"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, August 11, 2012

(see above)

Looks like Ryan: Mitt's Pick by Ryan Lizza

Lizza: "After spending weeks looking into Ryan’s history for The New Yorker, visiting his home town, and interviewing him twice, I am genuinely surprised that Romney chose him."

My prediction on oil prices isn't looking so good as gas prices here rise to $4.06/gallon. Although I did read in the paper that oil prices continue to decline.

A new (conditional) prediction. It could be that the Republican party "jumped the shark" this morning at 9:00 a.m. with Romney announcing Paul Ryan as his VP pick. Will the Republican party enter another period in the wilderness.

Jonathan Chait:
Most Americans have not formed an opinion about him. He has a long record of radical votes and is the functional leader of a wildly unpopular Congressional wing. The one real electoral test of his plan’s political tolerability came in a special election in a Republican district in upstate New York in 2011, in which an underdog Democrat swept to victory by relentlessly pounding Ryan’s plan, and especially its provision to privatize Medicare.

Friday, August 10, 2012

And, of course, Grunwald gives Christy Romer's side of the anecdote told by Ron Suskind--the one where Suskind claimed that when Obama first met Romer, "before exchanging hellos or even shaking hands", Obama said that monetary policy had "shot its wad" thus shocking Romer with the sexualized reference.
Romer has maintained--from the day Suskind's book came out--that Suskind had it wrong: that Obama had not said it, she had; that she had meant it as a reference to seventeenth-century firearms musketry technology. This means that Suskind's "before exchanging hellos or even shaking hands" is, in the words of Pooh-Bah: "merely corroborative detail, intended to give artistic verisimilitude to an otherwise bald and unconvincing narrative".
On page 472, Grunwald writes that Suskind has promised to correct the scene in his paperback.
Moral: if you tell your sources that you are going to let them see relevant portions of the ms. to make sure there are no errors, show your sources the relevant portions of the ms. to make sure there are no errors, or you may wind up in substantial trouble.
Obama: Look, I get the Keynesian thing. But it's not where the electorate is… p. 338.
If Obama isn't re-elected it will be because of this bipartisan approach of indulging those who are wrong, where a "partisan" Keynesian approach would have helped the economy.

DeLong lies by omission though. If you follow the link, it actually reads "P. 338, Obama tells his team to stop bugging him to make stimulus speeches. “Look, I get the Keynesian thing. But it's not where the electorate is.”

Housing vs. Financial Sector

You see that the back-and-forth swing of business investment has been the main motor of the recession. When it falls off the cliff is when the economy was collapsing, and its comeback has brought the stabilization of growth and return to a steady path. But it's not a steady path of full employment. Why? The way Brad puts it is "Fix spending on residential construction, and you will have fixed the downturn."

But the chart also shows us that contrary to a lot of myth-making, the recession is notidentical to the downturn in housing.
Then, in the second half of 2007, things began to change and the balance of probabilities began to shift. Financiers began trying to deleverage and move their assets into safer portfolios--and, in collectively doing so, did nothing but make all of their portfolios more unsafe. Rising credit spreads made risky borrowers think twice about leveraging up, and business equipment investment began to fall alongside the continuing decking in residential construction. By mid-2008 it was clear that we were in for a financial crisis and downturn of uncertain magnitude, and that it was time to start pushing the Big Red Policy Buttons.
Dean Baker has pointed out that in the bubble bust $8 trillion was lost. That's 8 trillion dollars of demand that no longer needs workers to provide. This was partly compensated via exports and business investment from 2009 onwards as economic growth resumed thanks to the stimulus and banking policy like bailouts and stress tests. But there was no catch-up growth as residential construction remains depressed. And government spending has been a drag rather than a stimulus. Baker doesn't really mention the financial system aspect of it and emphases the housing bubble and trade deficit. He says the stock bubble/ housing bubble supplied demand was replacing demand lost by the trade deficit. DeLong rarely mentions trade except to show that exports were going up. He and Yglesias correctly point out that Says law was in effect from 2006-2008 as exports stood up and residential construction stood down. Those obsessed with debt fail to note this (Baker is not one of those.) Then the financial crisis happened and exports and businesses investment declined as credit markets froze.

You don't want another bubble, but you don't want the obverse of a bubble with credit conditions being too tight.

Imagine an alternate universe timeline where there had not been a bubble. What would have followed? 

Wednesday, August 08, 2012

Tuesday, August 07, 2012

Sunday, August 05, 2012

a song about the Kondratiev wave

I met Laetitia Sadier last year after she opened for Beirut. Mary Hansen tragically died in 2002 at the age of 36.

Post-Defeated Phoenixes

Noah Smith blogs about Japan. 

Despite its lost decade Japan kept unemployment low with worksharing.

Germany’s Jobless Numbers Buck Euro Zone Trend by Floyd Norris
IN unemployment, as in many other areas, Germany stands alone at the top of the euro zone.
The European Union’s statistical agency, Eurostat, reported this week that the unemployment rate among German adults fell to 5.1 percent in June, the lowest figure since the country was unified in 1991.

