.

The Hole in Europe's Bucket by Krugman

...If the European Central Bank were to similarly stand behind European debts, the crisis would ease dramatically.

Wouldn’t that cause inflation? Probably not: whatever the likes of Ron Paul may believe, money creation isn’t inflationary in a depressed economy. Furthermore, Europe actually needs modestly higher overall inflation: too low an overall inflation rate would condemn southern Europe to years of grinding deflation, virtually guaranteeing both continued high unemployment and a string of defaults.

But such action, we keep being told, is off the table....

The Moral Case for NGDP targeting by Steve Randy Waldman

DeLong on the Great Crash, Great Slump and "Liquidationist" ideology

(via Krugman)

Study on Earned-Income Tax Credit

EITC Wikipedia entry

Welcome to the Desert of Real GDP by Yglesias

Jared Berstein on fiscal problems:

Ironically, on the next page was an oped from the WaPo by Robert Samuelson touting this deeply annoying theme of a pox on both houses for our fiscal problems.  Bush, Clinton, Obama—all bad.

I’m not saying they’ve all been pillars of fiscal rectitude but come on, Bob.  Clinton raised taxes, progressively, I might add, and achieved a surplus (that was “good luck” according to RS)!  President Obama has done precisely what you keep badgering him to do: proposed significant cuts—over $300 billion—in entitlements (Mcare and Mcaid).  I get that this doesn’t go far enough for you, but seems worthy of mention, no??

The primary drivers of our structural deficits at this point are the Bush tax cuts, the fact that revenues are off the R’s table, and longer term pressures from the health care costs.  If you’re writing about fiscal challenges and you’re not writing about those challenges, I’m not sure what you’re up to.

Well done!

Great Recession may cost US economy $5,900 billions by Gavyn Davies

The 6-6-6 plan by John Quiggin

From the WSJ:

Economists expect Thursday’s GDP report from the Commerce Department will show the economy grew at a 2.7% annual rate in the third quarter. That would still leave economic output 6.7% below what the Congressional Budget Office estimates its potential is.  In other words, in a world where employment and economic activity were as high as they could be without the economy running into inflationary trouble, the U.S. would be producing about $900 billion more in goods and services a year than it is now.

Would it have been 2.7% without QE1 and 2?

(via Mark Thoma)

One of my favorite scenes in Will Ferrell's one man show about Bush, was the dance sequence with Condi set to Michael McDonald's "I Keep Forgeting." Everytime I read about Condi I think of it.

She has a memoir of her time during the Bush years coming out.

First as national security adviser and later as secretary of state, Ms. Rice often argued against the hard-line approach that Mr. Cheney and others advanced. The vice president’s staff was “very much of one ultra-hawkish mind,” she writes, adding that the most intense confrontation between her and Mr. Cheney came when she argued that terrorism suspects could not be “disappeared” as in some authoritarian states.

As for Col. Muammar el-Qaddafi of Libya, who was killed Thursday after a revolution, Ms. Rice adds details about his well-known “eerie fascination with me.” She writes that he made a video showing pictures of her while a song called “Black Flower in the White House” played. “It was weird,” she writes, “but at least it wasn’t raunchy.”
...

For the most part, though, Ms. Rice defends the most controversial decisions of the Bush era, including the invasion of Iraq. The wave of popular uprisings known as the Arab Spring this year, she writes, has vindicated Mr. Bush’s focus on spreading freedom and democracy.

My rogues gallery is full of hack writers. Welcome Greg Mankiw to the pantheon! Former CEA to Bush Jr. and current Romney advisor, Mankiw penned an especially hackish column today. He writes "Economists debate whether higher taxation in France and other European nations is the cause of the reduced work effort and incomes there."

I'd take Germany's performance over the U.S.'s. Also, towards the end of Clinton's onerous tax regime, wages rose thanks to economic growth and a tight labor market. The budget was balanced. Then we got the wasteful Bush tax cuts and the crappy Bush years. They weren't more crappy because of the wealth effect of the housing boom.