Japan and Germany have done well despite having been destroyed at the end of World War II.

In the 1990s, Professor Bernanke and others criticized Japan's economic mismanangement. Today the U.S. has 8.3 unemployment and  we will have to wait 10 years or so until full employment. In the 1990s, American economists mocked European welfare states with their sky-high unemployment. Today the U.S. economy suffers from a large output gap and slow growth for the foreseeable future. The periphery of Europe like Spain is suffering Great Depression like conditions but the German welfare state is doing well with 5.1 percent unemployment. Although a Euro-wide recession is starting to weigh on Germany also.

Kenyan Socialism

Kenyan Socialism is my grand unified theory on progressive macroeconomics and political economy. In my dreams I write an ebook on the subject.

What policies would we* Kenyan Socialists enact to help ameliorate economic conditions? One way to think of it is to consider what we don't want. In recent decades, gains during boom times have flown to the top whereas labor's hand is weakened and concessions extracted during recessions. We would reverse this.

We would focus on two areas. One, the bargaining power of workers. We want tight labor markets with labor sharing in productivity gains. (This happened in the late 90s) This means adequate counter-cyclical policy, like Federal aid to the states. Also, we advocate work-sharing during downturns, something Japan and Germany have done well. This means good currency policy. Ideally this would entail a World Trade Organization that would rule against trade surplus nations like China and Germany who export their unemployment and demand diminishing policies to other nations with large consumer markets like the United States. China does this by buying up large amounts of dollars in order to prop up its value against their own currencies. Or the US could act unilaterly instead of via the WTO.  Or Congress could enact policies to boost employment regardless of the currency manipulation of other countries.

Two, we focus on debt. We want an adequate amount of credit in the system so that NGDP growth is at sustainable trend levels. We want growth without runaway inflation. Obviously bubbles and unsustainable, overleveraged bad debt of the kind we saw in the previous decade should be regulated out of existence. This means a Consumer Financial Produciton Bureau on stereoids and a systemic regulator like the Federal Reserve which does its job. A healthy amount of level-headed credit in the system is good. Bubbles are not. So we are against tight money-cross of gold politics, but we are in favor of a regulated financial sector where banking is treated like a public utility.

Ideally we wouldn't need so much debt if the Federal government helped supply demand during downturns. And then during boom times the government would try to run surpluses as good Keynesians argue.

The Elite Sells Out (or bye, bye Noblesse Oblige)
Looking at the macroeconomy holistically we would note the insight that Steve Randy Waldman recently blogged about: that World War II hit the "reset" button on inequality of the preceding decades. Krugman has also suggested the parallel idea that something happens in political culture analogous to Minskys' views on credit/debt in the economy. At the Bretton Woods anniversary conference in response to a question from Martin Wolf, Larry Summers said that pre-Great Recession regulators had become complacent. People get complacent and lose sight as the good times continue. People forget the painful lessons of the past. The elite becomes increasingly insular and solipsistic as inequality increases. A vicious feedback loop occurs wherein inequality corrupts the political process with ever increasing amounts of money flowing towards proponents of policies which increase inequality. Maybe this is just the way it is with humanity in late capitalism: a variation on the Kondratiev wave. 

We Kenyan Socialists look back to the past. After the industrial revolution, "socialist" policies were enacted which helped get working-class men the vote, provided land reform and had government running key industries and investing in infrastructure like canals and in human capital with public education. Then you had the Gilded age and the Progressive Era with many worthwhile reforms like the creation of a central bank and regulation of trusts and corporations. Then there was the roaring 20s and Great Depression followed by the Social Democratic Post-War period and golden age of 50s-60s.

* Myself and my one follower, an elderly pensioner in Halifax, Canada.
NYT Tells Readers that President Obama's Economists Don't Believe in Economics When it Comes to Trade by Dean Baker
On the one hand, it notes the view of Ron Bloom, who had been the president's senior advisor on manufacturing policy, that the U.S. should take steps to push down the value of the dollar in order to make manufacturing in the United States more competitive. It then contrasts this view with that of Lawrence H. Summers, formerly the top economic adviser to Obama. The piece tells readers: 
"along with many economists, Mr. Summers argued that an overly aggressive trade stance could hurt manufacturing — by, for instance, pushing up the price of imported steel used by carmakers — and over time, drive companies away. " 
Actually, standard economic theory would argue that a lower valued dollar is exactlythe mechanism through which the trade deficit should be brought down. In a system of floating exchange rates, the excess supply of currency on world markets from a deficit country like the United States is supposed to bring down the value of its currency. This makes its goods more competitive in world markets, reducing the size of its trade deficit. 
The expected drop in the value of the currency is not taking place today with the dollar because a number of countries are buying up large amounts of dollars in order to prop up its value against their own currencies. By keeping the dollar over-valued they are able to sustain their trade surpluses with the United States.
The Wall Street Book Everyone Should Read by Justin Fox

Thank you, Justin Fox by Doug Henwood

Kickstarters I’d like to see by Henry Farrell